Is it worth is to lower rent to have less tenants when house hacking?
Saint Paul, Minnnesota · Member since 2021 · 9 posts · 6 votes
Is it worth is to lower rent to have less tenants when house hacking?
Most Popular Reply
Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votesFor me, rent is NOT negotiable. I set it at what I see the value is relative to the market... I dont set it relative to the tenant.
Starting on day one of "well what do you think about.....?" sets the stage of EVERYTHING being on the table for "negotiation".....
If they are " I cant afford $125 a month more", what do you think will happen when they get a $800 car repair bill.... a $1200 medical expense? or any other unexpected bill that comes up?
27 Replies
- Rental Property Investor · Ocean Springs, MS · Member since 2022 · 349 posts · 301 votes3y
Ultimately that's a decision that you have to make, but I would be VERY cognizant of the disadvantage that puts you in going forward due to the 3% rent cap. You would already be starting 10% behind, especially if you believe fair market rent is $1375. Would it not be possible to wait for other renters to come along?
- 3yAbel CurielBusiness MemberReal Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
Hello @Ana Vergara!
The sisters sound like a great choice given the fact that they seem a bit more stable and could potentially be less noisy.
@Joel Case brings up a good question here. If the unit has not been listed for too long, you might want to wait at least a few more days for more inquiries/applications.
That said, I'd consider the following:
- Counteroffer at $1295 or $1279 so that you are finding some kind of middle ground
- Once a monthly rental amount is agreed upon, set the expectation that rents will increase 2.5-3% each year. This is especially important for tenants you get along with so that they realize there are professional boundaries to stay within. If you get any pushback here, you can remind them that your costs/expenses increase each year. they already realize that their utilities are relatively high so they should understand
this.All the best!
Abel
REbuild Team - eXp Realty5234 Reviews - Rental Property Investor · Ocean Springs, MS · Member since 2022 · 349 posts · 301 votes3y
Quote from @Abel Curiel:
Hello @Ana Vergara!
The sisters sound like a great choice given the fact that they seem a bit more stable and could potentially be less noisy.
@Joel Case brings up a good question here. If the unit has not been listed for too long, you might want to wait at least a few more days for more inquiries/applications.
That said, I'd consider the following:
- Counteroffer at $1295 or $1279 so that you are finding some kind of middle ground
- Once a monthly rental amount is agreed upon, set the expectation that rents will increase 2.5-3% each year. This is especially important for tenants you get along with so that they realize there are professional boundaries to stay within. If you get any pushback here, you can remind them that your costs/expenses increase each year. they already realize that their utilities are relatively high so they should understand
this.All the best!
Abel
I agree, you have to raise rent the 3% every year just to counteract inflation.
- 3yBryon AndrewsBusiness MemberReal Estate Agent · Saint Paul, MN · Member since 2018 · 201 posts · 104 votes
My wife and I have househacked in Stillwater, MN for a few years now and have found that it is important to have a good relationship with the residents that you are sharing a wall or floor with. St. Paul is different with the 3% cap, but I have always been a proponent of being just under market rent to both attract more potential residents as well as retain great residents. Turnover can be very tough on your bottom line. (Househacking tip - Unless there is great soundproofing, I enjoy living in the upper unit, as people walking around above you can be loud and annoying over time!)
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
@Ana Vergara The #1 commonality I have in various landlords retaining my consulting to help advise on resolving issues, is from ASSUMTIONS at time of tenant placement.
You have to be VERY careful when assuming, and I'd say never assume.
The #1 contributor to noise level is lifestyle. Your assuming the two sisters are more quite, because of age and career. How about thought that students will be more compliant to authority, given there current psychology of experience and thus the actual more quiet ones?
I would say know your fair rent, and don't guess, make judgements on facts not assumptions. Assumptions are how bad situations get built. Explain to both groups your expectations, and ask them what they think of that. And then ask what actions they would take to best stay within those lines. you may be surprised the responses.
Don't assume, CLARIFY and confirm.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Up to you and your living standard. My peace of mind is worth more than $125/m.
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
It is up to you. If you go with them, negotiate the price. They want an approximately 10% discount. While the sisters may be established in their careers (and used to living with each other), I wouldn't assume they would be there any longer than the students.
