Would you accept this rent offer?

[GoAnna!]

Hi all.

I currently have a fully furnished rental for $395 pw including electricity. I accept leases as short as 2 weeks although in reality they usually go for an average of 3 months.

My current tenant will be vacating in mid January so we are currently advertising it.

A prospective tenant has offered the following deal:

$360 pw for 6 months.
Will pay own electricity.
Will pay 6 months rent up front.
May extend the lease dependant upon work contract.
Will start lease immediately after current tenant vacates.

I have just had my property valued as part of an apartment complex and the valuer has told me that each additional $10 of rent equals $8K in equity. Finance will be applied for in Jan / Feb. They will likely be looking at this new lease in regards to both valaution and servicability.

Interested in hearing people's thoughts.

 

[Tizzy]

How competitive is it for tenants where the property is? Are these people just trying it on? If they've gone to the trouble of assessing to rent and attempting to negotiate you down they sound keen. Bluff them back and stick to your usual yield-less your weekly allowance for electricity.

If necessary you can always back down a bit later if you think they are going to walk away and you don't want to lose them.

 

[GoAnna!]

So Tizzy you wouldn't value in a) the rent up front (saving on interest) or lack of any vacancy over next 6 months?

It is a place of good rental demand but it is very possible that the next tenant will only want say 1 - 2 months.

 

[bernly]

Hi GoAnna

We have an apartment in Qld which we let for 1-3month periods so that we can use it ourselves when required. We include electricity in the let and have worked out that that costs us about $1.40 per day including fees and mandatory charges. Is the extra $28K (based on your info) when applying for finance really, really important? Upfront, I would say that your prospective tenant is offering a good deal. No loss of rent between tenants and a 6 month lease makes it even more attractive. Do you manage this yourself? Management fees would be reduced slightly with lower rent. Good luck

 

[Tizzy]

I would think that if there's a chance you might have extended periods with no rent at all, then yes you may just have to take their lower offer. But if there's reasonable competition for rentals then stick to your usual fees. It really depends on the vacancy rate in your area.

I've only ever been offered six months rent in advance once and I was so excited, but it was not the best tenancy experience for us. The tenants were constantly under police scrutiny over drug issues, most definately weren't respectful of the property and we had already used the rent and it took a further three months of missed rent payments after the lease ended before we finally got rid of them. It was our first IP and very nearly our last.

 

[dave99]

I reckon few people, even working away from home, would want to finance 6 months rent in advance. Why not receive the rent monthly as is usual? You could still have a fixed contract for the term. You may have to offer a discount to get people to pay the whole term in advance.

- Dave99

 

[Jaffasoft]

How long have you owned the property and can you gauge from that the vacancy rate so far?

Otherwise maybe you could counter offer the deal at $375 per week rent.

With that equity thing if I were an investor wanting to invest more using that equity I would go for the higher rent.

I think I would counter offer at an amount your comfortable with first. If he doesn't agree then I suppose you can revert back to his first offer immediately if need be.

26 weeks times 35 = $910 so that's about 2 and a half weeks vacancy. I think I would counter offer him at $375 and take him on seems he wants to do the right thing by you and since he's a negotiating man himself (because he's put the negotiation forward himself already!) he will probably have been prepared that you might counter offer what you will be prepared to accept.

 

[Les]

G'day Tizzy,

I've only ever been offered six months rent in advance once and I was so excited, but it was not the best tenancy experience for us. The tenants were constantly under police scrutiny over drug issues

Hehe - maybe I'm old and cynical, but that very thing was the first thought I had upon reading Goanna's post.

Maybe it was the "rent in advance" thing (it is so unusual).

It was our first IP and very nearly our last.

Good to hear you survived the bad experience and are still here - a tough row to hoe, especially for a first-timer,

Regards,

 

[ggumpshots]

How easy would it be to rent a similar property on a short lease? Isn’t the Melb rental market sitting at below 2%.
What about in your area?

You can always renegotiate a lower lease rate any time you like. I don’t think the tenant would be adverse to that!!!!!!!!!
Of course he doesnt have to agree with a lower rate.

so the rental lease rate and the bank requirements can be ignored down the track

 

[GoAnna!]

