Decrease rent for longer term?

Question

I got asked if I would decrease the rent for a longer term (two years instead of one). Just wondering how many of you out there would decrease the rent from $1300/month to $1250 for a two year lease instead of one. After all expenses (mortgage, association fee, etc) our monthly cash flow would equal $102, all of which would almost certainly end up back in the house for repairs/maintenance at some point. The tenant seems responsible and passes all criteria. Thanks for your thoughts and advice.

Che Chiu Wong · Answer

I keep increasing the rent every year,  even if it is minimal (<1%).  It is really about managing your tenants' expectations than the actual money itself. Having increases year over year makes your good years (ie. Large increases) easier to swallow for your tenants.

Account Closed · Answer

CCWong is right on the mark when she says "it's about managing your tenants".

They are trying to wheel and deal with you.  So where does it stop?  Two years later, will another decrease be in order?  What about new carpeting be part of the deal during the two year deal already in place.    What about allowing a dog or two? Deals, deals, deals.  I never make deals even if it is a $5 decrease.

Now, with that said and done.  If I have a good tenant, who has been with me a long time, and I know their struggling, I will decrease their rent on my own.  $50 bucks at times.  But they have had to have a proven record with me of paying their rent on time.

But I am deciding this is what I'm going to do for them.  Not them making a deal with me!

You should see their face when I tell them I've just reduced their rent until they can get back on their feet.

The best form of advertising is when a tenant tells their friends and their friends ask them if I have any openings!

Nancy Neville

Account Closed · Answer

If the "proposed tenant" is the one that is asking, then it sounds like they are already thinking they are going to stay more than 1 year anyways. It does depend on your particular situation. I actually did this for my rental (2 yr lease with a $50 reduction per month in rent from the original asking price) so over the 2 yr period I reduced my cash flow by $1200.  The reason I did this though was that the reduction still allowed me to be cash flow positive, it gave me some comfort knowing I wouldn't have to find tenants in a year, and my rent price is way above the average for the area, so it takes a while to find tenants, and the rental price was still competitively priced. Tenants sometimes think they are on the hook for the 2 yrs if they break the lease but as Max pointed out if you can re-rent, they are not the hook.  Not sure how many tenants are up to speed on landlord tenant laws though.

Marcia Maynard · Answer

I agree with Max. You don't know how they will perform as a tenant. I doubt the rent difference will be a deal breaker for them. If they perform well, then reward them. Besides, we prefer month-to-month agreements over long term leases because they give us more control.

We inherited a tenant that had been given (by the previous owner) $50 off rent for the first 12 months if she agreed to a one year lease. She skipped on month 6, didn't pay the last month rent and there were damages as well. She broke her end of the agreement and we couldn't regain the $50 discount that she had been given in advance.

Tom Keith · Answer

@Bradley Mischke Reducing rent by $50 for 24 month should make sense as long as you have cash flow that you can accept, for the period in question.  You will probably reduce vacancy percentage that will help.  Make sure that tenant does meet ALL your guidelines and keep this separate from the rest. There have been threads concerning requested extensions of contract with decreased cost, that proved to be disastrous because there were red flags elsewhere.   We use a discount for paying early and it works but we still get the rent we need.  Best of Luck to you

Kaye C. · Answer

My two year lease includes a 6% increase for months 13-24. The initial rent for months 1-12 is slightly less than market. There is also a monthly fee for security monitoring. The tenant is responsible for lawn maintenance.  I do have a property management company. Current monthly cash flow is $66.00. Cash flow will be $107.50 for year two. I'm in the Atlanta market. The tenant requested a two year lease and I agreed however with the increase. If a tenant requested the same rent for 24 months I would counter with a slightly higher than market rent for the term.

Bradley Mischke · Answer

Thanks Jerry & Jeff! My wife and I are new to this. Your advice is helpful!

Jerry W. · Answer

I have done this.  A lot of folks say you need to increase rent a little every year, but I have limited time so if they will rent for multiple years and are good renters I reduce rent.  The turnover is what costs the most in the long run.

Decrease rent for longer term?

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