Isn't reducing rent better than a vacancy?

Question

New tenants who have already made a deposit and signed a contract are now asking if we'll be flexible if they lose their jobs in this new COVID-19 environment. My first thought is that they can sell their contract, but if they can't isn't it better to accept reduced rent by 100-300 than it is to put up with a vacancy?

The situation here is that we are in a SFH with a MIL. Mortgage is 1800/mos and MIL rent is 885/mos. We'd get by without the extra income, but we're trying to think through all our options.

The situation here is that we are in a SFH with a MIL.  Mortgage is 1800/mos and MIL rent is 885/mos.  We'd get by without the extra income, but we're trying to think through all our options.

Bjorn Ahlblad · Answer

This is an unprecedented time for tenants and LL. If someone ghosts, I am not inclined to work with them if they want a concession. If people are real and forthright, ya I'll work with that person and hopefully we will come to a win-win.

Account Closed · Answer

Month to month agreements are best, in my experience.  Tenants aren't usually as good as yours are being at communicating.  What often happens is they start making habitability complaints - mold!  bugs! you name it.

When I was managing during the 2008 crisis, we allowed tenants to make their case.  We didn't offer, but if a tenant could show us some comparable advertisements for rentals with lower rents, we'd lower our rent.  So, you might start there - ask them to find comps on Craigslist and then you'll lower your rent.

If you decide to really cut it since you can afford to - I'd make it a written temporary thing, maybe month by month as you go along, so they don't start to think it will be lowered forever.  You could also make part of the deal that if they decide to move out, they need to give you 60 days notice and if they don't, they owe you the "forgiven" rent.  Just figure out something that sounds fair - for both of you.

I love a good negotiation.  Both sides figure out what the other side needs and work something out.  I think it's helpful for tenants to hear your side of the deal.  I once fixed a really bad situation for my daughter with her tenants who were demanding a really expensive thing - I won't go into it - and I sat down with them and actually showed them my daughter's PM bills (she'd just fired them and they royally ripped her off), and told them how much my daughter makes and if they pursued what they were doing, she'd end up foreclosed on and they'd have to move.  Once I put a human face to their landlord and a true story about how they would break her and end up out of housing - and what they were asking for wasn't reasonable or necessary - they calmed down and became reasonable.

At any rate, keep what you need in mind, too, while you're being nice, is my point.  I'm really glad for you that you can afford to weather some rent loss.

Andrew Morales · Answer

A lot of good thoughts here.  It was easy to fill (we're probably still a bit below market rate even though we just raised rent 4%).  We did give them the option to cancel their contract with a full refund on their security deposit but they opted to keep it.  I'm positive they'd have no problem selling their contract or if they backed away we'd be able to fill it quickly as well.

One thing that you've all given me a lot to think about is that in reality they do seem like good tenants and have been very communicative without nagging.  This is a good sign from our perspective.  I like what @Mary Mitchell said that solid applicants are preferable to the "unknown better applicant".

Anthony Wick · Answer

Have they already moved in? Was it difficult finding a tenant? Did you have multiple showings and applications? Could you rerent it asap? Are they just worried, are hav they received word they may lose their jobs? I would possibly give them the option to cancel their commitment if they have not moved in already. If they are already in the unit, then the gov't stimulus check plus unemployment for four months should allow them to pay full rent until at least August, even if they lose their jobs.

Nathan Gesner · Answer

If that happened, I would require some evidence of hardship before letting them go without penalty. But that depends on what your state law allows, particularly during COVID-19.

Jonathan R McLaughlin · Answer

@Andrew Morales

“Completely understand the worry, we are all worried. Let’s criss that bridge when we come to it. Tell me about where you are right now.”

Mary M. · Answer

If these were good solid applicants then I would prefer them to an unknown “better” applicant.

There is a lot of available funding for folks that lose income.... so  in a nutshell - yes, reduced rent is better than a vacancy as long as the tenant is not a disaster

James Edwards · Answer

Your tenant is being forthright and asking, instead of just signing the papers and simply paying no rent for 60-90 days. The correct answer is you set your rent to break even, and look like the good guy.  There is a lot more to being a landlord than 100% money at all costs.

Vacancy sucks, fighting a tenant through the eviction process is even worse.

While probably not applicable in your state yet, new language has came down that foreclosures/evictions are not going to happen to fha/fma backed mortgage homes.

If you were in a different state that has direct eviction protection, you could be out, 60-90 days for the eviction ban for non payment. Then you have to get a court date, and get a judgement/successfully get them out with this unprecedented stuff going on. Then they could potentially destroy your house.

Andrew Morales · Answer

That's helpful to think through, I am grateful that they're bringing this up now so we can be prepared.  It's also helpful to think through the eviction process although I hope it doesn't get to that point.

I totally agree about there being more to be a landlord!  I welcome everyone's thoughts.

Isn't reducing rent better than a vacancy?

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