Bidding Wars Are Back -- but This Time for Renters

Bidding wars have grown popular in today's real estate market. But it's not just buyers who have to deal with them.

There's a reason so many home buyers have struggled to purchase property in recent months. There has been an extremely low inventory of available homes on the market, and many houses have been subject to bidding wars.

During a typical bidding war, two or more buyers will keep raising their offers on a given home in the hopes of beating each other out on price. In fact, a big reason why home values have soared over the past year is that bidding wars have driven many property prices upward. So buyers have to take out larger mortgages just to afford them.

But according to CNBC, it's not just home buyers who have had to grapple with bidding wars this year. They're becoming more common for renters as well.

Rental demand has increased

Many people are rethinking their living situations at this point of the pandemic. And since jobs have become more abundant, many people are now in a more financially stable position to sign a lease.

However, the problem is that demand for rental units is starting to exceed supply. And that's causing bidding wars to spring up among renters. It's also making it easier for landlords to charge more for their rental units.

In July, rents rose 7% from the previous July for one-bedroom apartments and 8.7% for two-bedroom apartments, according to listing platform Zumper. And some markets are getting flooded with renters, giving landlords more leeway to up their prices.

This past spring, New York City saw its rent applications double compared to the number it saw in 2020. And San Francisco and Seattle saw a 79% and 55% increase in renters, respectively.

Renters beware

If you're in the market to rent a home, you'll need to prepare to pay more and expect to face your share of competition. The best thing you can do in this regard is to make yourself the most appealing rental candidate possible.

How do you do that? Start by making sure your credit report is clean and your credit score is strong. Dispute any credit report mistakes, if necessary. A solid report and score will tell a landlord that you're a financially responsible person who can be trusted to pay rent on time.

Next, aim to beef up your savings account. If you're able to show a landlord that you have plenty of cash reserves, a landlord may be inclined to rent to you versus another applicant -- even one who offers to pay more money each month.

Finally, it wouldn't hurt to get a reference letter from your current or former landlord speaking to the fact that you're an outstanding tenant. That could give you an edge over applicants who haven't rented before and therefore don't have the same endorsements.

Clearly, it's a tough time to buy or rent a home. Make sure you understand how much rent you can afford to pay before spending time looking at apartments and filling out applications. As a general rule, you shouldn't spend more than 30% of your take-home pay on rent. Sticking to that guideline may limit your options, but it will also help you avoid overspending on housing and struggling financially because of it.