In many areas of the country, rental vacancies are very low; some are at all-time lows. But that’s not the case in every market. If you’re a landlord or property manager with no available units for lease and a waiting list, you don’t need to worry about whether or not to negotiate the rent. But for those of you who have vacancies to fill, should you be considering it?
Here are some tips for knowing when it might pay to negotiate the rent:
When you’re in a renter’s market. When local economic conditions are such that vacancies are high and demand is low, that’s a renter’s market. Savvy tenants will read the signs: units staying vacant for months, several open units in the same complex or building, and landlords who seem anxious to get a lease signed.
Your tenants moved out months ago. If you have several empty apartment units, or your rental home has been empty for more than a month, it’s probably time to consider negotiating with prospective tenants. Losing a month’s rent for too long can be difficult to make up.
You don’t have other perks or amenities to offer. When attempting to attract new tenants, landlords often waive certain fees or pay for a tenant’s Internet service for several months. If you can’t offer other perks, then rent may be your only place to negotiate and bring a tenant to the table.
You have a high-quality applicant. When you have a tenant who meets your income requirements, passed your tenant screening with flying colors, has a steady job and gets rave reviews from former landlords, it might pay to negotiate on the rent. And if that applicant is willing to sign a long-term lease—such as two years—you might regret not reducing the rent if it’s a deal breaker.
Your unit is overpriced. If your tenant has done her homework, she’ll know what comparable units are going for in your area. If she can walk away and rent another place for less money, you might find it difficult to get a good tenant in your building without matching—or at least coming close to—comparable units.
And don’t forget that in negotiation, you also get to ask for what you want. For example, in exchange for lowering the rent, you might get your tenant to agree to pay before the first of the month, or to pay the first few months up front. You could ask for an 18- or 24-month lease. Or, you could ask the tenant to accelerate his move-in date.
One of the biggest issues landlords and tenants seem to have is the handling of the security deposit. Smart landlords require them—and all landlords should. Here are some basic points about security deposits you should know and be ready to share with your tenants whenever questions arise.
The security deposit is:
- Money collected up front to compensate for damages. At the termination of the lease, any repairs, cleaning fees or other expenses incurred to take care of damages outside ordinary wear and tear will be taken out of the tenant’s prepaid security deposit.
- Money collected up front to compensate for failure to pay rent, fees and late charges. In case a tenant fails to pay rent, fees or late charges, the landlord may get compensation from the security deposit.
- The best way to prevent financial squabbles between landlords and tenants. Once the tenant has moved out, it’s nearly impossible to chase him or her down to collect for lost rent or damages.
The security deposit is not:
- The last month’s rent. You should not allow a tenant’s security deposit to be used as the last month’s rent. They are two separate categories. Tell all tenants that they need to pay their last month’s rent, and after they are all moved out, you will conduct an inspection and walk-through to determine whether there are any damages to the property, and how much, if any, of their security deposit they will receive back.
- A savings account. Some states, such as California, require landlords to pay interest on security deposits held for at least a year, but most do not. California landlords may elect to hold the security deposit in an interest-bearing account or pay the interest established by a state commission. However, most states do not have the interest-paying requirement, and therefore, landlords may return all, a portion of or none of the security deposit to the tenant without any additional interest. Check your local and state laws.
- The landlord’s money. It is your tenant’s money, which you are holding as a small insurance policy against the possibility of loss due to damages or unpaid rent, fees or late charges. Smart landlords deposit tenants’ security deposits into separate accounts which they do not use for business expenses.
By the Way: It’s not up to the tenant to determine whether he or she has caused any damage. Checklists and photos of the rental unit on move-in day and move-out day are a great way to document any needed cleaning or repairs.
If you’re like many landlords, you often have more than one qualified tenant wanting to sign a lease. Let’s assume you’ve already gone through your standard process: application, application fee, tenant background screening and tenant credit check, verifying employers and income, and checking references. Now you have two or more approved prospects, and only one vacant unit.
What do you do? Here are a few guidelines to help you decide:
- Who wants to move in first? Each day your unit is empty, you’re losing money. We give extra points to the tenant whose move-in date comes first. How do you know? Hopefully, you’ve either had this conversation at some point in the process, or your lease application contains the question, “When do you want to move in?”.
