This should be fun.
I saw the following question on Quora:
“What can a renter do to increase his or her negotiation leverage when renewing the rental agreement with a landlord?”
This question, clearly, is geared for the tenant, but I found myself modifying it slightly to a landlord’s perspective to say, “What are some reasons I would be willing to lower the rent for a tenant?” I think this is a valid exercise for a couple of reasons:
- It helps you crystallize what you’re looking for a in good resident: “you’re so good, I’d be willing to charge you less.” Although, your goal should be to find tenants who feel you’re already charging a fair price for everything you provide.
- This is good preparation for when the question inevitably comes up. This way you can answer more confidently and not scramble to determine if it’s worth reducing your rate. I think you’ll find that it can actually be more profitable to lower your rent for the right reasons.
So, what are some good reasons to lower the rent?
At the end of the day, I want two things: minimize my maintenance costs and maximize the amount I collect in rent over a long period of time. That’s what being a professional DIY landlord is all about. Therefore, before I even consider lowering the rent, tenants must have demonstrated that they take care of the dwelling to my standards. Assuming that’s the case, I’m willing to look at lowering my rate. Here are three reasons I would entertain:
1) A soft market: If the vacancy rate is high, that means it’s going to be tough to find someone who will be willing to pay my rate because there are a ton of other housing options. I’d much rather collect some rent instead of owning a vacant unit. As the saying goes: “part of the pie is better than no pie”. So, if the resident has been around a while, they take care of the unit, and rates have genuinely dropped because of the high vacancy, I’m definitely willing to drop my rate to keep them around.
2) Threatening to move out: I actually had this happen to me. My resident took good care of the property and paid his rent on time. Then one day he gave me his 30-days notice to move out. I asked why (which you should always do!) and he said it was because he thought my rent was a little high and he found a new place for a little less. How much less? $50 per month. On a base of $1,050! One vacant month (plus cleaning costs) seemed like a bad trade-off over $50. Doing the math:
- 1 month vacancy = $1,050 lost rent
- Cleaning costs = $250 (I do it myself)
- Divided by $50/month (the extra amount I would make by re-renting)
It would take me 26 months to recoup that vacant month. Here’s how this plays out each month:
I offered him $50 less and he stayed for another year before his job required him to move. I earned an extra $700 as a result.
3) Willing to pay for small repairs/maintenance: You might have a single family home. It might be a little ways away and dealing with small repair issues could be a pain. The same could be true of yard care. If the resident says they’d be willing to take care of small repairs themselves (or mow the lawn themselves), that would definitely be interesting. I would make sure to do regular walk-thrus to confirm they’re actually doing the repairs, but as long as they are, I would be happy to give a discount. That’s the way I would frame it too: If they keep up on repairs/maintenance they get a discount. If during my walk-thru I notice small issues that I need to take care of, then no more discount and I’ll take that part over again.
Earn More by Charging Less Rent
Ideally you find tenants who value your property and think you’re charging a fair price. However, it makes sense that if rates drop or they’re willing to take some of the maintenance off your hands, then I would be willing to lower the rent. Vacancies can be so expensive and take so long to make back, that it makes sense to sometimes charge less in order to avoid the vacancy and earn more.