- 3yJeff SchemmelBusiness MemberReal Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
I'd worry less about the 3% cap. there are multiple ways to raise it more than 3% if you read deeper into the rules and allowances around the rent stabilization policy.
Focus on making sure your criteria are met, and that's a pretty steep discount. In my opinion, it's not a great precedent to set out of the gate that you're willing to concede to what they want; that can create a situation where they continually take advantage of you while locked into a lease. the rent is the rent, and it's due on the 1st :) I get $1,500/m for my 2 bed in saint paul and I purposefully chose to be patient and passed on quite a few people before I chose the right one - definitely dodged some bullets in the process. I just renewed their lease for another year.
Noise is inevitable, and any tenant you have will be annoying at some point... whether it's little feet running across the room, a treadmill, a rolling desk chair, or exercising. We have long winters stuck inside in Minnesota and you're bound to be annoyed at some point so try not to judge up front who's quieter than who, it's just an impossible assumption to make in my experience - This is one of the things I've been most surprised about as a landlord.hope this helps!
- 3yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
There's a lot going on here and you need to take more in to consideration than just your rent rate.
First and foremost, it sounds like you arne't familiar with fair housing or HUD screening guidelines- I'd start there. If you have a good handle on that process and your requirements as a landlord, these questions will go away altogether.
Second- rent is not negotiable. If you start your relationship with a tenant out by negotiating the lease and the rent with them, you are setting a very bad precedent. If rent is negotiable, then EVERYTHING is negotiable. It will not be fun to share a space with a tenant who is draining your will to live because you've already proven to them that you aren't taking your job seriously.
No offense meant, I hope you don't take it that way, but anyone who even asks about negotiating rent is not going to get a signed lease. Please treat your landlording as a job- it'll be harder at first, but you'll have a much better future that way.
If you think you need to ask for less rent because the market isn't supporting your current price, then advertise it at a lower rate, but don't negotiate with prospective tenants.
Best of luck!
- 3yMichael DiossaPro MemberInvestor · RI · Member since 2023 · 191 posts · 163 votes
Ask yourself which one would have a longer term? Vacancies hurt more in the long run. You could maybe slowly increase it throughout the years.
Also which group would treat that home like their own?
- 3yJeff SchemmelBusiness MemberReal Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
@Corby Goade actually, below is true according to HUD. While I don't necessarily agree with it, and I think as a landlord you should try to manage your property the way you would if you weren't there, technically you can be more picky as an owner occupant.
What Types of Housing Are Covered?
The Fair Housing Act covers most housing. In very limited circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family houses sold or rented by the owner without the use of an agent, and housing operated by religious organizations and private clubs that limit occupancy to members.
- 3yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
@Ana Vergara this is totally up to you and your preference and finances. How much is profit worth to you? How much is comfort worth to you?
If the group of 3 is going to move out or get sublease that also sounds like more work. Is that extra work worth it to you? Is the extra wear and tear on your house worth an extra $125?
Those are questions to consider when you think through what you want to do.
The Assumable Guy544 Reviews - 3yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
Quote from @Jeff Schemmel:
@Corby Goade actually, below is true according to HUD. While I don't necessarily agree with it, and I think as a landlord you should try to manage your property the way you would if you weren't there, technically you can be more picky as an owner occupant.
What Types of Housing Are Covered?
The Fair Housing Act covers most housing. In very limited circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family houses sold or rented by the owner without the use of an agent, and housing operated by religious organizations and private clubs that limit occupancy to members.
Hey Jeff- I am familiar with this exception, but I don't love it for a couple reasons-
-It doesn't protect landlords from a civil suit and I believe it makes some people TOO bold.
-The truth is, following the HUD guidelines almost guarantees you a good tenant and it starts the relationship off on a professional foot rather than a personal one.
I'm generally not a fan of any type of governement regulation, but I've found the HUD screening best practices and fair housing guidelines to be functionally beneficial to our profession. I hate to say it, but there are plenty of people out there who have no business being landlords and we haven't exactly done a great job with PR. This holds us to a more professional standard.
