11

It's time for me to renew my apartment lease and the landlords are suggesting an increase of 5.8% over the "current" rent price and ~15% over the "effective rental rate" (because I got a free month when I signed the lease almost a year ago).

I think is excessive but I don't have good references. The considerations I'm making are the following:

  • There have been available units in the building for almost a year.
  • Some of those available apartments are listed for a price similar to what I'm currently paying.
  • For the new asked price I could get a similar apartment in similar condos with gym and pool (this one doesn't have anything) or in a way better area (closer to supermarkets, restaurants, etc).
  • There has been almost no inflation during 2014-2015.

I would like to negotiate, should I? is the rate increase that they are offering normal?

  • 2
    If you've only been there a year, it's possible your lease was promotional pricing. I've had that before, where I came in after the normal influx of college students. They lower the price significantly. The next year they raised it. In my mind, though, I thought it was still below a fair rate. You can still negotiate, but ask yourself if it's worth that rate to others. Second, ask yourself if you're willing to move over that increase, especially if you only have a few months left to find a new place. – ps2goat Apr 3 '15 at 13:19
  • Debatable on your point about inflation; watch the documentary Money For Nothing (free on YouTube - youtube.com/watch?v=qDMkgmL-G24; start at 58:00 to 1:02:00). Under Volcker's Fed, asset prices were included in inflation, now they're not. What you're seeing is the result of asset price inflation; yes real estate has gone up, meaning you're going to start paying more, so there has been inflation. The current Fed does not include asset prices in its inflation calculation. – user541852587 Apr 4 '15 at 16:04
  • For what it's worth, the only landlord who did not increase my rent every year was one who was absolutely delighted with me as a tenant -- he hated plumbing and I did some repairs he didn't want to deal with; I was a quiet, well-funded tenant in a unit which had a history of being troublesome; and so on. It was the kind of situation where we were both comfortable letting it revert to tenant-at-will since we trusted each other to be reasonable. Helped that his son, living under me, was one of my co-workers, and that I was willing to put up with his once-a-year rowdy summer party. – keshlam Dec 2 '16 at 16:06
22

Should you negotiate? Yes, what harm can it possibly do? The landlord is unlikely to come back and say "Because you tried to negotiate, I'm putting the rent up by 10% instead.", or to evict a paying tenant merely because they tried to negotiate.

Is the proposed rent increase "normal"? Yes. Landlords will generally try to get as high a rent as they can.

  • 7
    Whether it is normal and/or legal will depend on the location. Many places have laws and regulations to protect tenants. – gerrit Apr 2 '15 at 15:00
  • 3
    Landlords are not "greedy"-- not in the sense that they are trying to rob you blind. They're running like a business, and a business has to make some profit to keep afloat. For example, say property taxes went up 5%, and the landlord was cutting you a deal at 1% above cost to live there. Should they then operate at a 4% loss without passing the cost on to you? How long do you think a business like that would last? Leases are actually a bane on landlords, because they have to honor those rents in the face of rising costs of utilities and taxes. – phyrfox Apr 3 '15 at 16:31
  • 1
    And, technically, in almost all jurisdictions, you're allowed to charge whatever you want, so long as you're paying the appropriate taxes and fees for doing so. Exceptions are those that are government funded (Section 8 in the US), or under other special contracts. What keeps rent down is wanting to keep tenants, and what drives rent up is the cost of operations. I can't think of a good reason why any landlord would attempt a raise of price because you tried to negotiate, though, because they'd go out of business with tactics like that. – phyrfox Apr 3 '15 at 16:36
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    @phyrfox: Leases are actually a bane on landlords, because they have to honor those rents in the face of rising costs of utilities and taxes. If they fail to anticipate rising costs, that's their problem, not the tenant's. Leases are a very good thing to landlords: they're a guaranteed source of income for a fixed period of time. The landlord knows that the lessee is far less likely to suddenly move out than someone living there month-to-month. – Mason Wheeler Apr 3 '15 at 18:33
  • The landlord is unlikely to come back and say "Because you tried to negotiate, I'm putting the rent up by 10% instead." Unless your landlord is Ben Franklin. ;-) – Michael Apr 4 '15 at 20:41
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There could be a number of reasons for a rent increase. The only information I can offer is how I calculate what rent I will charge.

The minimum I would ever charge per unit

(Mortgage payment + Water) / Number of units

This number is the minimum because it's what I need to keep afloat.

