For many of us, moving out of the house is one of the most significant steps to take towards total independence. But we know how intimidating the real estate market can be, even if you’re just looking to rent.
We talked to Charlotte Yu, a co-founder of Redlist Property Investments, to learn more about the process of renting your first condo:
Know what you can afford.
Establish a budget. Aside from the monthly rental payments, other significant costs include association dues and fixed utility bills. Association dues are the monthly payments you are required to pay to the condo association in exchange for enjoying communal use of amenities as well as maintenance and security services. The amount of association dues depends on the quality and scope of services provided.
A rule of thumb in assessing whether you can really afford a condo: no more than 25% of your monthly income for rent and up to 30 to 35% after including related costs and utilities. Alternatively, you could also look into your savings, and check if you have enough to cover your rent and any debt payments for at least three months.
When in doubt, follow the 50-30-20 budget rule. Allot 50% of your budget for necessities, 30% for discretionary spending, and 20% for debt obligations or savings contributions.
Know what you want and have realistic expectations.
As with any major life decision, it’s best to do your research beforehand. Only you can tell which condo will suit your lifestyle. The most important factors in choosing a condo (apart from budget) are the following:
- Location: Is your condo near your office and other places—bank, grocery, mall, hospital—you need easy access to?
- Unit type: Do you want a studio, loft, or penthouse?
- Furnishing: Do you need a condo that is move-in ready or just the essentials?
- Security: Does your condo have a guard on duty 24/7 and CCTV cameras?
- Quality of property management: Does the condo association provide a high standard of communal services and amenities?
- Condition of the unit: Apart from age, is the unit well maintained or does it need repairs?
Keep in mind that depending on your budget and market availability, you may need to prioritize some factors over others. You could put weights on each factor in the checklist. Decide which are deal breakers and which are up for negotiation.
Conduct your own market research.
Nowadays, it’s easier than ever to find a condo with your preferred specifications. Websites such as Hoppler, OLX, Lamudi, and Property24 all provide access to numerous condo listings. Don’t underestimate the power of referrals, either—that friend of a friend could land you a great deal.
For those who have their hearts set on a particular condo, here’s a pro tip: Inquire directly with the admin office of the condo. Many unit owners don’t post ads but leave keys and their contact information with the admin for interested parties; you could find the perfect condo minus the bidding war!
Whichever methods you use, the end goal is to get a clearer picture of your target condo market. Compare similar units in the same location to gauge the market rental rate and other inclusions. It’s important to compare units in the same location as prices vary widely depending on the city. Having a basis for comparison will prove invaluable in determining a good offer from a bad one.
Contact your top prospects and schedule tours.
Once you’ve narrowed down your search to your top picks, contact the owner or his broker to let them know you’re interested, and check if the unit is still available for rent.
If the unit is still on the market, you’ll then schedule a tour. Try to arrange for multiple tours of units in the same location within the same day. Make sure to prepare your questions in advance.
The tour is your chance to get firsthand information on your (potential) future home. Ask the owner about the rules of the condo, what’s included in the rental agreement, and the length of the minimum stay.
In addition to asking questions, be extra observant of the unit and the condo itself. Pay attention to the water fixtures, electrical wiring and furnishings. Observe the quality of condo security and common areas—are these worth the monthly condo dues?
Negotiate the rental rate if you can.
When you’ve finally decided on the condo you’d like to live in, it’s time to negotiate. Depending on the listing, the rental rate may or may not be the final offer. This is when your market research will give you a sense of whether you should accept the rental rate as it is, or try to haggle it down.
Another useful measure commonly used in the real estate market is the price-to-rent ratio. This is the proportion between the selling price and the annual rental rate. The ratio estimates the relative cost of buying versus renting. This ratio can be used as a point of comparison in different cities or historically within a city. Use average or historical data for the selling price and rental rate.
In other words, dividing selling price by annual rental rate tells you how many times more a buyer pays than a tenant. In general, a higher ratio (above 15 to 20) means it is more expensive for buyers and therefore better to rent while a lower ratio means it is better to buy. Keep in mind that other factors should also be considered when choosing to buy or rent a condo. This figure is a simple way of gauging whether the owner is charging you a rental rate at par, above, or below the market ratio.
In terms of how much you will be able to negotiate the price, there is no clear-cut rule. “The law of supply and demand is at play here,” says Charlotte. “Try to find out the occupancy rate of the condo you’re interested in to know how much bargaining power you have as a tenant.” If the unit you’re interested is in high demand, then the owner will probably not be willing to lower their offer; they’ll easily find another interested tenant willing to pay the asking price.
Understand and negotiate the terms of the rental or lease agreement.
Once you’ve both agreed on a price, the next step is to finalize the terms of the rental agreement. This contract will bind you and the landlord on your corresponding rights and responsibilities. These terms are normally more open to negotiation, and you can try to lower your costs here as well.
The usual terms to pay attention to in a rental agreement are the following:
Conditions for termination of contract
Failure to pay a certain number of rental payments and sub-leasing (renting out the condo to another tenant) without the consent of the landlord are common grounds for eviction. Other restrictions on behavior may be included in the agreement so make sure to read carefully. If you violate any of these conditions, you may also forfeit your security deposit.
Responsibilities of the landlord and tenant
Maintenance and repairs are usually the responsibility of the owner while the tenant pays the utility bills. The tenant has the responsibility of maintaining the condition of the unit. If any damage is done to the property during the tenant’s stay, the damages will be applied to the security deposit and any deficit will be charged to the tenant. Any improvements on the property (e.g. painting the walls, installing shelves, etc.) should be consented by the owner. Usually, these improvements will accrue to the owner at the end of the lease since they cannot be separated from the property. The landlord also has a right to enter the property to show the next tenant.
The annual rental increase will normally be specified in the contract and can range from
5 to 10% increase per year. If you are a long-term tenant, you can try to negotiate this rate since you provide the owner a stable source of cash flow and save him from the hassle of finding another tenant. He loses money by paying association dues for a vacant unit while searching for a tenant.
The condo will also have rules you must respect as a tenant. Rules on pets, parking, amenities, and other restrictions on behavior are usually covered. Make sure you agree to them first before signing the papers.
Take note: RA 9653 or Rent Control Act of 2009 applies to condo units with rent at P10,000 or below for urbanized areas and P5,000 for other areas.
Finalize the papers and payment terms.
The documents you need will depend on the owner. Most of the time, all you need is a valid ID, certificate of employment with salary or payslip, and a checking account for postdated checks. However, other documents, like proof of address and character references, may also be required.
On the flipside, it’s a good idea to check the owner’s documents. In addition to the lease agreement, check for proof of ownership to avoid any legal issues and ensure that the person you are dealing with has the right to rent out the unit. An inventory list of all furnishings included with the unit will be useful for settling the security deposit at the end of the lease term. Official receipt and tax registration should be provided as well.
In terms of payment, you will be usually asked to pay a two-month security deposit and one-month advance rent. Postdated checks for rent payments up to a year are also required. Penalties for late payment average at 2%.
After contract signing, the rental contract should be notarized. Take note of the start date of your lease. You should move in before or closest to this date to maximize your rent for the first month.
Finally, it’s time to get settled into your new home. Arrange for utilities to be set up in advance to make the transition as smooth as possible. Notify your bank and employer of your change of residence. Register with the condo admin as the new tenant, and get to know your neighbors. Enjoy your dream condo with the peace of mind you did your homework—you deserve it!
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