In any occasion, thanks for pointing out the exception, nothing wrong with people having the full scope of info!
- 3yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
In my opinion, the decision is up to you, but you should be aware of the potential disadvantage you may face in the future because of the 3% rent cap. Starting with a 10% deficit could be a significant setback, especially if the fair market rent is higher than what you are currently charging.
- Member since 2020 · 2 posts · 1 vote3y
Would there be anything to prevent you from keeping the rent number where it is (so that you can make sure you aren't as impacted by the % cap increase), while supporting them by paying for part of the utilities? Obviously I don't know your exact situation, but it might be better to pay the water bill, or have them utilize your wi-fi, than lower the rent number itself. Just a thought!
-Stew
- Real Estate Agent · Keller, TX · Member since 2022 · 62 posts · 37 votes3y
I recommend negotiating with them a little bit. If you're willing to go down to $1300 maybe try this out first:
"How would you feel about a rent of $1,335, which is still below market rate, and with a 3% increase next year, would only reach $1,375?"
If they say no, counteroffer closer to your hard limit, which is still below the market price. "I understand your concerns. What if we agreed on a rent closer to $1315 Would that be more acceptable to you?"
If all else fails, drop to your limit $1300 and hold fast.
- 3yNed J.Pro MemberInvestor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
For me, rent is NOT negotiable. I set it at what I see the value is relative to the market... I dont set it relative to the tenant.
Starting on day one of "well what do you think about.....?" sets the stage of EVERYTHING being on the table for "negotiation".....
If they are " I cant afford $125 a month more", what do you think will happen when they get a $800 car repair bill.... a $1200 medical expense? or any other unexpected bill that comes up?
- Investor · Wheat Ridge, CO · Member since 2013 · 75 posts · 41 votes3y
Quote from @Ned J.:
For me, rent is NOT negotiable. I set it at what I see the value is relative to the market... I dont set it relative to the tenant.
Starting on day one of "well what do you think about.....?" sets the stage of EVERYTHING being on the table for "negotiation".....
If they are " I cant afford $125 a month more", what do you think will happen when they get a $800 car repair bill.... a $1200 medical expense? or any other unexpected bill that comes up?
Great point!
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Quote from @Ned J.:
For me, rent is NOT negotiable. I set it at what I see the value is relative to the market... I dont set it relative to the tenant.
Starting on day one of "well what do you think about.....?" sets the stage of EVERYTHING being on the table for "negotiation".....
If they are " I cant afford $125 a month more", what do you think will happen when they get a $800 car repair bill.... a $1200 medical expense? or any other unexpected bill that comes up?
I made this mistake with a self-managed rental to a family member (Mistake #2 don't rent to family members and friends even if they pass income requirements, background check and credit score). Family member paid rent late 2 months in a row - "I just got paid", "I had to pay for a medical bill", "Can you cut me a deal on..." She's finally paying rent on time. When this lease expires, I will never rent out to family again and have a property management company deal with future rental applicants and tenants.
- Saint Paul, Minnnesota · Member since 2021 · 9 posts · 6 votes3y
Quote from @Abel Curiel:
Hello @Ana Vergara!
The sisters sound like a great choice given the fact that they seem a bit more stable and could potentially be less noisy.
@Joel Case brings up a good question here. If the unit has not been listed for too long, you might want to wait at least a few more days for more inquiries/applications.
That said, I'd consider the following:
- Counteroffer at $1295 or $1279 so that you are finding some kind of middle ground
- Once a monthly rental amount is agreed upon, set the expectation that rents will increase 2.5-3% each year. This is especially important for tenants you get along with so that they realize there are professional boundaries to stay within. If you get any pushback here, you can remind them that your costs/expenses increase each year. they already realize that their utilities are relatively high so they should understand
this.All the best!
Abel
Hi Abel,
Thanks for your input Abel! I am wondering what would you consider waiting for too long? We posted it in March. I do live in Minnesota and do think since it is winter is influences how many people are currently looking to move.
