Apartment Hunting 101

It is that time of year in Boston when everyone and their mom is out looking for an apartment.  And I mean that literally because all those undergrads who are starting their Freshman year at one of the many Boston area schools really are apartment hunting with their moms.  With so many people looking for apartments, it is definitely not a renter’s market and you have to do your research before jumping in.  Over the past four years I’ve moved five times within the Boston area, and I like to think that I’ve learned a few things about apartment hunting in the area. I figured it was worthwhile to devote a post to answering some of the financial questions that I struggled with along the way.

How do broker’s fees affect my monthly rent? One of the first things you’ll notice when you go on Boston’s craigslist is that everything is sorted by “fee.”  Generally, there are three categories: no fee, half fee, and whole fee.  In order for a landlord to list an apartment with any real estate service, the real estate service charges a “fee” that is equal to one month’s rent. Sometimes the landlord will pay this fee himself (no fee), sometimes he will pay half (half fee) and sometimes will pass the full cost on to the future tenant (whole fee).  Obviously, finding an apartment with no fee is the best situation, but you would  really be limiting yourself if you only looked at no fee apartments.

Because this fee is paid upfront, it doesn’t really affect your monthly rent, but it does affect how much you will pay for that apartment over the course of the year.  I wanted to be able to compare apartments “apples to apples” regardless of whether they had a fee or not.  In other words, I wanted to incorporate the broker’s fee into the monthly rent as an easy way for me to see how much each apartment really cost.  This can be pretty easily estimated for apartments in the $1,200 a month range (adding a whole fee will increase your rent by $100 dollars a month), but I hate doing mental math – especially when I’m under pressure – so I made this spreadsheet to take along with me while I was apartment hunting.  (I know – Dork alert!)

How should I compare apartments with included utilities?  You’ll notice in the spreadsheet above that I’ve added columns for apartments that include “heat and hot water” and that include “internet.”  Many of the area’s brownstone apartments (i.e. non triple decker houses) include heat and hot water in the rent.  This is an important factor because it can reduce your monthly rent by $100 (my approximation).  Now I’ll admit that its rare to find apartments with internet included, but it is not uncommon in some luxury rentals.  I’ve come across craigslist ads for $2,000 a month luxury apartments with heat, hot water and internet included AND no fee.  When you take all that into account, you are really only paying $1,825 a month.  That would be slightly cheaper than an apartment advertised at $1,700 a month with a full fee and nothing included (actual rent would be $1,842). The lesson here is loosely define your “maximum” in the search parameters because you may find a good deal on an apartment that initially seemed to be out of your price range.

How much money should I have available for apartment hunting?  One of the most important things about apartment hunting this time of year is that you have to be able to act quickly.  If you see an apartment you like, you need to be filling out the application and signing a lease and within an hour.  Bring your check book, because the up front cost of renting an apartment can be quite high – check out the spreadsheet below.  At a minimum, all landlords will require either first and last month’s rent, or first month’s rent and a security deposit (equal to one month’s rent).  That cost can double though if you have to pay a full fee along with first month’s rent, last month’s rent AND a security deposit.  While you technically get everything but the broker’s fee back, it can be hard to get all that money into your checking account on short notice, so make sure you plan ahead.

What happens to my security deposit?
  As a responsible adult (and no longer a cleaning impaired college student), I fully intend to receive my entire security deposit back at the end of my rental period.  Because I expect to get it all back, it was upsetting to think that my money was just going to sit under the landlord’s mattress when it could be earning interest in my bank account.   But as I was carefully reading my lease before signing (which stated that I am required to help the landlord with snow removal…), I found this little gem:

“As required by law, the security deposit is presently or will be held in a separate, interest-bearing account.  If the security deposit is held for one year or longer from the commencement of the tenancy, the Lessee shall be entitled to interest on the amount of the security deposit at the rate of five percent (5%) per year, or such lesser amount as may be received from the bank, payable at the end of each year of the tenancy.”

And right below that paragraph (this is all from the Greater Boston Real Estate Board standard lease form) is another paragraph stating that the tenant is also entitled to 5% interest on the last month’s rent as well!  The caveat here is that if the landlord puts the money in a bank that gets .01% interest, then that is what you are going to get.  But, in the standard form lease, there is a line that requires the landlord to enter the bank name and number of the account in which he or she is depositing the money.  I have a hunch that many landlord’s do not fill this part out completely, and if that is the case, it seems like you should be entitled to the 5% interest – if you feel like calling them on the technicality.  Regardless of what happens, its nice to know that the Commonwealth of Massachusetts is looking out for your best interest… (ha ha).