Alright, our lease to the apartment is coming up.
Time really flies because it seemed like yesterday when I was writing about whether we should move. At the time, management from the apartment complex helped push us make a decision by offering a 10% discount if we signed on the dotted line the day we were at the office. What’s also interesting to note is that the discount would only last for the term of our lease, which implied that when the lease is up, our rent would go up at least 10%.
A year later with the undeniable burst of the greatest housing bubble in history and the start of a severe economic downturn, I was convinced that we as tenants have the upper hand. I received a letter 2 weeks ago that said:
We are offering you to renew now to receive no rent increase! With an average rent increase of 3% during 2008, we foresee a higher monthly payment for you without immediate action….
I have time and maybe it’s better to talk to someone. So trash it.
Last week, I walked into the leasing office and explained that my lease was up. Immediately, the manager told us that we should be expecting a letter from management in a week or so explaining that if we decide to renew our lease, we would get a discount from what we pay now. The final amount is based on the length of the lease terms, so it’s hard to tell right now but the longer the tenant commits, the lower the rent.
As I write this post, I have the letter with the final lease terms. Basically, they are:
- Renew lease for 12-13 months at the same rate
- Renew for 14-16 months with 1.5% discount
- A new 17-18 lease will have a 3% decrease
- If I don’t respond by 2/11/2009, my lease terms will end and I will be automatically enrolled into a month to month lease with a 15% rent increase!
Not as much as I was expecting and can I just say that the month to month increase is crazy? Since those crazy increases from my last landlord, I’m again reminded of the extra troubles of renting!
At this point, I can:
- Just agree to a 12 month lease (it’s not a bad idea, but it’s disappointing that the rent didn’t go down)
- Try to find a place to move even though other properties/units have comparable rents
- Rethink the whole strategy and get ready to buy a house instead (Originally, I thought waiting till 2010 was a good idea as I believe Southern California is going to have a tougher housing market than most in the next few years. I know the house shouldn’t be considered strictly on dollar terms but hey, no point throwing money down the drain right?)
So there you have it, my lease, a glimpse of my thoughts about buying a house and where I should live in at least the next couple months. What do you think I should do? Let me know! You opinions are great appreciated!
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{ 23 comments… read them below or add one }
A 3% decrease sounds good. Our lease will be up in a couple months, and I can’t imagine that the rent won’t go up.
On the other hand, I have to wonder whether the rate at which you’re currently renting is perhaps significantly higher than market rates, and that’s why they’re happy to rent to you at such a price. (Would there be any clever way to find out what they’d charge new renters at the same location? I wonder if it’s actually lower.)
A month-to-month lease gives you freedom to keep your eyes out for the “perfect” house. A 1-year or longer lease basically keeps you from looking until close to when the lease is expiring.
Since you are planning on moving in the homeownership direction, I would see what else is available on a month-to-month basis and see if some negotiating can be done.
But if you end up facing a 15% increase, you’ll have to decide if waiting a year is the best route to go.
I’d advise patience. I agree with you about the California housing market. I think it’s going to take more hits in the coming year … that means discounts for future home buyers, such as yourself. So, if it were me, I’d sign a year’s lease and continue to gather up some savings for my down payment.
Forgot to mention this in earlier comment: When considering moving, be sure to include the cost of the actual move. If you have to hire movers, that’s not cheap!
Get a month to month. You are in the position of power here. Although moving sucks.
The best time to buy a house in Southern CA will be in about 18 months.
Mike: Actually there IS a way. Our apartment is pretty big (and high tech) so they actually have an online system for potential new tenants to check all prices online. I looked and while there isn’t a floorplan that’s exactly the same (they after all have 4 floors all facing different directions with 35 layouts), I found the price by comparing different ones with units that were both more and less desirable than my own.
What I found was that the price they are offering me is definitely within 5% of what they will offer a new tenant, after you calculate the discounts and specials they give to those first comers.
CD: Yup the month-to-month is a good point but $200 is just too high. I feel like the month-to-month might be too flexible for us so we will jump the gun on buying a house though. I’m pretty convinced about the Southern California downturn even after the 20% or 30% drop we’ve experienced so I’m thinking the “lock” for 12 months will keep me from trying to catch the falling knife for a while (it will also keep my wife from tempting me as well).
