Investor · Naples, FL · Member since 2017 · 69 posts · 34 votes
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?
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y
@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.
Yuma, AZ · Member since 2015 · 140 posts · 137 votes
7y
@Gerald Barron do what you want. But are you in business or a hobby. I agree with not raising their rent. I believe they will stay they seem to have ownership in your place.
Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
7y
What is their rationale for wanting a reduction? Do they perceive that they are great people and spent money on landscaping? They do sound like probably good tenants - keep them if reasonably possible. They need to know how your expenses are. You may give them something, but you need to keep the upper hand.
Rental Property Investor · North Vernon, IN · Member since 2018 · 136 posts · 192 votes
7y
I would definitely lower the rent to keep them. But you must counter offer so they dont think they can get whatever they want from you. Ask for a 3 year lease at $2600 or do the 2 year lease but $2700 year 1 and $2600 year 2. Work the deal back to your side slightly while still giving them what they want and letting them know you appreciate how well they care for the home.
Investor · Los Angeles, CA · Member since 2014 · 285 posts · 142 votes
7y
I'd see if they'd meet in the middle at $2700. In addition to lost income from vacancy, there will also be a cost to making the house rent ready again, especially if there's furniture involved. You're also heading into the traditionally slower months when people are less likely to move.
Los Angeles · Member since 2018 · 464 posts · 471 votes
7y
@Thomas S.
OY! how I disagree with most if this! EVERYTHING is negotiable ALWAYS. You have good tenants? You have good cash flow? CONSIDER IT. Yes, they might leave and somebody maybe is waiting to take their place, but THEY'RE UNKNOWNS. Why would want to exchange a known good thing for an unknown maybe good maybe not so good? You are rarely, if ever, in a position of so much power that you can categorically refuse negotiation. Sears never negotiated prices with customers, and see where they are now.
Reading this thread was tough, because no one was asking the right questions, that is until @Anthony Wick, who asked the pertinent questions. What are your costs? No one here can really answer correctly for you ,if by doing this lease, you will lose money. If you are making $500 bucks, that $200 gone will hurt for two years.
Also, I disagree in part with those who are saying a vacancy will cost you more. Your lease should have a provision that you can show the property after the tenants have given their notice. We just had a vacancy in one of our apartments, and filled it in October (thanks to God) in Minnesota, because our lease said we could show the unit with reasonable accomodation. The unit will not be vacant even one day. I agree with them that vacancy can be a huge expense. Something to weigh.
There is another factor. Locking in a two year lease means you put yourself at risk. What if market rents go to $3200.00. You'll be thinking about that quiet a bit, I bet.
Real Estate Broker · Salem, OR · Member since 2017 · 101 posts · 43 votes
7y
I would recommend either saying no or meet them halfway (don't just give them what they ask for), it's what happened when I was a renter and I asked my landlord for a rent reduction, I think I asked for $100 lower and they offered $50 and I took it. I don't think I would have moved out even if they said no but I thought I'd ask because I felt they would have trouble renting it out if I left (they didn't allow for pets)
Saint Paul, MN · Member since 2018 · 189 posts · 107 votes
7y
@Gerald Barron- I would lower it but try to meet them in the middle. The vacancy piece is the part that you don't want to have to deal with and the fact that they are taking care of the property and updating the landscape I think it's worth it. I have done a 2 year lease but generally do that to keep the rent the same. One suggestion is towards the end of their lease when you start discussing renewals. I generally structure it as a $50-$100 increase (assuming the market can handle it) if they do a 1 Year lease and keep it the same if they do a 2 year lease. In the past I've also seen a 6 month iteration of $150-$200 increase since it's so short. I think you can get creative but what most people said here and what you are planning on doing makes sense.