- Who has the security deposit and first month’s rent ready? Obviously, it’s a good thing to have all your prospective tenants ready to pay you rent and deposit, but this isn’t always the case. If any approved prospects need some time to come up with the money, move on. And cash is always nice. Let all your applicants know that you will continue accepting applications and showing the unit until the first month’s rent and security deposit are paid.
- Don’t give in to your emotions. You may hear that a prospect can’t pay the security deposit until they move out of their current place. You may hear that they need a week or two to get the rent and deposit together, but they definitely want the unit. They might be nice people, and excellent tenants, but… don’t let them get the upper hand. Don’t forget that he or she may not get the deposit back for awhile, and may not get it all back. So they need to be able to come up with full rent and security deposit for you.
- Be realistic. If a good prospect is looking at your vacancy on the 25th of the month, and want you to hold it until the 1st, it’s not likely you’ll have anyone else ready to move in before then. You can always ask for a deposit to hold the place, and convert it to the security deposit. Adjust your procedures when it makes good business sense.
How do you say “no” to tenants who don’t meet your lease qualifications? Some landlords have a hard time doing so, especially when the applicants are persistent. Here are a few examples:
- Don denied an applicant based on weak credit. The applicant offered a bigger security deposit. Now Don is thinking of approving his application.
- Karen is a landlord in a similar situation. Her non-qualifying applicants offered to pay an entire year’s rent up front. Karen decided to accept the deal and signed the lease.
- Another landlord reports that a non-qualified couple is pleading with her to rent to them, saying they have not found another rental that meets their needs. The woman has good credit; the man has terrible credit. The landlord is thinking of putting only the woman’s name on the lease, with a substantial cash security deposit.
What is wrong with each of these decisions?
- In the first example, Don is allowing a larger security deposit to cloud his judgment. First, he lives in Massachusetts, where landlords are limited to charging no more than one month’s rent for a security deposit. Next, he is bending his own rules, which is a slippery slope. If a tenant knows he’ll cave on one aspect of the tenancy, they may be likely to push other rules, as well. Is the rent really due on the 1st? Wouldn’t it be okay to move some extra family members into the rental unit? Finally, treating every applicant equally is important to avoid charges of discrimination. Let’s say the next applicant also had bad credit and Don refused to sign a lease with them. They might charge that Don showed preferential treatment to the first tenant and that they are being discriminated against, due to their race, religion, family status, gender, age, etc.
- In Karen’s case, one might think that paying a year’s rent up front would erase any worries about the tenant’s financial situation. However, most strong tenants don’t offer prepaid rent—especially a year’s worth—because they can’t afford it. Karen should ask herself why an applicant with bad credit has that much cash laying around. Have they been scamming other landlords and living rent-free? Have they been evicted? Or are they involved in an illegal cash enterprise? The offer of a year’s worth of rent up front should be a red flag.
- In the third example, this landlord is asking for trouble. All adult residents should be put on the lease and held liable for the terms of the lease. What guarantee does the landlord have that the female will always be responsible for the rent? What if the couple breaks up and she moves out? The landlord will have a resident living in the rental unit without a lease.
Experienced landlords know that sticking to your standards and leasing only to solid tenants who meet your criteria are important steps in building a successful rental business. If denied applicants don’t hear your “no,” just say it again. And louder. And then, hold out for well-qualified tenants. Tenant screening on every applicant, with minimum qualifying credit scores, is a landlord’s best practice.
When tenants move out, it’s standard practice to conduct a walk-through of the rental property, checking for damages. Then, all necessary repairs are made, with the cost typically taken out of the tenant’s security deposit. It’s generally understood that tenants are not responsible for any ordinary wear and tear—this is a cost of doing business, covered by the property owner.
The standard definition of “ordinary wear and tear” in most states is deterioration or damage to the property expected to occur with normal usage. However, it’s often a judgment call. What about crayon marks, carpet damages or nail holes?
Ordinary wear and tear generally applies to items like flooring, paint and woodwork. For example, carpeting has a set useful life. If carpet needs to be replaced after a tenant lives in your rental property for five years, that’s likely going to fall under “ordinary wear and tear.” However, a one-year tenant who damages brand-new carpet would be liable for those damages.
Minor indentations on walls are normal; crayon marks, nail holes and gouges are not. Cracks in old tile are normal; broken and chipped new tiles are beyond normal wear and tear. If a tenant breaks a refrigerator drawer or the knobs on the stove, it’s considered damage, not normal wear and tear. Damage from a pet chewing on baseboards is certainly not normal.
