To lower rent or not?

66 Replies

As you can tell from the title I'm trying to decide whether I should lower my rent or not. Here's my situation. I have a class A property that I currently rent for 2800/mo. It is kind of niche for the area as I rent it fully furnished annually. I currently have great renters. They take good care of the property, keep it very clean, and even added 1500.00 dollars in landscaping on their own dime. Their lease is coming up in November and they want to stay but they want the rent lowered. They offered to sign a two year lease if I lowered the rent to 2600.00 a month. I think I know what I'm going to do but I thought I'd ask the community. So what would you do? Lower the rent and take the two year lease or something different?

Updated over 2 years ago

10/18/18: So after reading many of the comments and suggestions I decided to get some more information from my tenants before making a decision. (Paraphrasing our conversation) They wanted to do a two year lease because they love the house and, as one BP member put it, have ownership in it. They asked for the reduction because they thought our rent was high for the area and our amenities. After hearing their reasons I decided to reject their offer. I explained that our rent is where it is because it is completely renovated/updated and comes fully furnished which comes at a cost. I also explained that we have no plans of selling or removing them as tenants so they need not worry about having to leave. After all that, we ended up coming to terms that rent would remain the same at 2800 and they would take over lawn care. We added the caveat to the lawn care that I approve any changes and if they don't keep up with it I can resume control and bill them back for it. But I don't think it'll be a problem after how much they've invested in the yard. I want to thank everyone who commented. I was planning on meeting them halfway.. I'm glad I posted this in the forums before responding to them. Lesson learned!

@Gerald Barron I would consider working with them and try to negotiate something in the middle. If they move then you would have at least one month of vacancy I would think so you have to factor that into the equation. Great tenants are hard to come by so I am always a proponent of working with great tenants to keep them happy within reason.

Never allow any tenant to be in a position to negotiate their rent. They are not your partners they are customers and should not be allowed to leverage you. Obviously they know that most landlords are afraid to lose/turn over tenants and they are attempting to use that to intimidate a weak landlord into capitulating. No, No, No.

Highly unlikely they will move to save $200/month but if they would then they are not quality tenants. They are working you over. I would say definatly NO to a rent reduction and see what they do. I would imply that I have a waiting list of applicants at a higher rent than $2800 and they are welcome to leave if they choose. Additionally I would tell them that since they are good tenants they can stay at your new rental rate, what ever your usually annual increase is, and that they will continue on a M2M since they are such great tenants. 

You can then negotiate a maximum 1 year lease if they so wish but never sign anything longer than that. Never ever extend a lease past a year. M2M is preferred.

@Paul Choi we think we are at market rent for what we're are offering. It's difficult to gauge as most people only do seasonal rentals where it's located. Either way we are close to or above the other annual rentals in the area. @Alex Deacon , good suggestion, I'm actually thinking of counter offering that they take over lawn care which I currently pay. It's around 80/mo so I'd really only be lowering rent 120 with that deal.
@Thomas S. , Thanks for the reply. I see your point about playing hard ball. I actually agree with you in most cases. Normally, I wouldn't even consider except, like I said, it's kind of niche because its a fully furnished annual. Also, they really are great tenants. I'm curious why you think it's a bad thing to sign a two year lease? Is it not ideal to lock in great tenants as long as you can?

I've lowered rent for tenants. It depends on the market, the quality of the tenant, and other factors. In your case, I think $200 is reasonable because they obviously care for the property  as if it were their own and you could avoid a costly vacancy or the risk of a lesser tenant. 

@Gerald Barron

In that case, countering would be a great way to meet in the middle. Maybe include in the contract an increase at year 2?

From personal experience, I have a tenant in my commercial property where I took a slightly lower than market rent for long term stability (5+5 year lease with annual increases) and less/no headaches.  The tenant had multiple businesses and is financially secure with reserves.  I self manage this property and they are the best tenants I have ever had - no fuss.

Prior tenants of this space over 15 years - I have had to evict 2 tenants through unlawful detainer for non-payment, others asking for this, complaining about that, and it goes on.   Squeezing out a few hundred here or there is sometimes not worth it :)  Good tenants are hard to find in both residential and commercial world.

My two cents - For great tenants, I would definitely consider taking the reduced rent for a two year lease agreement.  With the potential caveat that there would be a higher financial penalty imposed if they need to break the lease early.  Something on the order of $200 per month of lease at reduced rate.

@Gerald Barron If they are willing to sign a 2 year lease, they don't want to move, especially for 7% off their rent. They are banking on you being more afraid of having to find a new renter than they are of having to move out. This is not about what it's worth to have a good tenant, this is about calling their bluff.

@Gerald Barron ,

I'd meet them half-way, and say $2700/mo.  

If they're a really good tenant, and have great jobs/stability, IMO it's worth the minimal headaches and knowing someone is taking care of the home.   Just think, if they move out,  if you have 1 month of vacancy, it's nearly break even at 1 year.  