I reckon few people, even working away from home, would want to finance 6 months rent in advance. Why not receive the rent monthly as is usual? You could still have a fixed contract for the term. You may have to offer a discount to get people to pay the whole term in advance.

- Dave99

I agree Dave and I always let my tenants pay as suits them best. I currently have tenants that pay weekly, fortnightly, four weekly, calendar monthly, each 3 months in advance, or by invoice for the entire period of the lease.

I was not seeking the 6 months in advance, he offered it. Along with that offer he has also offered to pay the electricity but naturally expects a discount. Cash flow wise I believe I would be better off.

 

[GoAnna!]

G'day Tizzy,

Hehe - maybe I'm old and cynical, but that very thing was the first thought I had upon reading Goanna's post.

Maybe it was the "rent in advance" thing (it is so unusual). QUOTE]

Hehehe I know where you are both coming from but for this property large advance (or arrears) payments are not unusual. The rent is usually financed by a company rather than the tenants paying themselves. In this case its the ABC footing the bill.

 

[sailor]

I would think there would be room for you to make a counter offer. You don't have to accept what they offer you.

 

[GoAnna!]

Yeah I agree on the counter offer thing. I am also wondering how I might get more creative on the lease so that it says $395 per week but he pays what he wants to pay.....ummmm

 

[sailor]

Can you give him a discount? Or a cash back incentive if he pays up front, but the cash back happens at the end of the lease period?

 

[Dazz]

I am also wondering how I might get more creative on the lease so that it says $395 per week but he pays what he wants to pay.....ummmm

We do this all the time in the commercial arena.

Simply calculate what the Lease value is worth to him....26 x 360.

Work out what that equates to at your desired rent level......(26 x 360) / 395.

Without a calculator to hand, I reckon if you signed a six month lease at $ 395 / week and offered the first two weeks rent free.....you'd both end up with what you wanted ;

1. The tenant pays the same amount of cash as he has offered.
2. You get your mits on the 6 months dosh straight up.
3. Your valuer will be able to see in writing the signed Lease is for $ 395 / wk.
4. The signed up Lease for the higher rate provides you with your higher valuation.

Job done.

 

[GoAnna!]

Hi Dazzling I thought about the rent free bit but surely the bank would factor in the free rent period and consider the rent to average out to less than $395pw?

Brokers ?!! What is your experience in this situation?

 

[GoAnna!]

Tenant paniced and has signed up for 6 months at $395 pw. All is good

 

[Jaffasoft]

1. The tenant pays the same amount of cash as he has offered.
2. You get your mits on the 6 months dosh straight up.
3. Your valuer will be able to see in writing the signed Lease is for $ 395 / wk.
4. The signed up Lease for the higher rate provides you with your higher valuation.

Now that's a clever on. Could throw in a counter offer on that as well! Always amazes me the angles you can take at negotiating.

Tenant paniced and has signed up for 6 months at $395 pw. All is good

Mmmm, so now you know he really wants it you know his weekness now ask for $405 . How do you know he paniced or what gave you that impression? how did it come about that he would pay what you wanted?

 

[GoAnna!]

Well the tenant is from Sydney and he flew into Hobart only for the day to look at possible properties. He said that he really liked mine and that he wanted me to like him hehehe He told my property manager all of this The senior property manager did the negotiations and basically told him that we have no trouble letting it at $395 so the owner (me) wasn't that impressed with the offer. So he then immediately agreed to pay full price as per normal

 

[Xenia]

Hi all.

I currently have a fully furnished rental for $395 pw including electricity. I accept leases as short as 2 weeks although in reality they usually go for an average of 3 months.

My current tenant will be vacating in mid January so we are currently advertising it.

A prospective tenant has offered the following deal:

$360 pw for 6 months.
Will pay own electricity.
Will pay 6 months rent up front.
May extend the lease dependant upon work contract.
Will start lease immediately after current tenant vacates.

I have just had my property valued as part of an apartment complex and the valuer has told me that each additional $10 of rent equals $8K in equity. Finance will be applied for in Jan / Feb. They will likely be looking at this new lease in regards to both valaution and servicability.

Interested in hearing people's thoughts.

6 MONTHS RENT UP FRONT!!!!

that's $9360 in your bank account instead of waiting for $395 per week including electicity. Time is money, this is a no brainer!!! TAKE IT!!!!!!!!!