What First-Time Renters Need to Know Before Signing a Long-Term Lease

Many people renting for the first time start the process with the idea that they’re looking for a place they like. But that’s not what landlords are looking for. They’re thinking about risk. The difference in perspective helps explain why some first-time renters get accepted while others find themselves consistently rejected.

For every piece of paper you have to gather, pay stubs, letters of employment, old tax returns, your potential landlord is thinking one of two things. Can this person pay every month on time, or if they can’t, how fast can I get him out of here? Every piece of paper you provide is meant to answer one of those two questions. Those who get the apartment fastest are the people who answer both before they’re even asked.

The Numbers Game You Need to Understand First

Your credit score can help determine what you can afford, but it’s not the end-all-be-all. Most landlords will require a credit score of around 650, sometimes higher if it’s a really competitive rental market. However, what’s even more important than credit is income.

You may have heard of the 30% rule, which stipulates you shouldn’t spend more than 30% of your gross income on rent. Well, that’s nice and all, but landlords tend to use the 40x rule. If you want to apply that to the rule of your town, you need to make 40x the monthly rent in annual gross salary. For example, in a $2,000/month apartment, you need to be making at least $80,000/year. If you’re just starting out in your career, or if you’re working part-time or freelancing, that number can knock you out early.

Proof of employment is easy, paystubs, an offer letter, or tax returns. For the self-employed, it’s a bit trickier. Have at least three months of bank statements ready, sometimes you will need a letter from your accountant.

When Your Credit File is Thin

Many first-time renters may possess good financial behavior and habits, however, there is often no credit track record to prove it. This ‘credit invisibility’ gap makes for a challenging situation in the rental market.

The typical solution in these cases is to use a co-signer. This is usually a parent or family member who will be legally responsible for paying should you not. This solution is fine if you happen to have a suitable immediate contact nearby who also has spotless credit and is prepared to have that additional exposure. Many renters do not have that.

The other, increasingly common route is a professional guarantor service. One of these companies will take on the liability for you, in exchange for an annual fee. With this workaround in place, one’s credit file will qualify for apartments that it would not be able to on its own. https://pandaguarantee.com is an example of one such service that is especially designed for renters who have the income but not the credit history, or who simply don’t have a qualified personal contact to co-sign. It is not a loophole in the system. Landlords look for the most qualified guarantor they can get in these cases and so know to look for this.

What to Look For Inside the Lease Itself

The lease is where many first-time renters flounder. Most people read through it quickly. Pay close attention to the following three clauses:

The early termination clause tells you specifically how much it’ll cost to break your lease early. It could be two months rent or the remainder of the lease. If you think there’s a chance your job, relationship, or circumstances could change in the next year or two, you need to know this number before choosing to sign.

The subletting clause also matters. If you ever need to rent your apartment while you’re away, a very renter-friendly subletting clause is the difference between finding a nice tenant to cover rent and being responsible for the rent yourself. Also, if you need to move and your lease doesn’t allow for re-assignment to another tenant, you’re on the hook for the rent.

And finally, what’s included in rent? Water, gas, and electricity can vary widely between properties, and a $200 monthly swing in what you actually pay can very easily be obscured in a low headline rent number.

Before You Move a Single Box in

The purpose of the move-in inspection is not only to protect your security deposit but also to be sure that you’ll be leaving somewhere down the line.

You should walk with your landlord and property manager in every room, and you should document everything: scuff on walls, stain on the carpet, chip in the tile, anything existing before your furniture arrives. Take a time-stamped photo of each item and send them to the landlord in writing that day (you should also keep a copy), the exact same day, so there is a paper trail.

The legal standard that governs deductions from your deposit is the difference between ordinary wear and tear and property damage; for example, carpet that’s faded from foot traffic after two years is typical. A carpet that’s been burned or stained is property damage. Landlords can’t charge you for the former but they will certainly try if you don’t have documentation to prove what the property looked like when you arrived.

Setting up renter’s insurance is worth doing before the move too. Policies are dirt-cheap and they will protect your personal belongings while providing liability coverage if you or something you do causes damage in the unit.

Start From the Landlord’s Perspective

Being prepared is crucial when you are looking to rent a property. The reality is that landlords will not pick the most excited person, but the one they consider the least risky. You can make sure of having your income papers with you, decide in advance what to answer if they ask about your credit, go through the lease and then keep a record of any damage the day you move in. This is not being too careful, it is just how things are done.