The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Adventine on July 29, 2015, 06:09:44 PM
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I recently signed a lease on a new condo with a listed rental rate significantly higher than my budget. I successfully negotiated the rent down to a figure within my budget, because I was willing to pay, all at once, 12 months rent plus 2 months security deposit.
I was willing to make such an offer to the landlore because it's a great place that meets all my needs. It's a five minute walk from the office/supermarket/public transport hub, in a safe and flood-free neighborhood. It's fully furnished with all the basics I need. Added plus: the interior design is unusually beautiful for a rental.
Most importantly, it's all my own. I really wanted a place all to myself, without having to deal with roommates or family.
Has anyone else done something similar? What went wrong and what went right?
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Following, because I may do something along these lines next year when my lease is up. Assuming I want to stay, I'm planning on negotiating down the inevitable rent increase by paying at least a couple months rent up front.
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Negotiating a deep discount on rent through prepayment can be a wise financial transaction, but you should realise that this transaction is in the nature of an unsecured loan. Anybody can become a landlord. It does not require any special training or skills or even any serious level of financial aptitude. Just because somebody is a landlord, does not mean they are a good credit risk.
Let's suppose the landlord blows your entire prepayment in a week and has no other money to his name. (We'll suppose the mortgage loan secured by the property has a balance that exceeds the value of the property.) If your apartment needs maintenance, the landlord is not going to be able to pay for it because he has no money. You can do the maintenance yourself, but since the landlord has no money, you won't be able to collect damages from him. If you hadn't given the unsecured loan to the landlord, you might have other options, such as leaving the apartment. (Well, you can still do that, but you'll be out your money.)
Similarly, in case of foreclosure of the property, you might be worse off as a result of having prepaid the insolvent landlord, although the details will depend on local law and I decline to research the law of the Philippines for the purpose of this post.
If the landlord is solvent, this transaction may work out without issue, but I hope you at least inquired about the landlord's credit-worthiness before making this loan, perhaps obtaining a credit report on him (if those exist in the Philippines). Landlords often insist on obtaining such reports on prospective tenants and there is every reason to insist on reciprocal disclosure when you are taking on this kind of risk.
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It is not uncommon in Manila to do this. My husband's company has pre-paid a year's rent twice for two different apartments. With the first apartment, it worked out well but the owner was not hurting for cash. Plus I doubt you would want to tangle with his work's legal team. We will see what happens with the second apartment.
As to downsides, I suppose the landlord could do a disappearing act when it comes to maintenance issues. However, I find landlords here do not tend to maintain their apartments anyway so I typically sort out issues myself to save on annoyance.
I would ensure that you properly document the condition of your apartment before moving in, like be absolutely obsessive about every scratch and mark. Take photos or video. All too often, landlords here pocket your deposit and then find all kinds of reasons not to return it and there is no way to force them to give it back. Unless of course you can afford lawyers. We do have the benefit of a large and tenacious legal team behind us and I believe that keeps them honest.
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I did this once when I was being paid on a grant that only paid me every four months. It wound up working out great for me, except there was a lot of anxiety because of the things that Cathy was getting at; my landlord wasn't very solvent and he agreed to the deal (3x up front in exchange for 4 months rent) because he needed money. I didn't know this at the time.
He lived on the same property and at one point there was talk about the possibility that he would be evicted because he was months behind on the mortgage.
I probably wouldn't do it again.
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I recently signed a lease on a new condo with a listed rental rate significantly higher than my budget. I successfully negotiated the rent down to a figure within my budget, because I was willing to pay, all at once, 12 months rent plus 2 months security deposit.
I was willing to make such an offer to the landlore because it's a great place that meets all my needs. It's a five minute walk from the office/supermarket/public transport hub, in a safe and flood-free neighborhood. It's fully furnished with all the basics I need. Added plus: the interior design is unusually beautiful for a rental.
Most importantly, it's all my own. I really wanted a place all to myself, without having to deal with roommates or family.
Has anyone else done something similar? What went wrong and what went right?
Congratulations! Sounds perfect for you and you don't have to share.
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Thanks for all the input. The landlord is pretty well off, with several rental properties. I'm not worried about his cash flow. Also, he just paid for repairs of an issue I noticed a couple of days ago (crack in the the window). So I don't think chasing him down for maintenance will be an issue.
My actual lease period starts tomorrow. Following the advice here, I'm going to document everything in the condo and send the video link to the landlord.