Author Topic: Offering to prepay for rental discount  (Read 1431 times)

felizcortez

  • Stubble
  • **
  • Posts: 149
Offering to prepay for rental discount
« on: July 21, 2016, 09:40:40 PM »
I am looking at renting a home that is $2600 per month and includes utilities.  I'm considering offering a year of rent up front to see whether the landlord would provide a discount.  However, I'm not sure how much would be a reasonable offer I was thinking of starting at 8% (rough stock market returns) and being willing to settle for ~3% or $100 bucks off per month.  Does this seem like a reasonable amount?


Shane

  • Pencil Stache
  • ****
  • Posts: 946
  • Location: Independent
Re: Offering to prepay for rental discount
« Reply #1 on: July 22, 2016, 01:51:28 AM »
If the landlord were willing to give you a considerable discount, i.e., at least 10% off, then maybe it would be worth it, but there's no way I'd prepay $30K+ for only 3% off the full price.

As a renter, the only leverage you've got in the relationship with your landlord is your monthly rent payment. If an earthquake or a storm levels the house, do you think your landlord will be willing/able to pay you back the rent money you've already paid him? What if things in the house break and the landlord doesn't fix them? Even if you know and trust your current landlord or property manager, what if he dies? Will his successor/heirs honor his agreements with you and continue to maintain your rental home in the same condition?

It just seems like prepaying that much money carries with it a lot of risk and you should be well compensated for taking that risk, otherwise don't do it.

Just my 2 cents.

Spitfire

  • Bristles
  • ***
  • Posts: 279
  • Location: Weston, FL
Re: Offering to prepay for rental discount
« Reply #2 on: July 22, 2016, 10:00:01 AM »
Agree with Shane. The monthly payments are your only leverage for dealing with any problems in the house. They also give you flexibility for leaving early if you need to (even though it likely has a penalty).

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1045
Re: Offering to prepay for rental discount
« Reply #3 on: July 22, 2016, 10:14:03 AM »
Withholding monthly payments is certainly not the only mechanism for extracting reasonable behaviour from the landlord, and in fact the law related to withholding rent payments is different in every jurisdiction and typically has many complicated conditions and exceptions. The availability of that remedy may also depend on the terms of the lease. Please carefully study the law applicable in your jurisdiction before considering this proposed course of action.

Assuming the landlord is solvent, an alternative way of conducting business is simply to continue to pay the rent on time, and then assert any claims you might have by sending a letter to the landlord setting out the legal basis for those claims and the damages that you are requesting therefor. You can then negotiate a settlement of the claims, or, if that process breaks down, you can file suit.

That said, I still agree that paying a year upfront should warrant a larger discount than the stock market, and certainly larger than 3%. The transaction is more comparable to a loan than to a broad US stock market equity investment insofar as you may be able to recover the money in the future if something goes wrong, but how much you can recover will depend on the creditworthiness of the landlord. The loan is also essentially unsecured. (The only "security" is the right to live in the property, but as Shane points out, there are various contingencies that could reduce the value of that right.) So, in order to decide what discount you should accept, you should evaluate the landlord's credit record, financial assets, income level, and educational and professional background just as if you were any other unsecured lender and determine what interest rate you are comfortable with. The landlord will probably not disclose that information to you, so you'll have to ballpark it, but 3% sounds far too low, and even 8% is probably on the low side of what you should accept.
« Last Edit: July 22, 2016, 04:22:04 PM by Cathy »

NoNonsenseLandlord

  • Bristles
  • ***
  • Posts: 396
  • Age: 60
  • Location: Eagan, MN
    • No Nonsense Landlord
Re: Offering to prepay for rental discount
« Reply #4 on: July 23, 2016, 03:50:28 PM »
I would not do it, and I suspect many others would not either.

I see many people here happy with a 6% return.  If you take an 8% discount, the landlord will not even cash flow.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11650
  • Age: 61
  • Location: NorCal
Re: Offering to prepay for rental discount
« Reply #5 on: July 23, 2016, 04:36:27 PM »
Agree with others that there are pitfalls to your approach. In addition, if you end up hating the place, you can't even break your lease. Ugh.

To answer your question with a personal experience: I did something along these lines once for a short term rental in SF. I wanted to rent a house, not live in a hotel during my three month work assignment. The math worked out in my company's favor, but they balked at the deposit. I proposed to the landlord  (a family heading for a European sabbatical) and my employer that the rent be paid in a lump sum in advance in lieu of deposit. All parties agreed and I moved in. I offered to give the homeowners a separate deposit check in case there were any problems, but they were so happy to have the extra money for their trip that they said it wouldn't be necessary. I took great care of the house while they were gone. It was a win for everyone. BTW, I lived on the per diem (cooking in my "own" kitchen!) and banked three whole month's paychecks.

OP, don't be afraid to be creative, but make sure the gains outweigh the risks.

Oh, here's another one: During the same time period, I rented an apartment in LA. My landlord had a business not far away. I got in the habit of paying my rent a week early and dropping it off at his business. Man, they loved it! Of the ten years I lived there, about half the time they never bothered to raise the rent. I was the master leaseholder, so every time I got a new roommate, I increased their rent. Eventually, I was so far below market that I could charge the roommates the big half of the rent, but still offer them a good deal, so I was able to choose my roommates with extra care. Some of them are still friends to this day.

fishnfool

  • Bristles
  • ***
  • Posts: 337
Re: Offering to prepay for rental discount
« Reply #6 on: July 23, 2016, 04:43:41 PM »
If I was renting to you I would be open to negotiations for a  year rent paid in advance. I like your idea. But it might not be to your best interest as others have already said.