Renters: How to Leverage Your Power

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Bad news for landlords, good news for tenants: Apartment vacancies have reached a 23-year high, driving rents down.

If you’ve debated renting versus buying a home, it might make sense to revisit the calculations, with special attention to the prospective renter’s stronger negotiating position.

Not only can you haggle for a lower rent, you may be able to negotiate when your lease ends, how much deposit you put down or how much sprucing up the landlord does before you move in.

Reis Inc. (Stock Quote: REIS), a New York real estate research firm, says the national vacancy rate rose to 7.8% this summer and could go higher. Rents have fallen by 2.7% during the past year.

At first glance, a rising vacancy rate may seem surprising during a recession, when unemployment and home foreclosures might be expected to turn more homeowners into renters. Tougher lending standards are also making it harder for renters to buy.

But many people in financial straits are apparently sharing housing or moving in with family members rather than renting apartments of their own. Some markets have a glut of rentals built a few years ago during the housing boom, and many unsold condos are being converted to apartments, helping supply outpace demand.

Of course, housing prices have fallen, and many renters may feel this is a good time to buy, especially as mortgage rates are very low. The average 30-year fixed-rate mortgage charges just 5.051%, down from 5.261% a week ago, according to the BankingMyWay.com Survey. Use the Maximum Mortgage Calculator to see how much you can borrow.

Because the housing market is still shaky, it probably doesn’t make sense to buy unless you plan to stay put for seven, eight or even 10 years. If you expect to move in three or four, there’s more risk your home’s sale price won’t be high enough to pay off the old loan and cover all the costs of selling, such as transfer tax and a real estate agent’s commission.

The Rent vs. Buy Calculator can help determine which option makes more financial sense. If expected appreciation, or the rise in home values, is in the low single digits, it will take longer for a purchase to pay off. A lot also depends on the investment return you think you can get on money not spent on down payment and other purchasing costs if you rent rather than buy. Putting a lower rent into the calculator will also tip the balance in favor of renting.

Of course, you need to study the local market to learn the going rate for rentals. Use sites like Apartments.com, a classified service jointly owned by media companies such as Belo Corp. (Stock Quote: BLC), Gannett Co. (Stock Quote: GCI) and The Washington Post (Stock Quote: WPO).

In many cases the rent vs. buy decision comes down to nonfinancial issues. Because renting is not a long-term commitment, you can choose a place that’s convenient to work even if the neighborhood isn’t quite what you’d want if you were to buy, for instance.

Many hungry landlords have sweetened the deal to attract renters, reducing security-deposit requirements or offering the first month’s rent free. As a prospective renter you can bargain for more: fresh paint, newer appliances, a free parking spot, curtains or free electricity, heat or water.

If you’re thinking of buying a home when conditions are right, you may want flexibility in ending the lease, bargaining for a six-month term instead of a year, for example, or for one month’s notice that you’re moving out instead of two or three.

In fact, getting out of a lease early can be easier than many tenants realize. Most landlords care more about minimizing the time between tenants than about keeping a tenant until the lease expires. If you want to get out by Feb. 1 but your lease goes until June, offer to pay for all of January but be out by January 15. Your landlord may jump at the chance to clean, paint and show the property in time to avoid a lost month’s rent.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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