Keep in mind these are ballpark numbers

The target rent

((Mortgage payment + Water) / Number of units)*1.60

I mark up the price 60% for a few reasons. First, the building needs a repair budget. That money has to come from somewhere. Second, I want to put away for my next acquisition and third I want to make a profit.

These get me close to my rental price but ultimately it depends on your location and the comparables in the area. If my target rent is 600 a month but the neighbors are getting 700-800 for the same exact unit I might ask more.

It also depends on the types of units. Some of my buildings, all of the units are identical. Other buildings half of the units are bigger than the other half so clearly I wouldn't charge a equal amount for them.

Ultimately you have to remember we're not in the game to lose money. I know what my renters are going to pay before I even put an offer in on a building because that's how I stay in business. It might go up over the years but it will always outpace my expenses for that property.

  • 4
    Suppose you had a choice between leaving units vacant or renting them at a rate below your target rent, or even your minimum. Which would you choose? – Patricia Shanahan Apr 2 '15 at 14:22
  • 2
    @PatriciaShanahan I don't think I've ever seen a place with a surplus of rental units... – gerrit Apr 2 '15 at 15:01
  • 1
    I can't speak to empty units. I NEVER have an empty unit. Ever.... When a lease is ending I require a renewal within 60days of the lease ending. Otherwise I list it. Full disclosure is I only buy in neighborhoods that are in demand so my units rent in less than a day also. That said, if I had an empty unit I would ask myself why is it empty and fix the problem – Anthony Russell Apr 2 '15 at 21:53
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    Clearly, you know what you're doing, and making money at it. Your 'rules of thumb' which you highlighted, don't make sense to me. The rest of your answer looks great, and +1. – JoeTaxpayer Apr 4 '15 at 13:15
  • 1
    @L0j1k Your landlord might have spoken to a "rental consultant" who advised them to raise the rent significantly. Or they might be hard up for cash and want/need to squeeze every bit out. There are lots of reasons, unfortunately, but it's no fun being on the receiving end. – Jeremy Apr 4 '15 at 14:05
9

There has been almost no inflation during 2014-2015.

do you mean rental price inflation or overall inflation? Housing price and by extension rental price inflation is usually much higher than the "basket of goods" CPI or RPI numbers. The low levels of these two indicators are mostly caused by technology, oil and food price deflation (at least in the US, UK, and Europe) outweighing other inflation. My slightly biased (I've just moved to a new rental property) and entirely London-centric empirical evidence suggests that 5% is quite a low figure for house price inflation and therefore also rental inflation. Your landlord will also try to get as much for the property as he can so look around for similar properties and work out what a market rate might be (within tolerances of course) and negotiate based on that.

For the new asked price I could get a similar apartment in similar condos with gym and pool (this one doesn't have anything) or in a way better area (closer to supermarkets, restaurants, etc).

suggests that you have already started on this and that the landlord is trying to artificially inflate rents. If you can afford the extra 5% and these similar but better appointed places are at that price why not move? It sounds like the reason that you are looking to stay on in this apartment is either familiarity or loyalty to the landlord so it may be time to benefit from a move.

  • 1
    You're missing one reason (and it may be what the landlords hopes for) that it's inconvenient to move, it takes time and money (less time if you spend more money of course), and not everybody has the time. – yo' Apr 2 '15 at 13:28
  • my main point was supposed to be the different types of inflation not the throwaway comment that I would move so I didn't include all of that cost information. – MD-Tech Apr 2 '15 at 13:31
7

Yes, automatic rate increases are typical in my experience (and I think it's very greedy, when it's based on nothing except that your lease is up for renewal, which is the situation you are describing). Yes, you should negotiate. I've had success going to the apartment manager and having this conversation:

Make these points:

  1. There are many empty units in the complex
  2. They are offered for the rate I'm paying now (not the increased rate)
  3. Similar units in the area are available for the original rate or less

Conclude:

I am not open to a rate increase, though I will sign a renewal at the same rate I am paying now.

This conversation makes me very uncomfortable, but I try not to show it. I was able to negotiate a lease renewal at the same rate this way (in a large complex in Sacramento, CA).

If you are talking to a manager and not an owner, they will probably have to delay responding until they can check with the owner. The key really is that they want to keep units rented, especially when units are staying empty. Empty units are lost income for the owner. It is the other empty units that are staying empty that are the huge point in your favor.

