It happens more often than you think—the lease will expire in the next month or two and an excellent tenant leaves you a message about possibly renewing. However, she wants to discuss a new rental rate as part of renewing.
When a tenant approaches you and asked to negotiate a lower rent, your first instincts may be to either laugh or feel insulted. However, there is no reason that you can’t take the meeting and listen to what your tenant has to say. If you’ve learned anything about a good landlord/tenant relationship, it’s that it is important for both parties to get what they want out of the arrangement. It could actually be worth your while to negotiate a lower rent with your tenant so that both of you are satisfied.
Lease Renewal Incentive
Most tenants approach a landlord to talk about rent reduction because they want to stay in the unit but feel like there might be better deals elsewhere. Knowing that there is often some wiggle room in what landlords charge for rent, a smart tenant can try to negotiate a rent reduction in exchange for renewing the lease agreement. While there are pros and cons to this approach, if you have a really good tenant in place, it may be worth your while to lower the rent to keep her. It may be more financially beneficial in the long run because a good tenant makes you money while bad tenants costs you money.
Learn About the Current Rental Market
If your tenant has done her homework, she will present you with rent rates for comparable rental properties to negotiate a lower rent. This information is something you should already know because it is most likely the key factor in determining what you set your rent at in the first place.
As you know, the real estate market rises and falls, and rent rates are no different. If your rent has been set for a while and you haven’t done the research to see if you are still current, it’s worth finding out. If it turns out that your rent is actually higher now than the rental market allows in your neighborhood, you may want to consider reducing the rent to match. In a worst case scenario, you don’t lower the rent, your tenant moves out, and you can’t fill the rental property because your rent is too high compared to other properties in the neighborhood.
Weigh the Costs of Apartment Turnover
Turning over a rental unit between tenants will cost you money, no doubt. Figure out what the cost will be to advertise, screen applicants, clean, repair, perhaps repaint and otherwise prepare the rental property for a new tenant. Then, figure out how much of a rent reduction your tenant is asking for, and see which one puts you ahead.
For example, if your tenant is asking for a new rent rate of $75 less per month, and it will cost you around $900 to turn the rental over, you are actually getting the better deal by agreeing to the rent reduction. Ultimately, being a landlord with rental property is a business and you need to be savvy enough to recognize the best deal when you see it, including when it works for you to negotiate a lower rent.
The Art of Negotiation
Be mentally prepared to negotiate by keeping yourself open to ideas and opinions. While you never want to agree to a rent amount that is too low, don’t completely shut down ideas until you’ve really examined them. Generally, a tenant will come in with their ideal offer and you can then negotiate from there. Going back and forth until both tenant and landlord find a rate they can live with is the best way to ensure that both parties walk away happy. It’s ok to take some time after the meeting to weigh the proposal so you can really examine it from all angles.
Besides being open minded and flexible during negotiations, remain respectful. A good tenant who comes to a landlord to negotiate deserves the chance to be heard. Even if you don’t reach a solution, you can still keep the respect for each other. If you provide a truthful, accurate reason why you can’t lower the rent, at least the tenant will understand where you are coming from.
Alternatives to Lowering Rent
If you simply cannot lower the rent and the tenant feels like she can’t stay, see if there are any renewal incentives that you can offer, such as new paint, carpet cleaning, free parking or free cable for a few months. Giving a renewal incentive shows that you value the tenant and hope that she chooses to renew and remain in the rental property. Remember that a good tenant is hard to find, so it may be in your best interest to try to meet the tenant halfway in the negotiations.
Have you ever been approached by a tenant for a rent negotiation? How did it go and did you reach an agreement that benefitted you both? We’d love to hear what happened, so please share the article and let us know your experiences in the comments section.