Leases place tenants in control of your property until they decide to leave. No tenant is bound to a lease whereas a landlord is always bound to a lease. M2M for good tenants is a win/win. Landlord is in control and tenant believes they are in control...sometimes. Bad tenants know otherwise.

As for these tenants unless you are in a declining market landlords advising you negotiate are viewing this from the perspective that you are in a weak position or are a weak landlord. I do not see it that way and believe the exact opposite. But then again I am very confident of my own market. If you do not know your business or your market giving in to them is better than mistakenly believing you are actually in control of your business.

I know my market, I know my tenants and I have no reason to allow them to control my business. Tenants do not negotiate their rent. I set it, they pay it.

@Gerald Barron if they decide to move, you are likely going to have one months vacancy, maybe two. So you would be looking at lost rents of $2800-5600 (not including re-rental costs). Put that in perspective per month over the next two years and it is $116-232 per month for the next 24 months. 

If you are confident that your price is good in the current market, you can call their bluff and leave rent where it is. I like your idea of passing lawn care back to them and giving them the $200 concession. In my market, I see A class properties sit vacant much more often than B or C. The higher end market just has less customers.

I really work hard to minimize vacancy, because I have found it is my largest expense. 

I would tell them that you were planning on increasing rent to $3,000 but because they are such great tenants, you'll be willing to leave rent at $2,800 to thank them for being awesome.

If they are offering a 2 year lease, they don't want to leave.

@Jason Hirko you are correct about that. I certainly don't think they want to move. Like I said, they just put 1500 into landscaping on their own. That's not something someone who's planning on moving does. On the flip side, I know they have the means to easily move if they wanted to. I could def play hardball and most likely get another year lease signed at 2800.

Look at it from a different perspective. Is a tenant in a fully furnished home willing to move, find another furnish home or buy thousands of dollars worth of furniture, to save $200/month. If they are then they have already made their decision and have likely decided to move anyway. That is highly unlikely.

Try offering a one year lease at $3000, if you are unsure of the advantages of M2M, as a alternative and see what they say.

Fact is they are considering moving, when is uncertain, but likely hood is that reducing their rent $200 is only going to cost you money and not change their plans down the road. I do not believe they will move out in two weeks and neither do you so who do you believe is really in control..

I don't recall EVER lowering rent on existing tenants in 28 years. Delaying an increase, yes. My costs go up every year in taxes, insurance, costs of repair, HOA dues, etc..

if you choose to, then definitely include something in return.  Yard care is possible, but  my experience is that they don’t care for it regularly.  If you choose to lower rent, build the cost of yard care back in and continue to pay it yourself from the offset rather than letting them actually do it.  

I agree with @Andrew B. on this one.

With a 2 year lease that means that for the next 2 years you are stuck there. My guess is you would be raising the rent normally. Since they are rock star tenants I would let them know if it helps them stay "I can leave rent where it is for the next 2 years, because as you know the School taxes just went up and so did the insurance, in order for me to keep renting it out at the $2800 I am taking a loss, but you have been such great tenants I am willing to do that". It's about perspective. In reality everything else is going up and you are looking at doing your best to mitigate it.

Good Luck in whatever you decide.

@Thomas S. last year I got an offer in the mail for a different internet provider that was $20 less per month. I was completely happy with the service of my current provider, so I called my provider and asked if they would lower my rate by $20 per month so I would stay with them. I got bounced around and went up two manager levels and the answer was, "our service is better and no price discount is available". A week later, I signed up with the other provider for $20 less and called my current provider to cancel. They immediately offered me a $20 discount to stay with them, but this was after I already had the other service installed. I told them it was too late and they proceeded to almost beg me to stay with them.

As a business owner, you have to be aware of your competition. Customers have options and they will move over money. 

Your property taxes have gone up since improvements, and so have rents they are VERY lucky if you keep the rent the same.  To lower it? Aha it was worth a try on tenants part but if they are good tenants 1 year you can keep the same Maybe

Agree with those who said the vacancy and potential for getting crappy tenants is worth is $2400 a year. That's less than 1 month's rent. To me it's a no brainer. Accept the lower rent and maintain the good tenants for 2 more years of pretty much guaranteed income and no headaches. 

@Gerald Barron I would strongly consider the reduction, but try to meet meet them in the middle or something. You never just want to get pushed around by tenants...Firm, but fair. Is $2,800 a fair market rent, under, or over?

Do NOT lie and tell them you have a waiting list of applications at a higher rent like someone else in the thread suggested. 

@Gerald Barron You haven’t said what your costs are. Is the $200 a month a burden? Is it 40-50% net profit? Do you have a strong rental market? I wouldn’t run my business with “nevers” and “always”. Each situation has to be analyzed on its own merits, and certainly for your area. In my area, leases are 1 year. One of my units is 2 year. I “gave up” the opportunity to raise rent after 1 year in order to avoid a vacancy and lock in tenants I liked. It works for me. What would work for you?