Most people will rent an apartment at some point in their lives and for young people just starting out, moving into their own place is a huge responsibility that can be both exciting and stressful. As it is a big financial step, it takes careful thought and planning in order to ensure that this life event is a positive experience.
How much can you really afford? In most countries when you are looking for an apartment to rent, the starting point is to take a realistic look at your budget. The best way to do this is to track your expenses for a month; place your net income into one column and list your potential expenses such as groceries, utility bills, eating out and entertainment; Of course you must also include other household items such as kitchen utensils, appliances, and furniture in your budget; these costs quickly add up.
Once expenses are tracked and documented before rent, this amount is deducted from monthly earnings. It only after this that one can look at what’s left and consider how much you can realistically spend on rent. Ideally your rent should be no more than 25 to 30% of your income to leave you with enough for other expenses, debt payments and some savings.
In Nigeria, it is not as straightforward as this; even though income earned is based on monthly instalments, tenants have for decades been forced to pay landlords their rent one or two years in advance. This inevitably means that for those who are not fortunate to be in full time employment and where a housing allowance is paid in advance, are forced to borrow their rent money and then seek to pay back monthly from their salary. It is expected that with recent legislation that seeks to prosecute landlords who collect rent in excess of one year in advance from new tenants, landlords will have to be more accommodating of their tenants.
Rent is not the only expense associated with a new apartment. Your landlord may ask for a security deposit, which will be held until the tenancy comes to an end. It can be a bit tedious to carefully go through the inventory but if you don’t, you could be leaving yourself open to forfeiting part or all of your deposit. If you leave at the end of the lease with the apartment in perfect order, your security deposit should be refunded in full; the landlord should only hold back part of it if the property has incurred some damage. There is also the estate agent’s and legal fees to pay.
It is extremely rare in this environment to find an apartment where utility costs such as water and electricity are included in the rent. Most landlords will apply a separate service charge to take care of such expenses as well as for maintenance and repairs of common areas. A most unfortunate trend has developed and it is anyone’s guess how much one might end up spending in a year, as diesel costs can be unpredictable.
The old adage “Location, location, location” usually refers to buying property, but when you are looking to rent a property, this is also a major factor. Determine the best place for you to live in relation to where you work; the farther away you are from work, the higher your transportation costs will be. At the same time, If you work in a major business district you will find that the housing costs decrease the farther away you live. The key is to find a balance between the two.
The best way to get a feel for an area is to visit it and to consult people who live there. Look at several apartments in different neighborhoods in order to see what is available within your price range. For most properties you will find that you can quickly determine whether or not it is for you.
You must fully understand your responsibilities as a tenant. Make sure you keep strictly to your side of the bargain. If you don’t pay your rent when it is due and are always full of excuses, you could damage the relationship with your landlord or agent. This has implications as you may struggle to obtain a reference from your landlord, which a new landlord might request for. Getting your finances sorted out properly and having the required rent available will mean that you have access to the property and can prepare to move in.
Carefully read your lease agreement and be aware of the legal terms and conditions binding to both you and your landlord before signing the contract. It stipulates the annual rent, due date, the length of the lease as well as what happens if the lease is broken. It also includes details of any other restrictions or requirements the landlord may wish to include.
As far as possible, avoid breaking a lease and plan to give reasonable written notice to your landlord that you are moving. Lease agreements usually have penalties for breaking the terms including the forfeiture of your deposit and worse. Many people neglect to read the small print; be sure that you read and understand what you are agreeing to before you sign as you are accountable even if you never read it. Keep a copy of the lease safely for your records.
Don’t forget your insurance. Most landlords will insure their property; however their policy generally doesn’t cover any losses sustained by the tenant in case of theft, fire, flood or such disasters. Renter’s insurance can reimburse for such incidents and is well worth considering; remember that without this insurance, you could have to pay to replace belongings from your own pocket.
As you rent an apartment, keep your long term goal of owning your own home in viewBottom of Form. Be realistic about your expectations and don’t be tempted to commit to an apartment that is out of reach at this stage. For now, rent what you can comfortably afford, and begin to set money aside towards your own home.
Nimi Akinkugbe is a banker with passion for encouraging financial independence. She has through articles, speaking engagements, television and radio appearances, offered frank and practical insights to creating a greater awareness and understanding of personal finance and wealth management issues.