Personal Finance (BUAD-212-90) Chapter 9

2. The fundamentals of renting - Part 1

Questions:

What is Involved in Leasing an Apartment or Home?

The decision of whether to rent or purchase your housing is personal and should be based on your lifestyle and your finances.

Renting a home tends to provide which two major benefits to the renter?

A. A feeling of permanence and stability, as well as the opportunity to modify the living space as you would like

B. Mobility and an absence of responsibility for repairing and maintaining the apartment or home

There are two basic types of leases.

Kaitlyn rents a small apartment in Boston and she does not have a written lease. Kaitlyn's rental agreement renews automatically from month to monthat least until she or the landlord gives proper notice of termination to the other. This is an example of (Tenancy for a specific time/ Periodic tenancy lease).

Joseph rents a condominium in a suburb of San Francisco. He rents the condominium using an annual lease that will expire automatically unless he renews it by giving proper notice. This is an example of (Tenancy for a specific time/ Periodic tenancy lease).

Depending on the terms of the lease and prior to the lease's expiration, a renter may be permitted to move out and to lease the space to another tenant. This practice is referred to as (Subleasing/ Subtenancy). The original renter may be required to (Come by and clean the space once a week/ Retain some financial responsibility for the lease) until the original lease expires.

Almost all financial experts recommend that when you agree to rent any living spacehouse, condominium, apartment, mobile home, or other structureyou (Should/ Should not) request a formal written lease. A major advantage of a written document is that it reduces the opportunity for:

A. Misunderstanding and miscommunication

B. A friendly landlord-renter relationship

Even in the absence of a formal written lease, however, renters have legal rights in most states. Which of the following are among these rights? Check all that apply.

A. Specified assurances of running water, heat, and safe common areas, such as lighted and structurally-sound stairs

B. The freedom to make minor repairs to the living spacewithout giving proper or timely notice to the landlordand to deduct twice the cost of the repairs from the your next rent payment

C. Protection against retaliation for reporting building- or health-code violations

D. Specified assurance that any security and damage deposits paid will not be returned until two years after the lease's expiration

Most financial experts suggest that renting a home is (less/ More) expensive in the short run.

One indicator of the relative cost of renting versus the cost of owning a living space is the community's price-to-rent ratio, which is calculated as:

A. The ratio of the average rent of the typical home in the community divided by its average purchase price

B. The ratio of the average cost of the typical home in the community divided by the city's annual rent on an average apartment

Assume that you are employed as a freelance writer and can live in either Boston or San Francisco. Your employer will standardize your income using each city's cost of living so that you will earn the same effective income in either city. You are indifferent between living in Boston or in San Francisco, but you prefer to rent, rather than purchase, your living space. Therefore, you'll base your city selection by minimizing your comparative cost to rent.

Given that the price-to-rent ratios for Boston and San Francisco are 17.6 and 28.4, respectively, which city should you elect to live in?

A. Boston

B. San Francisco