Much has been made of the current buyer’s market in real estate. But rentals are also on sale, and tenants paying the same rent as one year ago might be paying too much.
The factors driving the downturn in home sales — joblessness, overbuilding and a plunge in consumer confidence — have torpedoed the rental market.
As a result, some tenants are finding they can shave hundreds of dollars off their rent simply by asking their landlord for a reduction.
“It’s a market, and when there’s an oversupply, then the buyers are in a position to influence the market, to make deals, to negotiate,” says Ed Sacks, author of four books on tenant-landlord relations and contributing columnist to the Chicago Sun-Times.
The vacancy rate for multifamily apartments of 40 or more units has risen 1.2 percent in the last year, to 7.2 percent, according to a study by New York-based real estate research firm Reis.
As a result, the average rent asked for apartments nationwide has dropped by 0.6 percent, from $1,052 to $1,046 per month. That may not seem like much, but it’s the largest-ever quarterly drop in the Reis study’s 10-year history.
The key to prying concessions from often-reluctant landlords is preparation.
“The first thing is to know the market,” Sacks says.
Rent reduction game plan
Not all markets are in freefall. The same Reis survey that paints a dire picture of the overall rental market shows rents in Houston, Oklahoma City and Tulsa, Okla., jumping between 3 percent and 4 percent in the last year.
Trying to cut your rent in such markets may be a nonstarter. So before charging into the landlord’s office, it pays to do a little research into local rents.
“You’ve got to know the market prices, and those are fairly easy to determine these days off the Internet and the surviving classifieds in newspapers,” Sacks says.
Once you know what’s going on with the rental market in your area, it’s time to do a little digging into your landlord’s situation.
“Know what the landlord is advertising for units in the building,” Sacks says. “If you can, find out from other renewing tenants what they’re doing with other tenants. Know the scuttlebutt. If the landlord’s in trouble, the landlord might be a little more willing to negotiate.”
Once you’ve gathered this information, it’s time to set up a meeting with your landlord. Good, loyal tenants can make a strong case for why their landlord should be willing to negotiate a new lease, Sacks says.
Sacks envisions a typical request as follows:
“I’ve been a good tenant. You know I pay my rent on time, you know I don’t cause trouble. I’m not destructive of the unit, so I am a known quantity. You can rely upon me. You can trust me.
“And that has value, because, Landlord, when you rent to a new person, you don’t know for sure. You don’t know what their personality is like or their attitude, or their financial reliability and dependability. You know all those things with me, and that has value.”
One woman’s success story
Phyllis Nichols, who rents a two-bedroom, two-bath condo with her husband in downtown Columbus, Ohio, found out firsthand how much power renters now wield.
“We were in month 10 or 11 of an 18-month lease with an option to purchase,” Nichols says. “The owners sent around an e-mail saying, ‘Do you guys think you might be exercising the option?'”
Looking at the price they’d negotiated a year earlier for the 2,000-square-foot condo made them realize they didn’t want to buy into the topsy-turvy real estate market.
“So we decided that we weren’t comfortable making a purchase because things seemed really uncertain,” Nichols says. “But if we’re going to continue leasing, we should probably see what’s out there.”
Nichols spent a few hours researching local apartments on the Internet, first on Craigslist and then on Metro-Rentals.com, a Web site focusing on urban properties in Ohio. Soon, a pattern emerged.
“We realized that we could get a similar space with similar amenities for about $600 a month less,” she says.
Even though they were in the middle of their lease, Nichols took her case to the company that managed her property.
“We literally just called up the company that we lease from and said, ‘We’re not necessarily looking to move, but the market has changed dramatically since we originally entered into our agreement, and we’d really like to talk to you about it, because otherwise we probably don’t see ourselves staying here,'” she says.
Nichols asked the company to cut $600 a month off the rent. The company countered with a $400 per month concession and a better set of parking spaces. Nichols happily agreed.
Nichols’ case suggests that even if renters are still working with an existing lease, falling rents and increased vacancy rates give them leverage to ask for a better deal from their current landlord.
“I just told (the manager) kind of flat out, ‘If we move out, I think you would have difficulty leasing it at this price,'” Nichols says. “‘I think you’d even have difficulty leasing it maybe even at the $600 off that I’m asking you for, just because so much is on the market.'”
That kind of talk annoys Lisa Trosien, especially when it comes to leases already signed by tenants.
“Are they going in and renegotiating their car payment?” says Trosien, owner of ApartmentExpert.com, a multifamily consulting firm based in Chicago. “Why would you just pick your housing payment?”
But Trosien acknowledges that renters have the upper hand in today’s market.
“It has become much more of a renter’s market than it has been in the past,” says Trosien. “All you have to do is pick up an apartment guide or go online and look at Rent.com and you can see that there are all types of different incentives being offered in markets across the U.S.”
However, she is skeptical that opportunities to negotiate are widespread. While she concedes individual landlords and smaller management companies may be willing to deal, she doubts reputable management companies will haggle.
“The federal Fair Housing Act pretty much says, what you do for one, you must do for all, so you can’t (negotiate),” she says. “Just because the market is suffering doesn’t mean you can walk in and bargain me into two months free because you’re really persuasive.”
She cautions that many dwellings loaded with incentives and offered at rock-bottom prices may carry their fair share of risk.
“(Renters) don’t know if the condo’s in foreclosure, they don’t know if the condo association is solvent, they don’t really know what’s going on, and not that many cities have an act of legislation to protect renters’ rights,” she says.
Management companies and landlords don’t like offering concessions, and those too eager to do so should raise suspicions, Trosien says.
“Owners don’t particularly like to offer concessions because it lowers the value of the asset for that period of time that you’re offering concessions,” Trosien says. “So it’s not something that owners want to participate in. But sometimes it’s driven by the market.”
Still, some landlords acknowledge that making the occasional concession may be in their self-interest over the long run.
Amy Ammen, who rents a condo she owns a half-block away from Waikiki Beach in Honolulu, cut rent for a good tenant and never looked back.
“As six months of her first term came to an end, (my tenant) told me that she was considering moving,” Ammen says. “She was a very good tenant, I mean outstanding. Always paid her rent on time and I never had to do anything.”
So Ammen offered to cut the rent on the condo from $1,180 a month to $1,000 a month. The tenant accepted and proceeded to give her three more trouble-free years of occupancy, during which Ammen steadily increased the rent to nearly the level it had originally gone for.
Eventually, the tenant moved back to Seattle, but in doing so left behind upgraded furniture and electronics that amounted to more than the concession Ammen had made.
“I would do it again in a heartbeat, given they proved themselves to be good tenants for the first term of their lease,” Ammen says.