Renting for less than fair market

12 Replies

In February, my son will be renting out the 3/1 house he bought in September. Ultimately,in a few years, this house will be one of many of homes in an Autistic intentional community within an already existing community, but in the meantime it will be a regular rental.

He would like to rent the house for less than fair market value.  He is thinking renting it for about $500 a month with the tenants paying for all utilities except for the security system and trash pick-up. [ which are not actually utilities] These, along with insurance and taxes, will cost my son about $182 a month. 

The home has been renovated [actually, we are still working on it]and the roof, plumbing, electrical etc. are all in good condition.

Do you think he can rent it out at this price and not lose money?

I dont know why he would be willing to pay for trash and security system, especially if the rent of $500 is under market rent.  The issue with renting under market rent is you will attract lower quality tenants who might not have normally qualified before.  There is also a slim possibility that you could get someone who will want to stay long term, but doubtful. 

Good luck

Curt Davis, Real Estate Agent in TN (#00321765)

We were thinking of someone working for $10 an hour who could not otherwise find a clean, safe, and pretty place for their kids to live in. Why wouldn't they stay?

Originally posted by @Vicki Gleitz :

We were thinking of someone working for $10 an hour who could not otherwise find a clean, safe, and pretty place for their kids to live in. Why wouldn't they stay?

 The place I am trying to sell for start up money I have tried that same logic with . Rent cheap and they  will appreciate it. Sadly what I have experienced is so far all I get is LOSERS that end up being a bigger headache then they are worth. Good tenants do  not seem to respond to ads for cheaper apartments/ housing. Hope your experience is better.

my 2 cents.

Good tenants know that a $500 per month place is mostly in a bad area.  All you are doing is advertising to even worse renters that they can afford ( or not ) a little nicer place. 

Stick with market rent, it will serve you better in the long run.

Curt Davis, Real Estate Agent in TN (#00321765)

Cheap rent = cheap tenants.  You will be flooded with applicants , when something breaks , he will lose money .  If he really wants to go below market , go $75 to $ 100 lower at the most .   

@Vicki Gleitz  , there is a correct logic to your thinking about renting below market. But just out of interest, if $500 is below market what is market value? If it's just slightly below market value, I find it a good strategy, but i would hand over the cost of garbage and security to the tenant

Currently I've got 2 properties that are being rented slightly below market. However, one of the properties that we used to rent at market price, didn't turn out so great. The tenant didn't really take care of the house figuring if they were paying that much, that everything should be dealt with and so they didn't take care of the house. After the lease expired, we dropped it slightly below market and had a much wider pool of tenants to choose from, so we basically upped the level of scrutiny to pick the best tenant from the applicants and so far it has worked out really really well. 

I commend you for trying to be kind to your tenants/community. I do agree with others though that you are more likely to attract "problem" tenants. You could always try talking to the neighbors and seeing if they have any friends/family that want to live close by. 

Ryan Dossey, Real Estate Agent in IN (#RB15001099)

@Vicki Gleitz  

Everyone here is repeating what we said in your other post. If your intent is to find tenants quickly who can afford cheap rent, all you will get 9 times out of 10 is tenants who are just that, cheap tenants. Not only that, but if you charge someone 500/month for a place worth 1000/month, how do you think they are going to treat the property? Will they treat it like a $500 property, or one worth twice that amount?

If your son wants to just help people out, there are lots of ways he can do that without sacrificing tenant quality or risking your investment/home being treated like a shelter. Spend the money he is trying to save them on a monthly food budget or something they need.

Or if he's not trying to be charitable, have him refi and pull his money back out while cash flowing and do this all over again in a few months!

Also, why did you post this exact same topic twice? There are two identical threads about this.

I thought I was going crazy when I couldn't find my other response while reading this one

Hope this helps

Another strategy you could try, if you are renting out cheap in a high demand market, is to put the house on the market for the low rent, then ask prospective tenants to give their highest and best rent offer since the low rent would likely attract multiple offers. 

The problem is solved. Today, while planning our Autistic retreat in March [the first retreat of its' kind EVER, and not because it is being held at a nudist resort] I met a woman from the Pueblo area who is more than eager to be of assistance.

Our plan has been to put together an intentional Autistic community within an already existing community.  My son purchased the first home, but it will be a few years before the other homes are purchased.  In the meantime, he was planning to rent it out as a regular rental, but at a price that would be affordable to the hard-working poor.

The woman I met today  has contacts with a group that mentors other people with invisible disabilities [ including autism] who, because of lack of acceptance by the non-autistic culture, are relegated to minimum wage "fast food" jobs. [ while the piece of paper documenting the completion of their doctorate is yellowing with age on the bathroom wall it has been taped to]

Someone posted a somewhat "snarky" comment about homeless people.  It is estimated that one out of 3 homeless are Autistic. Autistics are 28 TIMES more likely to attempt suicide than the non-Autistic person.  That is the leading cause of death for my people [ the "Bill Gates" of the world will most likely die by other methods.  Autistic and bi-polar Robin Williams did not]

Our hope, by renting to people with less financial means than many, is not to invite fiscal failure, but to encourage the next Susan Boyle, Dan Akroyd, Einstein, or Mark Z. [Facebook co-creator] Or maybe to help a single mother who has children with dreams as big as anyone elses.  

Of course we feed the homeless and such as well. As Autistics, though, we tend to LIVE what we believe,just one of the many "weird" things about us.

In your situation, you are using your investment as a charity. Typically it's best to keep those two things separate. In fact it rarely works to co-mingle the two endeavors. If you are buying and fixing a home up for a charity cause then renting below market could very well be within the goals of your charity but don't call it an investment. At the same time if you are making an investment then don't lower the rent for a charity case. It sounds so noble but is true a recipe for disaster. 

My advise would be to rent your property at market rent and use the proceeds to supplement the rent of someone you know that needs charity. You could also reinvest the extra cash flow and buy more property to get to your vision of a community sooner. 

In order to quickly rent a property, advertising is the key as much as price. I totally agree with all the above posts that state low price means low quality tenants. Market like a madman and while price can be a part of that strategy, exposure, incentives and product are important for quickly renting a property.

People starting out are often scared of finding and selecting tenants which makes Section 8 sounds so easy. Find one of many posts on tenant screening and read and follow it.

Low rent and using section 8 are common fall back positions of people unsure and fearful of the whole leasing process. Dig in and learn just like you did with the fix up. 

Happy Holidays Vicki, I rent out a 3+1 on the westside for $850 and tenant pays all utilities and security systems. Does your sons have a garage? Maybe rent that seperately to give a little more wiggle room and go $650 on the house which would still be considered charitable. Shoot me the addy and I can see what is up. Thx

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