What To Do Now? Secure your base. If you are working in the same city as your parents, live at home, as painful as it may be. If you are moving to a new city, find an apartment as soon as possible that is probably, almost assuredly, over priced but with the shortest lease period possible. Look for a better deal later.
The Long Term Rental Strategy
Renting is widely regarded as a big mistake in the personal finance arena and may, or may not be, depending on one’s personal preferences and geographical situation. In most of Europe and many urban areas of the United States, renting is a fact of life because of the lack of available houses and condominiums or people grow up in rentals and just prefer it or don’t know any other way.
You are a renter right now because it is an economic fact of life for you. You don’t have the down payment for a house and you do not have the salary level necessary to support house payments. Plus, you don’t want a house right now. You want to make sure you like your job, your city and your situation before being saddled with the time required and expenses involved with home ownership. Life is too complicated right now to complicate it further with home ownership.
So you are going to rent which is fine because you already know how to do it, you have paid rent before and handled deposits and moving and so forth and so on. But you really don’t know how to be a good renter and get the most for your money.
You did it before by opening up the paper and looking for apartments rented to students or went to the complexes where all the other students went, found a roommate or roommates and looked, okayed it, put down the deposit and moved in to what was usually a high priced dump or a not so bad apartment that was really high priced. But that was okay because the place was temporary plus you probably weren’t paying for it; your parents were. You would move the next year or go home for the summer or get new roommates so every place was just a place to be tolerated.
Life As An Adult
But now you are working, setting up a household, putting down roots, on your way to becoming a responsible and meaningful citizen--you are looking for a home, not just a house. At least you should start to think this way because it will mean you are committed to your work, your city and your well-being. And, most importantly, now it’s your money.
Getting wealthy is really about making money on the margin, stopping leakage. That means quite simply getting the very best deal for the least amount of money. A great financial deal may be a cheap apartment in public housing but if you end up dead it is not a great lifestyle move. Conversely, a three bedroom apartment in a desirable downtown high rise is a great place to live but you won’t live there very long because you can’t afford it.
So What To Do Now? If you are moving back to the city where your parents live just move back in and get a job and look for an apartment later. Financially ok but lacking in lifestyle growth and excitement. At home you will always be seventeen to your parents and treated accordingly.
Or you move to a new city, don’t know anybody and are starting your new job next week. First of all, you do not do the best thing financially or lifestyle wise. The first thing you do is to find something as convenient as possible, as cheap as possible and as fast as possible and with the shortest lease as possible. You may get lucky and find a great place that meets all your needs but I doubt it because you don’t know the market.
You want to find the place as fast as possible because you want to put this task behind you so you can devote all of your time and energy to your new job because if you don’t succeed there, finding the right apartment isn’t even on the radar screen. You want the place to be cheap but this probably won’t happen because you are in a hurry and when in a hurry your choices are limited and price is secondary. The short lease is important because you do not want to spend any more time there then possible because you will find a better deal and probably fairly fast. You also must face the realization that you will move twice within a relatively short period of time. This is okay because you don’t have a lot of stuff and U-Hauls are cheap.
So now you have a charmless apartment in a charmless building at an exorbitant rent but with a short lease or, even better, no lease at all. It is time to plot your strategy.
First, as noted, getting wealthy is about making money on the margin, getting the best deal for the best price. And if you work hard enough and get a little lucky and use your imagination you will probably find a great place to live at a reasonable rent in an area where you want to live. In other words you are making money on the margin by getting the very best deal for the least amount of money.
The process is simple but does require effort.
First, identify where you want to live. Just drive around or take the subway, train, bus around your newfound city and suburbs. All cities and suburbs are neighborhoods with poor, working class, middle class, and upper class neighborhoods. They all have advantages and disadvantages. Crime is certainly a negative so eliminate really run down neighborhoods unless you feel invincible.
Case Study I
Case studies are always used in business class so let’s use one here. This actually happened and the life lessons are universal. First job, move to Chicago, no apartment, went through the classifieds, no deals, looked at one apartment run by a management company. Run down but large, ok neighborhood and close to transportation, expensive at 40% of take home pay and lease of nine months. Tried to negotiate but the manager, knowing the market of course, told me rather inelegantly that he had me by the “short ones.” But it met the requirements-again, got it fast, close to transportation, relatively short lease offset by the expense plus run down appearance of the complex and the unit.
In the ensuing nine months, I got married and we started our search for new living quarters. Being a newly minted MBA and financial analyst I began a list. All analysts have lists. The first list was titled What Do We Want?
The next list was Action Steps. This list didn’t get very far. We didn’t have any because the want list had no reasonable action steps, or so we thought. Keeping the Want list we ignored the Action list for the time being and put together a Variable list. This contained all the factors that went into the area or neighborhood that we wanted to live in. It ignored our wants and consisted entirely of facts.
Our Neighborhood consisted of the North Shore of the Chicago area. If you have seen Risky Business, Home Alone, Sixteen Candles you know the area. A lot of upper middle class homes but also large estates and upper class homes--all out of our financial ballpark.
Communications-all neighborhoods have mediums. On the North Shore it is the local magazine/newspaper that comes out each Thursday. It has some news but the primary purpose is to list real estate. And this is depressing when you don’t have any money.