Kathryn: That’s exactly my thinking!! Even my wife is starting to come around after seeing all the severe drops from those houses down here. To be honest, we were looking at a house that cost $730k one time (I know, what were we thinking) and now it’s less than $600k already. There’s just no way the wait wasn’t worth it since that’s like a couple years of salary after taxes, not to mention that having a house will increase our bills significantly (as our house will be bigger than the place we rent).
Mike: We were actually looking for units within the same complex since they had all those layouts. The move would still cost us time and effort but the price should be minimized (after all, the only thing that’s not really movable by Emma and I are: desk, TV, sofa and bed). The other extra cost is possibly rent overlap where we are paying for a few days of rent on both units.
Too bad the tax break for moving to relocate has to be over 50 miles (or something in that area) since Emma did get a job a few months ago
cb: Yeah I agree with the 18 month (or there abouts) being a good time to buy where I am but why should I stay with month-to-month unless I strongly feel that the rent is going way down from here?
You have a month to make up your mind – so take it and use it for the rest of your home ownership search. You may find a real bargain out there already that you need to jump on. If not, I’d go for the year or maybe the 14 months, and settle back and just keep your eyes open.
If you find a great bargain in the next 14 months, you can always string out the closing 60 days (maybe), take some time fixing it and do the repairs yourself, and then rent it out (maybe) on a short term lease. If your finances are such that you can afford it, overlapping the rental with home ownership also is not a bad deal entirely – it gives you some time to work on the new place and have it all move in ready. And if you close before the year is over, there is that extra tax deduction for costs associated with the purchase, etc.
You don’t have to make up your mind today. You have a month to figure it out – take advantage of it
The right answer will fall into place all by itself – just don’t push it!
marci: Bargains are a relative term though. 20% off market prices might be a bargain but what if market prices are 25% below what it is now in a year? I’m sure I can get bargains right now so that’s my dilemma right now. I know I can’t possibly be lucky enough to find the bottom but I don’t want to get sucked into buying at or near the top either (even with the drop the last 2 years, California housing is still way out of whack in the affordability scale)
The time to fix-up the house is a great point though since I never really accounted for the time it takes to find a house and then fix it up before I move in. I sort of implicitly assumed that it’s like renting a place (it takes a weekend to look and then another weekend to move)
Thanks for reminding me!
Going back to the month though, what I really have is a few days since if I were to move out, I need to give them 30 days notice. Otherwise, I will be paying for one month of the month-to-month rent which is way too high.
Rethink that last paragraph. IF you are moving out you need to give one month’s notice or be stuck with the higher month to month. If you were to find a house to buy, then the one higher month rent would be a minor technicality – no biggee. It would just be paying for the convenience of having the time to move out at your leisure. There’s almost always an overlap in the last month of renting and the first month of home ownership – closing dates are never set in stone and you need the extra leeway in case things go bonkers, or in case it doesn’t close at all! I just would consider the extra month’s rent as buying time for a smooth move.
IF you are staying put, you have 30 days to decide to resign the new lease. I’m just saying, don’t let them pressure you into signing NOW when IF you are staying, you have the 30 days grace yet.
It doesn’t sound like you are going to be moving out in the next 2 months – so give yourself the time to make the right decision about re-signing – it doesn’t have to be done now – you have 30 days. Take the pressure off
Think it through in a timely manner.
About the housing prices – I know here I would go back 3 years to find the price that a house ’should’ be selling for – a realistic price. Find that time span that you think was a reasonable realistic price and wait til you find something that fits.
But… be willing, if you are really someday going to buy, to grab that ‘bargain’ orphan house quickly, if one becomes available that you can live with. And be able to see past the paint and mold and problems, and see the POTENTIAL of the place. My little orphan house was a forced sale – the little old man died, and as he was caretaker for the little old lady, she had to go to the nursing home. They needed money quickly – I offered cash, as-is, had to do all the cleaning out and decluttering, and have spent a year and a half living in a construction zone, learning a lot of new skills I had no clue I could do…. but it has all been worth it! You have to jump quickly on a house like that! There were several other offers – mine was actually the lowest offer – but the as-is, and I do the cleaning out and fixing up, plus an 8 day closing with cash in hand, were what stole the deal out from under the other offers
I was actually living in another city, 80 miles away when I bought it. I cleaned it out on weekends, staying with my son or daughter. I moved back home and stayed 2 months with my son while working on the house, and moved in with only running water in the bathroom and no kitchen nor living room. It’s been a long process.