- Saint Paul, Minnnesota · Member since 2021 · 9 posts · 6 votes3y
Quote from @Bryon Andrews:
My wife and I have househacked in Stillwater, MN for a few years now and have found that it is important to have a good relationship with the residents that you are sharing a wall or floor with. St. Paul is different with the 3% cap, but I have always been a proponent of being just under market rent to both attract more potential residents as well as retain great residents. Turnover can be very tough on your bottom line. (Househacking tip - Unless there is great soundproofing, I enjoy living in the upper unit, as people walking around above you can be loud and annoying over time!)
Thanks Bryon! All good things to consider since you are currently house hacking.
- 3yAbel CurielBusiness MemberReal Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
Quote from @Ana Vergara:
Quote from @Abel Curiel:
Hello @Ana Vergara!
The sisters sound like a great choice given the fact that they seem a bit more stable and could potentially be less noisy.
@Joel Case brings up a good question here. If the unit has not been listed for too long, you might want to wait at least a few more days for more inquiries/applications.
That said, I'd consider the following:
- Counteroffer at $1295 or $1279 so that you are finding some kind of middle ground
- Once a monthly rental amount is agreed upon, set the expectation that rents will increase 2.5-3% each year. This is especially important for tenants you get along with so that they realize there are professional boundaries to stay within. If you get any pushback here, you can remind them that your costs/expenses increase each year. they already realize that their utilities are relatively high so they should understand
this.All the best!
Abel
Hi Abel,
Thanks for your input Abel! I am wondering what would you consider waiting for too long? We posted it in March. I do live in Minnesota and do think since it is winter is influences how many people are currently looking to move.
Hey Ana,
I am not familiar with your local market so I can only speak to the NY market which has strong rental demand year-round (with the exception of Nov-Jan when things slow down a bit).
That said, "too long" for a well priced rental listing is 4+ weeks. In hotter markets, a rental listing that is priced well (priced at or slightly below market rent) should begin receiving serious inquiries & applications in 2 weeks or less.
REbuild Team - eXp Realty5234 Reviews - Member since 2023 · 26 posts · 11 votes3y
Hi Ana,
I'm not an investor yet, but on the site to learn and become one within the next 1-2 years (I'm a travel nurse riding out the market). Here's my two cents. I've rented rooms, units, and sometimes had my own bungalow while traveling. I'm 43, and have realized, I've reached the point in my life I will pay for quality of life (whether that means higher rent/mortgage to be in a location I'd be more happy with, etc.) instead of trying to save something as simple as $125. If hypothetically, you're so tight you need the $125, then that's a different set of criteria to impact the decision. Here's another thought.
Use the Benjamin Franklin close to decide. Make a column of both parties, or two separate ones. Put pros/cons and list each of those for both tenants. Eventually, emotions aside, you'll have either a longer pro's or longer con's column for both groups. This may help you look at hard facts. Ultimately, with a baby, you have to decide what you value more.
- 3yJeff SchemmelBusiness MemberReal Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
@Ana Vergara how did it go?
- Real Estate Agent · Member since 2019 · 143 posts · 74 votes3y
Congratulations on your recent purchase of a duplex in Saint Paul, Minnesota! It sounds like you have two potential tenants interested in renting one of the units, and you are trying to decide which group to rent to and whether to lower the rent for the sisters.When making this decision, there are a few factors to consider. First, you mentioned that you and your husband live in the bottom unit, so you will want to make sure that the tenants you choose will be respectful of noise levels. If you think the group of three students will be noisy, then it may be worth considering the sisters instead.
Second, you mentioned that the sisters have asked for a reduction in rent to $1250 because utilities are higher than expected. You will want to make sure that you are covering your expenses and making a profit on the rental. If you decide to lower the rent, make sure that it will not significantly impact your bottom line.
Third, you mentioned the new ordinance in Saint Paul that limits rent increases to 3%. This means that if you do decide to lower the rent for the sisters, you may not be able to raise it significantly in the future. Make sure you are comfortable with this restriction before making a decision.
Ultimately, the decision of which group to rent to and whether to lower the rent is up to you. It may be worth considering the noise level, the financial impact of lowering the rent, and the long-term restrictions on rent increases. It may also be helpful to have a conversation with the sisters to see if there are other ways to address their concerns about utilities without lowering the rent.
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