Available Housing-we continually went through the mental list of available housing, which consisted of apartments, condominiums, and houses, or so we thought. We had the apartment, which met our needs but only slightly less charmless after we painted the whole thing and we were plagued by noisy neighbors. Condominiums had all the drawbacks of a house (large down payment and expensive) coupled with the drawbacks of an apartment. Houses were just too expensive.
With the Variable List completed we were pretty depressed and went back to the ActionList. It had one step-learn the neighborhood. So we spent the weekends driving around, going to estate sales, and getting more depressed.
Trying to avoid coming back to our gloomy apartment one Sunday night we were driving down Sheridan Road in Winnetka when my wife, Sue, looked out the window, saw a light and muttered, “I wonder who lives in there?’
“In the coach house, over the garage.” she said.
“The maid and chauffeur.” I said brilliantly.
“Nobody has a maid or a chauffeur.”
Of course, she was right, very few people have live-in help but many of the estates, almost all of them, had live-in apartments left over from the days when the elite did have maids and chauffeurs. But who lived in them now? And how do we get in one because, guess what, a coach house fits our want list.
House-A house with a garage underneath on an estate in one of the most exclusive neighborhoods in the nation-close enough.
Good Neighborhood-by definition.
Quiet-tomblike disturbed only by the sound of Porsches, Jaguars and Mercedes.
Out of an Apartment Complex-as far as you can get.
Close to Transportation-Rich guys don’t like traffic so close to trains.
Perfect. But how do we get one?
Back to the Variable List Neighborhood-found it. Available housing-found an alternative to buying a house or a condo and renting an apartment in a complex. Communications-we found the medium of the local magazine.
I was still stumped but Sue figured it out. Put an ad in the weekly magazine. My first reaction was that it wouldn’t work and Sue reacted with the fact it wouldn’t work for sure if we didn’t try it and that is another key to getting rich-if you don’t try something there is a 100% probability that it will fail.
So we went to the magazine, found a heading called Wanted and Sue wrote up the ad. “Young, responsible, career couple desire coach house. References available. Please call ----.” That was it. Came out on Thursday and expecting nothing, we got two calls. The next night we drove to 601 Greenwood-a three-story mansion over a hundred years old in Evanston, Illinois across the street from the Dawes House. Dawes was Vice President of the United States under Woodrow Wilson. We met and interviewed with Mr. and Mrs. Stephens. Tops (his nickname) was head of a large law firm in Chicago and head of the Board of Regents of Notre Dame University. Mrs. Stephen was a mother of eight and very active in charity and university events. The kids were grown, they traveled a lot, they wanted somebody to be on the premises and they believed in helping young people.
We saw the apartment over the garage. Mrs. Stephen apologized for it being tiny but we thought we had died and gone to heaven. They checked references, we agreed on a rent and a week later we moved in. The rent was 23% of our income.
Going though a process of planning, wishing, thinking and doing we got a great deal. And so did the Stephens. Can you do it? I don’t know but we did. And remember, there is a 100% certainity of failure if you don’t try.
Case Study II
I have a friend that did it the other way. A creative type, Phil got his first advertising job at an agency in Pittsburgh. He had never been to Pittsburgh, didn’t know anybody there but after a week at a cheap hotel, he found a great two bedroom apartment in a safe neighborhood for a good price even on a first job in advertising salary. (Advertising starting out doesn’t pay very well because everybody thinks they can do advertising and a lot of people want to.) On his first day on the job, Phil found the janitor in the office building and asked where he lived. The area turned out to be a working class, Polish neighborhood. Phil got the local Polish neighborhood newspaper, checked the ads, found some addresses, drove by, checked the crime rate with the police, called the places he liked and within two days had a choice of three. Picked one, gave references, paid the deposit and moved in. A year later he bought a house in the neighborhood. Buying was cheaper than rent because mortgage interest payments are tax deductible while rent is not. Phil went on to Chicago, Bangkok, and now owns his own advertising agency in Kansas City.
Phil is a smart guy. He realized that working class neighborhoods were relatively safe and cheap. Cheap because landlords in working class neighborhoods can only charge working class rents. He found the rental availability by going to the medium of the community, the local Polish newspaper, and a landlord that loved him because he had a college degree and a job that paid more than what most working class people made, both rarities in a working class neighborhood.
Case Study III
A more recent example involves our son, Marc, a recent college graduate and newly minted second lieutenant in the Air Force. His first assignment was a nine-month navigator training class at Randolph Air Force Base in San Antonio, Texas. His college roommate was from San Antonio and his mother lived five minutes from Randolph and lived alone. Base housing was full so Marc needed an offsite home and he knew he wasn’t going to be partying a lot as he trained so he moved in with his college roommates mother. Judy was divorced, her boys were grown and she had the space and could use the money. Marc paid her $200 rent, $50 a month for cable and mowed the lawn. His monthly housing allowance from the Air Force was $850 per month so he netted $600 a month and that went directly into savings. His housing arrangement for those nine months netted him $5,600 tax free in his first year out of college.
Housing is your single largest monthly expenditure. Any savings there falls straight down into your bank account. You don’t have the money, time, or inclination to buy a home now but getting the best deal on a rental is vital because it saves money, improves your quality of life and will make you a better homebuyer when that time comes, if ever, because the skills learned in getting the best rental deal are directly applicable to home buying.
For the best deal-