Gotta be ready to pounce, and quickly! Good luck!
PS – Yes you can buy a house that is ‘move-in’ ready – but you always pay more for that luxury
I am a 55-yr-old married woman. We have bought and sold five houses now, four in the Midwest and one here in west FL, where we now reside (before the real estate market tanked.) Based on my experience, I would advise you to sign a rental agreement fro another 14-16 months. By doing this, you will receive a slight discount from your former rental fee. That will give you additional time to observe the housing market and look around at houses you might want to place an offer on. If the market was like it formerly was, prior to a couple of years ago, the month-to-month rent might be worth it. As things are, especially considering the month-to-month high rent (they obviously need a commitment for their own peace of mind!), signing a rental lease seems to be in order. Don’t worry, the housing market is not going to change overnight. Will you be a first-time home buyer? If so, there are usually special loan rates available for that type of buyer. And remember – it’s a BUYER’S market! Also, don’t be afraid to make an offer, especially if you know a house has been on the market over one year. Some owners are in a financial bind at this point and may be willing to take a short sale, rather than assessed value.
marci: You’ve convinced me to be much more patient than I was
I will take some more time to evaluate. Like you said, I do have 30 days!
Your home buying story is very inspirational! Perhaps I also need more of the “fixer upper” mentality for our first home. If I do get one that needs lots of fixing, I will be sure to ask you lots of questions!
Susan: You definitely have tons more experience with this housing thing than I do! I will be a first time buyer and definitely need all the advices I could get. I will probably start my search sometime in the middle or end of 2009 and see how things go. It’s an interesting time for me since I just got married, started my full time blogging career and now I’m thinking about getting a house for the first time plus possibly kids! Arrggghhh. Maybe things should be spread out more!!
David,
Yes, it is better to do things in steps, but life doesn’t always allow for that, so just make sure the two of you are communicating. My wife and I met when we were fourteen. Started our family at 21, changed jobs, moved, etc. Communication was the key to keeping it all together. We’ve know been married almost 17-years and have six kids. :O)
Do lots of homework on the process. We trusted people way too much with our first purchase. It sounds like you won’t be buying a brand new house, but be aware of things like easements, easy-to-work with neighbors (sometimes fences blow down), traffic, etc. Do lots of homework on the neighborhood, spend time in it at different times, etc.
Don’t be afraid to walk-away. We were the first time and it wasn’t a happy experience. If things seem off or it seems like you are pushing too hard, something is problem not right.
Our intuitions can me amazing.
cd :O)
Well, thanks for your comments, but even though I’m in my 50s and have so-called experience, the housing market is different than it’s been in years. There have been many years of growing value with housing, so it’s difficult to adjust my mindset. However, when I saw your solicitation for advice, I found myself thinking back to when I was in your situation at a younger age. Buying a house can be an overwhelming undertaking. Dealing with real estate agents can be tricky. Many advocate hiring a real estate attorney these days.
Good luck to you and your new wife in your future life together. You are at a wonderful crossroads in your life, creating memories as you go. Just remember that everyone makes mistakes, though most people have a short memory about them. You have your whole life ahead of you. In fact, you should be in an excellent position to negotiate, w/o owning a home that you need to sell (very hard to do now) prior to buying.
Some people say there are no coincidences. From your perspective, may be the development of this new rental lease agreement is promoting the realization that there are choices to make and waiting to make your move may be a wise thing to do. As the Dali Lama said, “Not getting what you want right away is sometimes a wonderful stroke of luck.” (or something like that!)
Hey David,
We are in a very similar situation. My wife and I have decided to wait to buy a house in 1-2 years. Based on what my buddies back east are telling me, there’s still much more carnage to come. Since you are time constrained, buying a house should be out of the question because you don’t want to be rushed into such a big investment. Moving out is pain too. From your options, I tend to agree with Susan and sign the lease. It’s funny, rents are actually increasing in many areas where I live.
