Are you starting the apartment search? Overwhelmed with options, feature sets, and amenity lists? You’re not alone. Most people do not have an effective and systematic strategy for comparing apartments. There are five considerations:
This part (Part I) of our guide deals with Value. Part II deals with Affordability, and Part III with Location, Lifestyle and Reputation.
There are a myriad of ways that rents are being quoted. If you look at rent quotes across different buildings, you will see some rents include all utilities, other only some (i.e. only electric and water), and yet still some rents do not include any utilities.
Here is a simple step-by-step process you can use to compare apartment value.
You need to compare apples to apples. The best way to do this is to compare rent per month per square foot. The formula for this is:
(Apartment Rent – Included Utilities)/Square Feet = Cost Per Square Foot
Don’t be intimidated. This is really quite easy to do. We just need to figure out the true net base rent of your apartment (i.e. the cost of your apartment less any utilities). Follow these simple steps:
- Write down the monthly rents and square footage of the units you’d like to compare.
- Write down the utilities that are included. Let’s assume that for West Mill and The Lofts, the utilities are as follows:
- West Mill – Gas ($100), Electric ($75), Water ($25)
- The Lofts – Gas ($100), Electric (included), Water ($25)
- Identify the approximate value for the included utilities. Tip: You can get a rough estimate simply by looking at what other apartments in the area are charging. For example, we estimated that living at The Lofts would cost about $75 per month for electric.
- Next, subtract the sum of the included utilities from monthly rent
- West Mill – $1,000 less included utilities ($0) = $1,000
- The Lofts – $1,400 less included utilities ($75) = $1,325
- Divide this new true base rent comparison by the total square footage of each unit to get a cost per square foot comparison.
- West Mill – $1,000 divided by 800 = $1.25 per sq. foot
- The Lofts – $1,325 divided by 1200 = $1.10 per sq. foot
When we compare apartments with this systematic approach, we see that The Lofts (listed at $1,400) is actually more cost effective per dollar than West Mill (listed at $1,000).
Make sure you compare apartments of the same unit type (i.e. one bedroom/one bath to one bedroom/one bath).
Pro Tip [Advanced]:
There are more sophisticated formulas and approaches to use, but this should give you a great foundation. For example, you can “add” to base rent all non-utility monthly extras that are collected by your landlord (these are things like: parking fees, management fees, and activity fees). We call these “Non-Utility Extras.” No deduction to rent should be made if these fees do not exist (i.e. are included). If you stop and think about it, this makes sense. If some landlords are collecting money for items that other landlords are including, we should add those fees to the base rent in order to compare apples to apples. The formula for this is:
(Apartment Rent – Included Utilities + Non-Utility Extras)/Square Feet = Cost Per Square Foot
In the same scenario above, if West Mill charged $50 per month for Parking and The Lofts did not charge anything, the results:
West Mill – $1,000 less included utilities ($0) plus Non-Utility Extras ($50) = $1,050
The Lofts – $1,400 less included utilities ($75) plus Non-Utility Extras ($0) = $1,325
With this approach, we see West Mill becomes increasingly expensive. Applying the final step of the formula and dividing the results by square footage:
West Mill – $1,050 divided by 800 = $1.31 per sq. foot
The Lofts – $1,325 divided by 1200 = $1.10 per sq. foot
Know someone who can benefit from this advice?
Check out our friendly visual on the basics below.