Apartment Basics

It's time to move to a place of your own—an exciting transition but also a big financial commitment. Most people rent an apartment before they can afford to own a home. To help you make an informed decision, here are four things to do before you sign a rental or lease agreement:

1. Physically visit the actual unit you will occupy (not a model unit).

2. Consider what you really need in an apartment.

3. Know what you can afford.

4. Know if it's a lease or a rental agreement.

Know Your Money

Housing is usually your biggest expense. For most people, more money goes to pay for housing than anything else. If you get too much house, you will be house rich but cash poor. It's important to live within your means—know what you can afford so you will have money for everything else you need.

Most of the time, you'll sign a lease agreement between you (the tenant) and the landlord or owner. This agreement gives you the right to occupy your new apartment for as long as the lease is in effect—called the lease term—in exchange for the periodic payments known as rent. A key feature of a lease is a fixed term for tenancy, such as six months or a year; when the time is up, both parties can agree to go their separate ways or renew the lease for another fixed term. The fact that you pay your rent month to month doesn't mean you're automatically off the hook for the remaining payments of the term if you decide to move out early.

By contrast, a rental agreement is usually for a short term (such as one month) and automatically renews unless the landlord or tenant decides to end it, which is referred to as terminating the agreement. Although this arrangement appears to offer greater flexibility, it may come at a higher price. So before signing anything, be sure you understand the terms of the agreement, evaluate the pros and cons, and determine which option is best for you.

Rent: How Much Can I Afford?

It's easy to fall in love with an expensive apartment and, before you know it, you become house rich but cash poor. Housing is usually your biggest expense, so keeping your rent low will mean you have more money at hand for everything from weekend activities to an emergency car repair. Remember, you don't own it, so it doesn't have to be something you'll love forever. When your lease term is about to expire, find another apartment if a rent increase puts your rent above 28 percent of your income.

Know Your Money

When combined, housing expenses should not exceed 36 percent of what you earn. For rent, spend no more than 28 percent of what you earn. Then add your utilities, renter's insurance, and parking privileges.

One way to have a nicer apartment and lower your rent is to find a roommate. A two-bedroom apartment always costs less than two one-bedroom rentals. It's difficult to share your living space with a new person, however, so you'll need to find someone who's easy to get along with, has similar housekeeping habits, and is on the same sleeping schedule. Put the lease agreement in the name of all occupants—meaning your roommates sign the lease with you. That way, you're not stuck with the rent if they can't afford to pay their portion.

Know the rental prices for comparable units in the area before you make a decision. Figure in start-up costs like the following, which can easily add up to as much as three months' rent:

• application fee

• security deposit (one month's rent)

• utility deposits (electricity, gas, cable, phone)

• parking spaces

Don't put these charges on your credit card—you don't want to start out your new life with interest payments.

Visit the Apartment

Showroom models are nice, but you need to visit the actual unit you will be renting so you can visualize your space and ensure that all mechanical systems are operating properly. While there, make sure to do the following checks:

1. Measure the space and make sure your belongings will fit. Include doorways (will your sofa make it through?), closet space, and any shared bathrooms.

2. Locate all cable jacks and electrical outlets.

3. Test the plumbing by turning on faucets (any leaks? hot water?), flushing toilets (turn off properly?), and running the shower (brown water? ample hot water?).

4. Turn on the lights, air-conditioner, heater, and hot-water heater. You may have to arrange for turning on the utilities yourself.

5. Test security, such as doorbells, double front-door locks, windows that close tight and lock, and working fire and carbon-monoxide detectors. How will the landlord respond if a fire alarm goes off or a break-in occurs? Are common hallways and parking lots well lit?

6. Evaluate the neighborhood for noise or smells.

7. Test for Wi-Fi availability and cell phone reception. Watch out for dead zones.

Read the Agreement Thoroughly

Make sure you understand all the terms of your lease or rental agreement before you sign. Afterward, it's usually too late to make a change. Penalties for breaking a lease and a need for cosigners are among the provisions that can cause you trouble.

Breaking Your Lease

Tenants often have good reasons for wanting to end a lease early. If you must break your lease, find out how you can avoid (or minimize) a penalty from your landlord. Some good reasons to discuss are:

• marriage

• called to military duty

• change of job locations

• apartment becomes uninhabitable through no fault of your own (such as crime or natural disaster)

• landlord does not live up to his or her obligations (building repair and maintenance) or invades your privacy (no intervention when neighbors constantly disturb you)

If possible, get any understanding you come to included in the lease, so a change of personnel or memory doesn't undo your agreement down the road.

Cosigners

Landlords may not sign a lease...