Hi!
If the apartment feels small or if you’re annoyed with your neighbors, I recommend renting a house. I greatly enjoy the flexibility of renting directly from the owner.
If you’re happy where you are, renew for 12 months and take the discount.
Do not buy a house for at least 12 months. Remember, the longer you wait, the more you have interest working in your favor instead of against you. I am watching the SoCal market closely since I am moving to San Diego this year, and real estate prices still have much farther to drop in desirable areas.
-Erica
Hi David,
Also, forgot to mention…in 2006 I did a timeline of the housing bust, comparing it to the last bust:
http://www.erica.biz/2006/ticktick/
So far, it’s been uncannily accurate.
The interesting part is this quote:
“1993 (2010): It’s definitely a buyer’s market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980’s. The housing bust in Southern California is clearly negatively impacting the California economy and the national economy at large.”
Based on that, in 2006, I predicted I would buy a house in late 2010, and I can hardly believe how accurate it’s been, but I still feel that way!
Also, if you do decide to buy, any house you buy should not be higher than its inflation-adjusted 1997 price. 1997 was when the housing boom started in CA. (You can find inflation calculators online.) You can find a few (RARE) deals like this now. Those deals will become more common over the next 2-3 years.
Do not rush to buy a house! If you are feeling cramped and can’t find anything that can be negotiated down to inflation-adjusted 1997 pricing, simply move to a rental house for a year or two!
-Erica
CD: Wow high school (or is it Junior High) sweet hearts! You and you wife must have had tons more to deal with than Emma and I with 6 kids and all!
When I start thinking about the house again, I will definitely ask for everyone’s advice and do lots of homework!
Susan: I will be sure to look for a good deal when I get a house. Let’s just hope that the housing market is still a buyer’s market in a year. (btw, that quote from Dali Lama is perfect for me right now!)
Steve: Great! Let’s hope that we both get better deals on our houses in a year or two!
It’s pretty crazy to think that rents are actually going up since people are losing jobs but hey, if everything is logical, life wouldn’t be as much fun!
Erica: I am happy staying where I am, although my Emma always welcomes the feel of a new place (even if it’s similar).
I hear that the San Diego market is like 6 months ahead of the Orange County market so I will be watching closely! Good luck on your move and purchase and let me know how it worked out for you!
Late 2010… I’m not sure how my wife will like that idea but when you throw that house warming party, let me know and I might drop by!
If you can afford to buy a house, I’d say go for it.
Otherwise, I like the 12-month option – even if you find a place somewhere else that’s the same or maybe a little cheaper, moving really sucks.
The first question you should ask yourself is:
do I like living there?
if yes, but you wish to buy a house, take the 18month term and accumulate a decent cash down.
if no, leave
just my 2 cents
TStrump: I can afford a house but it seems like it’s worth it to wait, so that’s what I’m doing!
The Financial Blogger: You sure made it sound simple!
I like where I’m living and sure I want to get a house but maybe an 18-month lease is too long. I will take my chances with a shorter lease and see what happens with the housing market in a good couple months!
Your situation is similar to mine. Our lease is up at the end of April 09 and the landlord offerred us the same rate we are paying right now if we sign 1 year lease. If we sign less than 1 year, rent will be 8% more. If we go month-to-month, we will have to pay 25% more, which sucks. Even though we like where we stay now, we looked for another apartment complex, not as nice as the current one but we will save >$200/month. We were thinking hard whether we should sign 6 months or 12 months lease at the new place (rate is the same). When lease is up, rent will increase $350 if we sign another lease (more for month-to-month)
I am so glad that i found your blog. We were also planning to buy a house but did not know when would be the right time (*headache). We were a little bit on the waiting-to-buy-next-year side
So we just signed a 12-month lease since we don’t want the rent to be increased again after 6 months! Thank you so much you guys! We will wait until next year to see what the housing market will be like! Hope it’ll be better
MoneyNing: Did you sign 12-month lease at the same apartment complex?
I signed a 13 month lease and was able to negotiate the rate DOWN.
Here’s part two that you should check out.
http://moneyning.com/housing/what-you-thought-about-housing-and-how-to-lower-rents/