Take a tenant at a lower rent?

Question

I just did this and now I am unsure about it - rented to a new tenant at a rent lower than what I had been getting. The unit had been unrented for some time. The problem is, now it'll be a while until I have the rent back up where I want it - at least a year until the expiration of the lease, maybe longer.

Anybody deal with a similar situation?

Account Closed · Answer

If rents in the area go down, you have to lower rent.

It might take you a full year to raise the rent again, but how long would it take to recover the money lost by having the unit vacant for months on end?

The only serious warning about lowering rents is that you have to be really careful about lowering rents in a multi-unit building. Tenants talk, and when your existing tenants learn that the new guy is paying less rent than they are, they are going to get mad.

Brendan O'Brien · Answer

I think what I will do in the future is either

a) Six month lease on the lower rent, or
b) Last month free.

Eric Wang · Answer

[
That's a good idea, but NEVER give them the FIRST month free.  Deadbeats will see this as an opportunity to live free for 2-3 months.  If they get the first month free and then don't pay the second month, by the time the eviction works its way through court, they've gotten 3 months free!  Most of those signs you see at apartment buildings that say move in special give the LAST month free.

Mike

Thanks Mike,  last month makes sense.

Michael Rossi · Answer

Slimjim,

That's a good idea, but NEVER give them the FIRST month free.  Deadbeats will see this as an opportunity to live free for 2-3 months.  If they get the first month free and then don't pay the second month, by the time the eviction works its way through court, they've gotten 3 months free!  Most of those signs you see at apartment buildings that say move in special give the LAST month free.

Mike

Lynn Z · Answer

One of the biggest real estate brokers in town is also a big investor. He has bought condos and other properties when no one would and rented the units out -- for the long term and has become a wealthy investor/broker.  His property manager told me that the man turns red in the face if he just hears the word "cat" or "dog" because he's had so much property ruined by animals.

Now we've always rented to people with both but it's always a risk that involves quarterly walk throughs (filter change out, quarterly bug spray) to verify that the property isn't being ruined or the animal mistreated.  I see that as being a responsible landlord.

Tom C · Answer

PM,

I know you feel like kicking yourself for taking a lower rent, but if they are honest and good people, I'd much rather take 30 or 50 bucks less per month to have long term residents that are going to act responsible, then make short term extra and then have to turn around and put that extra money back into the place in rehab expenses. Just make sure that taking the hit was worth it.

I have new people moving into a recent rehab tomorrow night. They have 3 big dogs and 3 cats; however, I am getting $100 bucks a month more out of them then what the area calls for and they seem like "good people", so if the dogs chew some horse hair plaster or the cats pee in the corner, it's not a great lose.. I paid 16K for it and have less then 3K in rehab currently, with an ARV of 50K +. There are so many factors that you have to take into consideration with each tenant. The biggest being, matching a person with the home.

The important factor here is that the mother and daughter who are moving in, are loosing their home to foreclosure and need a place to live. I could get burned, but considering all of the other possible applicants, they were the most qualified for this type of  home. They have 2 car's, the home has a 2 car detach garage. The area is not best, they have 3 large dogs that will persuade someone from breaking into the home and the garage. Many many factors come into play when matching a resident with one of your SFR and as I obtain more homes, my current tenants have first dab's at those homes as long as it is feasible. I like the idea of providing them the opportunity to move up into a bigger or better place.

Business planning in a competitive market will go along way. They are the customer and you depend on them in order to ensure that your business is successful.  Treat them as a customer!

Lynn Z · Answer

we try to never, ever take a vacancy.  If you have a month to month tenant because they've been with you for a few years, get a lease that renews no later than July.  We found tenants were scare, no or foul credit, no landlord reference, owners of multiple, large dogs.

If you go month to month after the beginning lease period, you can count on reduced rent until you can recover to a better period.  More and more people seem to all look at the same time.  That is not September - December.

Eric Wang · Answer

What you can also do next time is, instead of lowering the rent, you could have a move in special, 1st month rent is covered.  This way you still collect the rent you want.

Lynn Z · Answer

Just took a 21/2 month vacancy and was lucky to re rent to anyone at the same rate of 2/1/ years.  Pitiful.  Maybe next year.

Michael Rossi · Answer

Contrary to the silly guru nonsense that we often hear, market rents go down as well as up.  If there is a significant number of similar rentals on the market for a rent lower than yours, then you did the right thing by lowering the rent a little to get it rented.  The glut of unsold homes on the market is causing a lot of sellers to rent and these people often think that anything that covers their mortgage payment is a good thing.

Good Luck,

Mike