From an insurance brokers perspective: If you drop average rent below certain thresholds (these change by geographies obviously), insurance companies will apply a heavy surcharge to premiums. Their fear is that the quality of tenant goes down as rent goes down, and the investor is more likely to have to turn in claims accordingly. Something to think about as you are pondering this decision.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
7y
Pretend you are them and look for another place near by that is comparable to yours..... what's the rent there? Could they move and find a place just like yours for cheaper? Or would it actually be more? Got to know the market and your financials
Not a big fan of long leases unless you have a 5 star tenant and BIG rock solid penalties for breaking it....and confidence that you will be able to collect that $$ if they break it...which is rare.
How are your other expenses on the property? Did your taxes go down? How about your insurance? Yard care get cheaper? Expenses for repairs? CapEx stuff get cheaper for you? Odds are those all go up.....
Expense go up and rent goes down is the making of a bad investment for you.
At best I would drop it and require them to have professional yard care be paid for by them..... even that would be a stretch unless my rent is higher than market
Opening the box of letting tenants dictate the rent is a bad precedent to start.....
I might do this...
1 year lease at $2800........ 2 year lease at $2700.... IF I feel solid on my rent level for my market and potential to see the $$ if they break the lease. Vacancy can be a BIG expense.... but you cant run a business out of fear
In addition, you're focusing too much on YOUR benefits (great tenant, eliminate vacancy), and ignoring the TENANT benefits (great landlord, quality unit, fully furnished). It's coming across as a given all landlords are equally professional, and that certainly isn't the case. If you are highly responsive, maintain an excellent quality property, and take care of all concerns promptly, the tenants should value that. They are in just as good of a situation as you. I have firsthand experience inheriting tenants in properties we purchase from bad landlords (those who don't fix broken windows, respond to maintenance calls, etc). They are amazed at how much more responsive our teams are and this goes a long way in good tenant retention.
I work full-time as a general contractor and any time I've had a client request a price reduction, I simply take the time to walk them through our figures a bit more closely. This shows them I am treating them fairly from a cost-perspective, and also builds trust. Most potential clients assume I'm making a lot more money on their projects than I am, and that may be the case with these tenants. If you verify you are treating them fairly, that may be all they need.
If the clients want to save money, offer a trade off - they take on lawn care, and you reduce rent by the amount saved monthly (unless you were planning a rent increase to keep on track with your financial goals). One less service for you to coordinate, and they save some money for minimal effort. Win-win.
Finally, I'd like to echo what @Sheena Lee mentioned. It seems as though everyone is focusing on the 2 year period and potential vacancy. These tenants may decide to renew again in two years - what happens then? You either continue at a lower rate of return/margin, or have to propose a significant rent hike just to get back in line with market rates. I'm all for treating people fairly, but you also need to be sure you're sticking to your financial goals.
Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes
7y
I always strive for win-win. You have good tenants who pay market rent (more or less) and are willing to sign a 2 year lease...one thing I really like about keeping good tenants is that your vacancy rate will be a big fat ZERO for the next 2 years!
Real Estate Agent · Tampa, FL · Member since 2018 · 10 posts · 0 votes
7y
@Gerald Barron
Take my advice with a grain of salt (small grain of salt) but I think it really does depend on what you desire out of the property. If the most important item is cash flow, then I don’t think lowering the rent would be good because you can always find new tenants. However, if a $200 a month loss is worth it to you for having a guaranteed 2 years of great tenants, then I would consider at least countering them or take their offer. If you’re having a return on investment still, then it’s still a win.
Investor · Littleton, CO · Member since 2017 · 41 posts · 30 votes
7y
If you have time to think about it, check out the book "Never Split the Difference" by Chris Voss.
Everyone on this thread is mentioning to meet halfway, which is splitting the difference. Which means both sides are losing on this negotiation. Chris would advise that you come at your tenants with an open-ended question...
Tenant: "We want $200 off of our rent"
Landlord: "How am I supposed to do that? We want to provide what is fair to everyone. Am I being unfair?"
Tenant: "Um....well... no..."
Now the tenants will have an internal psychological battle with themselves thinking that their demands may be unfair. :)
Either way, it's a great book and I recommend it to everyone!
