Reducing Rent for Current Tenants Due to Market Slow Down

Member since 2019 · 3 posts · 0 votes

Hello,

Does anyone have any experience for reducing rent when a lease is coming to an end? In our area the last 3 years rent has increased immensely, like a lot of areas. However there is a huge flood of new Apartments now and there no way I could re-rent our duplex for the same price we did a year ago. Should I reduce the rent to current market prices with the new lease?

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

If rents are decreasing it’s probably time to sell. I’m sure insurance and taxes are going up. Don’t let it become your money pit. Pass it on while your income statement still looks good. I’d be worry if rents were increasing less than 5%, much less decreasing.

If you insist on staying I’d probably offer same rent for 2 years, plus $50/mo for 1 year and plus $100/mtm. That gives them the no cost good deal of renewing at the same price. Avoid the cost and hassle of moving. Win win. But a year in if rents are still dropping sell and escape while your numbers still look good. Finding a house hacker will get harder and harder as numbers decrease.

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
I would never reduce prices. Unless you are truly suffering and can't rent at the current rates. Keep it as high as you can and still attract good tenants.
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Larry Zucker
Real Estate Agent & Investor · Raleigh Durham Chapel Hill, NC · Member since 2020 · 44 posts · 30 votes
3y
I would not reduce the rent. You can always reduce it later if the place ends up vacant for a while.
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Adam Martin
Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
3y
Did they ask you to reduce the rent or are you just trying to be proactive? Moving is expensive and is a pain so as long as you aren't too far off I'd be tempted to just thank the tenant for being great and let them know that this year we are keeping rents the same to thank them for their loyalty. If they called my bluff I would lower it to about where I knew I could rent it for and they will either stay or go.
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Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
3y
No reduction...... unless you are all of a sudden WAY over market rent...which rarely happens. You can reduce it to market if it vacates and you are back on the market for a renter
How much are all these new apartments renting for vs your unit and how do they compare?
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Troy P.
Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes
3y
1. A duplex > an apartment
2. I wouldn't decrease rent unless I had 30 days of vacancy with only a few showings and zero applicants. If you have people spending money to apply, the interest is there. They may not qualify, but the interest is there.
3. Same as above. Is the tenant asking or is this your preconception to the current market?
4. Have you run current comps using the multitude of rent estimate tools freely available?
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Tyrell Peters
OP
Member since 2019 · 3 posts · 0 votes
3y
Quote from @Adam Martin:

Did they ask you to reduce the rent or are you just trying to be proactive? Moving is expensive and is a pain so as long as you aren't too far off I'd be tempted to just thank the tenant for being great and let them know that this year we are keeping rents the same to thank them for their loyalty. If they called my bluff I would lower it to about where I knew I could rent it for and they will either stay or go.
Just trying to be proactive. Currently we are probably about $100 to $200 over market value. Good Idea to offer lower rent if they say they are moving out.
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Tyrell Peters
OP
Member since 2019 · 3 posts · 0 votes
3y
Quote from @Ned J.:

No reduction...... unless you are all of a sudden WAY over market rent...which rarely happens. You can reduce it to market if it vacates and you are back on the market for a renter
How much are all these new apartments renting for vs your unit and how do they compare?

So currently there are very few duplex for rent, maybe like 1 or 2 in our city that are comparable to our duplex. There are several brand new duplexes for rent but are all 3bd/2ba (we are a 2bd/ba) and they are renting for 1800 to 2100. We are at $2000/mo, and our duplex was built 2001, flooring was replaced 2 years ago and paint, appliances are few years older, so we are nice but not new.
I guess where I am concerned is a few months ago our duplex neighbor listed their duplex for $1600.
Also last year a 2bd/2ba apartments were renting for $1900ish and now they are down in the 1450 to 1650 range and these include gyms and pools etc.
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Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
3y
Make sure you are comparing apples to apples as much as possible
Duplex not the same as an apartment
Sq footage, not just bedroom/bathroom numbers
Location, local amenities etc
I think you are overthinking this.... I would not drop the rent automatically.
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
I have never ran into this scenario or seen this question. Why would you decrease rent?
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Tyrell Peters:

Maybe not. Might be smarter to take advantage of that opportunity to fix them up a bit and re-rent to new and better tenants at even higher rents. Never go backwards!
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Henry T.
Member since 2022 · 1k+ posts · 1k+ votes
3y
Idaho is fairly landlord friendly. If you're advertising, then do your market research and figure out what it should be. It's possible that you overshot, and got lucky with a high paying tenant. I've reduced after tenants left, to keep with market, it's no big deal. And once with a occupying tenant, that was dumb, and I learned my lesson.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
The tenant agreed to rent at a certain rate, so it stays that way until their lease is up.
If the market changes and they want to ask for a decrease, you can look at comparables and determine whether the market has declined enough to justify it. I doubt it's dropped more than a few percentage points, if at all.
I would not even consider negotiation unless the current renter is excellent in all ways (inspections, payments, communication, etc.) If they are less than stellar, I would keep them at the same rate or let them leave and look for a better renter at market rate (even if that is a little lower).
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
If rents are decreasing it’s probably time to sell. I’m sure insurance and taxes are going up. Don’t let it become your money pit. Pass it on while your income statement still looks good. I’d be worry if rents were increasing less than 5%, much less decreasing.
If you insist on staying I’d probably offer same rent for 2 years, plus $50/mo for 1 year and plus $100/mtm. That gives them the no cost good deal of renewing at the same price. Avoid the cost and hassle of moving. Win win. But a year in if rents are still dropping sell and escape while your numbers still look good. Finding a house hacker will get harder and harder as numbers decrease.
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Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
3y
The rent should be at the market rate. That's what everyone in this thread would have told you if your rent were under market. Now suddenly rent shouldn't be at market when you may have to decrease it. Sorry, but market forces still apply when prices are going down.
Renters aren't blind about the prices in the area. They likely know that rent has gone down. If brand new 3/2 duplexes start at $1800, and 2/2 are at $1600 and 2/2 apartments are at $1450, then you're way over market. If the units are comparable, you need to lower your rent. It makes no sense to wait until the tenant leaves and you have turnover and vacancy costs and then have to list at the lower rate.
You can feel out the tenants by saying something like "I know your lease ends on XX, have you given any thought to your intentions on renewing" and see what they say. But don't be surprised if they mention to current rates.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y
I would reduce to the higher end of market rates at renewal. You're either going to have to do that with the current resident or with the new resident when the current resident leaves to get market rates (which is highly likely given the figures above).
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Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
Quote from @Tyrell Peters:

Quote from @Ned J.:

No reduction...... unless you are all of a sudden WAY over market rent...which rarely happens. You can reduce it to market if it vacates and you are back on the market for a renter
How much are all these new apartments renting for vs your unit and how do they compare?

So currently there are very few duplex for rent, maybe like 1 or 2 in our city that are comparable to our duplex. There are several brand new duplexes for rent but are all 3bd/2ba (we are a 2bd/ba) and they are renting for 1800 to 2100. We are at $2000/mo, and our duplex was built 2001, flooring was replaced 2 years ago and paint, appliances are few years older, so we are nice but not new.
I guess where I am concerned is a few months ago our duplex neighbor listed their duplex for $1600.
Also last year a 2bd/2ba apartments were renting for $1900ish and now they are down in the 1450 to 1650 range and these include gyms and pools etc.

Just a heads up on the large apartment complex managers thought process.
$1,900/month dropped to $1,450/month might not be all of the story.
Larger complexes will sometimes offer "Rent Concessions" such as zero down, reduced security deposits--if need be, one or two months free rent. 14 month leases, invisible pets, invisible roomates, etc.
Also at $1,900 a month there may have been waiting lists, and at $1,450 there could be 20% vacancy and lenghty vacancies.
The delta on the rent reduction (if it affected all of the 100 units) alone would be -45,000 a month, over half a million a year.
That's without figuring vacancy increases or length of vacancies increasing.
Of course they have to have the traffic through the sales office to do that (traffic they want to close on), because if that dwindles all else is moot.
Good Luck!
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Luciano A.
Developer · Houston TX · Member since 2018 · 423 posts · 400 votes
3y
As a landlord, you know how much time and money it takes to get a rental property ready for its next tenant. But jumping the gun can end up costing you money as well. I'd send them a 60-day notice that reminds them their lease is expiring and asks if they're happy with their unit and want to stay. Don't mention rent decreases or increases. Some tenants might want something like a steam cleaning of their carpets--and they'll stay! Moving is costly with the first month's rent and security deposit; humans are creatures of habit so moving to another part of town might not be convenient if they've got the same routines in place already. Good operators run their rentals with efficiency and respond to tenant issues with speed; some tenants value that and don't want to move out just because another property is $100 cheaper. We all have had that landlord who doesn't want to spend a dime until absolutely necessary; some will stay because it's the cheapest place in town but others would be willing to pay more to have a responsive landlord.
Best of Luck
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Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
3y
Quote from @Greg M.:

The rent should be at the market rate. That's what everyone in this thread would have told you if your rent were under market. Now suddenly rent shouldn't be at market when you may have to decrease it. Sorry, but market forces still apply when prices are going down.
Renters aren't blind about the prices in the area. They likely know that rent has gone down. If brand new 3/2 duplexes start at $1800, and 2/2 are at $1600 and 2/2 apartments are at $1450, then you're way over market. If the units are comparable, you need to lower your rent. It makes no sense to wait until the tenant leaves and you have turnover and vacancy costs and then have to list at the lower rate.
You can feel out the tenants by saying something like "I know your lease ends on XX, have you given any thought to your intentions on renewing" and see what they say. But don't be surprised if they mention to current rates.

It's really weird how many in this thread are completely ignoring market rent all of a sudden.
If you are SURE that you're comparing apples to apples, and you are SURE your unit is above market in a noticeable level, you should reduce it on the next lease renewal.
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