Lowering the rent

[Jack Slattery]

I have a rental that I purchased for $58,000. It brings in $750 monthly with PITI of $375 leaving a cash flow of $375. The tenant pays rent six months in advance and will have completed a year with me in June.

Six months ago, he asked if I could discount the rent since he pays so far in advance. I told him no but I am now reconsidering. He is a very good tenant and is very easy on the property.

I am considering offering a 5% discount with six months or better in advance. That amounts to a $37.50 monthly discount in rent.

Good or bad?

[Steve L.]

I wouldn't offer a discount. If you pay your mortgage, property tax, or insurance early you don't get a meaningful discount.

The couple times I have asked this question, I answer:

"I agree, you are a great tenant and we appreciate you. I discussed the discount with my partners (or investors/shareholders/whatever) and they didn't authorize a discount for pre-payments. What I can commit is we take this into account when we discuss rental increases and we have no plans to raise your rent anytime soon."