Investor · Naples, FL · Member since 2017 · 69 posts · 34 votes
7y
@Anthony Wick, you're right I should have added some numbers for perspective. Currently my all in expenses including capex, maintenance, and lawn are 1870 a month.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
7y
If you want to go the route of showing them the aspect of being an investment for you, I would not show them your actual numbers unless they are razor thin on your profit to begin with. Its none of the tenants business on how much you profit on them and will only breed resentment if you are making good $$ on the investment.
Keep it vague...... market rent is X and my expenses on A/B/C go UP every year....not down.....so each year I keep rent static or drop it, my investment is going DOWN....and that's not a smart investment. Keep it vague... they don't need to know the details
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
7y
When it comes to lowering rents, some landlords are like Peter O'Toole playing Lawrence of Arabia obsessed with revenge, screaming, "NO PRISONERS!!!"
Some will readily go along with this.
I have a bit of seasoning in a not-so-nice area, so pardon me for my untoward suspicions for a moment. Can we agree that no one kicks in $1500 of his own money for a rental's landscaping, however nice the rental? And just why do your tenants want to lock themselves into a 2-year lease? To save two hundred bucks a month on a luxury rental they're already micturating what I would consider mad stupid money away on?
Rental Property Investor · 30078 · Member since 2018 · 13 posts · 6 votes
7y
I'm sure I am not as experienced in real estate investing as many others that have posted here. I am experienced in property management and managed a portfolio of around 230 properties for several years. I do know that the more intimate a property owner gets with their tenant the more complicated these issues get. This is business not friendship. At the end of the day, your tenants will fight to get a lower rent and a better arrangement. Stand by your lease agreement from day 1 and keep a professional relationship.
Investor · Naples, FL · Member since 2017 · 69 posts · 34 votes
7y
@Jim K. Trust me, no one was more surprised than I was when I saw the landscaping bill. They asked for my permission to add some landscaping to the yard. I said sure as I approved it first. I'm not sure why they spent so much but I'm not going to complain.
As for why they made the offer? I'm not sure, it wasn't something I expected.
Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
7y
@Gerald Barron I would offer $2700 and they take care of the lawn maintenance. Then it is a wash for you and they feel like they got a discount. If they don't agree to that, I would only go down to $2750
If money is not important why would a landlord ask if they should reduce there tenants rent $200.... Obviously they are prise tenants worth keeping at any price right. Is it not the goal of every landlord to hold on to good tenants at any price. Would we not all supplement our good tenants rent by $200/month.
If a landlord is operating a business in which costs rise annually why would they consider lowering their tenants rent when the market does not warrant it. New lease rents go up not down right. Does a landlord consider lowering their tenants rent simply because they ask. If a tenant does not ask would a landlord offer a rent reduction, rent increase or stay the same.
Why is it that having a tenant asking for a rent reduction place a landlord at a disadvantage...... Probably because they are not operating a business. It's a hobby and as such they have no business policies and do not know their market. Hobby landlords have different priorities from professional landlords.
That is the only difference between a Yes or a No answer to a rent reduction.
Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
7y
If they spent $1500 on landscaping and want a 2 year lease, my money says they aren't planning on moving. Unless something material has changed with the condition of the property or the quality of the neighborhood, there is absolutely no reason to lower the rent. Long leases only favor tenants, as some have said. For good tenants I have delayed or reduced rent increases, but I would never even consider lowering the rent on an occupied unit. All my expenses go up each year. Keeping the rent at the same amount is extending them a professional courtesy by reducing my ROI by the amount of the increased expenses. The cost of turnover/vacancy should already be baked in to your business model.
Georgetown, TX · Member since 2017 · 27 posts · 23 votes
7y
I'm not sure what your whole financial picture looks like but what about meeting in the middle?
Meet them on the right price but a contingency of rent going up on tax hikes and insurance increases. A tenant that keeps the place clean and has low maintenance can be incredibly valuable and cuts your repair and vacancy costs down quite a bit.