  • I agree that the empty units in the complex ought to be a killer negotiating point, that is they ought to impose price discipline on your landlord. You have a very plausible BATNA: spend an afternoon moving down the hall to an identical unit and get a new lease with perhaps even a new first free month. If he thinks you'll pay 5.8% more forever to avoid that, once you've pointed out you're aware of it as an option, then either he reckons you've redecorated exactly how you like it and won't really go ahead, or else he needs to explain right now why he thinks you're better off staying ;-) – Steve Jessop Apr 3 '15 at 2:23
  • Actually, the lease is what keeps the rent down to begin with. For example, if you negotiate a five year lease, then you're stuck with that price for five years, even if the price of every other unit goes up, because it's a contract. The landlord can only negotiate on renewal. Note that your landlord is operating a business. If he can't pay utilities, taxes, and fees, he will have the property repossessed and auctioned off, possibly causing all tenants to be evicted if the new owner chooses. Empty units might mean other tenants have to share the cost. – phyrfox Apr 3 '15 at 16:24
  • Of course, you're free to try and keep your rent down, but if the landlord has economic pressure, they may have no choice but to not renew the lease and hope that others will come along to fill the void. Units that remain empty too long usually result in the entire building becoming a parking lot when nobody can justify owning and operating an apartment building there any more. – phyrfox Apr 3 '15 at 16:27
  • @phyrfox: good point, but in this case the questioner says there are units on offer for prices similar to what he's paying before the rise. So if it's just about the market, then this landlord is directly in competition with someone who can afford to let a unit in the same building for a lower price. Not good news for the landlord who can't, maybe should sell to the one who can ;-) – Steve Jessop Apr 5 '15 at 3:07
3

What happened in the past, the rent you paid last year, is in the past. You shouldn't be concerned with the percentage increase, but with whether you want that apartment at the new rent for the coming year. If your rent had been half what it was last year and the new proposal were to double it, you would be outraged at the doubling, but really you got a steal last year.

Going forward, you have three options. You can accept the new rent, you can decline it and move, or you can try to negotiate a better rate. It sounds like the landlord is hoping you will find the hassle of moving enough to accept the new rent. If you do negotiate, you should know what your preferred alternative is, which you should use to set your walkaway point. If you make a counterproposal, it is often useful to show what a comparable apartment is renting for to justify the rent you suggest.

2

If it is true that for the same price, you could get a better place (or that for a lower price you could get an equivalent place), you should do some soul-searching to decide what monetary value you would place on the hassle of moving to such an alternative. You should then negotiate aggressively for a rent that is no more than the rent of the alternative place plus your hassle costs, and if the landlord does not meet your price, you should refuse to renew your lease, and instead move out to an alternative. (Of course, you might also want to double-check your research to ensure you really can get such a good alternative, and that your new landlords won't try a similar bait-and-switch and force you to move again in a year.)

Barring local ordinances such as rent control laws, I don't think it's worth it to worry about whether the increase is "normal". If you can get a better deal somewhere else, then what your landlords are asking is too much. If you have a good relationship with them on a personal level you may be able to tell them this in a nice way and thus get them to make a more reasonable offer. Otherwise, the landlords will learn that their expectations are unreasonable when all their tenants move out to cheaper places.

1

I think people are missing the most obvious thing. The yearly rate increases are just part of the landlord schtick and it is good business for them. My grandmother owned several large apartment complexes. She would raise rates for any resident that had been there between 1-5 years by 5-7% a year. Even when she had vacancies and property values didn't go up. For the following reasons:

  • people are lazy and won't move
  • not many people will raise a fit over something around 5%
  • people who are having financial issues are more likely to try to leave upon increase

So yes it is not only normal but just part of the business. If there are better apartments for less money I suggest you move there. Soon those other apartments will even out and if they are better they will be much more. So if you see a gap take advantage of it. If you would rather stay, then simply say you will not pay the increase. There is no use arguing about why. The landlord will either be OK with it or say no. Probably the biggest factors include whether you will tell other tenants (or their perception if you would) and how good of a tenant/risk they feel you are.

0

Absolutely yes. Just because a lease provides an option for renewal does not mean that a tenant cannot try to re-negotiate for better terms. You should always negotiate the rent. And start this conversation as soon as possible. Offer to pay three months’ rent in advance (of course, if you have enough means).

  • This doesn't really add anything to the existing answers on the question. – Ganesh Sittampalam Dec 3 '16 at 14:49

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