Tenants must also return the property to the condition it was in when they moved in. If a tenant leaves dirt and grime behind, the landlord may have the rental unit cleaned and deduct the fee from the security deposit.
Be sure to be thorough and specific when noting damages on your move-out inspection sheet. Take photos or videos and send tenants a detailed list of any charges. Keep all receipts for cleaning, repairs or replacement.
Our last post covered ways to incentivize tenants to pay rent online. One reader asked for a list of online rent payment services. So we’ve rounded up a list of popular online rent payment services, along with what makes each one unique.
RentPayment – This company says it’s the largest electronic payments processor in the multifamily industry. RentPayment was founded in 1999 and has since acquired a couple of competitors along the way. The company offers credit card and debit card rent payment on their website. Tenants can also pay rent by phone, by using the company’s iPhone app, or by text. Tenants who sign up for RentByText get monthly text reminders when rent is due. They simply reply “Pay,” and their rent is automatically paid via their debit/credit card or through an e-check. Property managers collecting paper checks can use RentPayment’s check scanning services to capture check images digitally, and then deposit them without leaving the office.
RentPayment’s extensive marketing efforts are intended to increase use of its services. They offer magnets, brochures, posters and signs to help spread the word about the advantages of paying rent online through their services.
Pricing: The monthly fee is $9.95 to set up accepting e-check payments through RentPayment, which includes 10 e-check transactions. Funds are deposited into your bank account within one or two business days. Tenants may pay online for free. Additional e-checks are $1.00 each. The fee to accept credit cards is 2.95% of the total amount. Debit cards are 1% of the total amount. Tenants may pay online, by phone, or text for free.
PayLease – PayLease also offers rent payments via e-checks and credit cards, either one-time or recurring. They also offer the means for property managers to make payments into the building owner’s bank account. Another unique feature of PayLease is an integrated online lease application system. Prospective tenants may submit an application and pay the application fee at the same time. Property managers are notified via email that a new application has been submitted.
Tenants may pay rent online or over the phone. Email reminders are also avaialable.
Pricing: PayLease allows rental property owners to pay the transactions fees for online payments, or pass the fee along to tenants. The company also offers a rebate program. The more online payments tenants make, the bigger the rebate. Monthly and/or transaction fees are priced individually.
PayYourRent – PayYourRent was developed by property managers. They offer rent and security deposit payment processing by e-check or credit card, along with additional automatic management services, such as maintenance requests, rental applications, utility connections and check scanning. PayYourRent also offers a payment portal that you can customize with your company’s logo, address and other information.
Pricing is provided upon request. Tenants may pay rent online. PayYourRent offers 24-hour payment processing, so funds are available more quickly.
eRentPayment – eRentPayment allows property managers to collect rent, application fees and security deposits online. Tenants may pay rent online each month, sign up for recurring automatic payments or pay by phone. Managers may also refund security deposits to tenants through the service. Rent payments submitted late are automatically charged a late fee, and managers/owners have the option of blocking partial payments. There are no extra fees to use multiple bank accounts.
eRentPayment offers a solution for tenants without Internet access, as well. Managers may submit a form, signed by the tenant, authorizing an automatic monthly debit from their bank account. Tenants may not alter the payment without submitting another application.
Pricing: Each transaction is $3.00. Property owners and managers may choose to pay the entire transaction fee, split it with the tenant, or have the tenant pay the fee. eRentPayment also offers vacancy listings for no charge.
As we reported back in March, some landlords and management companies are forcing tenants to pay rent through online services. Many question whether this is legal or not. The suit filed by the residents of Woodlake Manor Apartments is still moving through the court system, so it’s too soon to tell how that will shake out. But in the meantime, how can you convince tenants to switch over to online rent payment? And is it worth it?
Having rent payments flow automatically into your bank account can be convenient. Collecting checks, posting them in your accounting software, depositing them in the bank (or having your bookkeeper do it) takes time you could be spending on growing your business—or better yet, doing something fun.
Plenty of landlords receive rent payments through a variety of online tools—and neither they nor their tenants would go back to paper checks for anything. It seems most people you know do all their banking and bill paying online. So why not convert your tenants over to online rent payment?
Maybe your tenants won’t or can’t use online services. Perhaps they don’ t all have computers at home. Or they won’t take the time to learn how to use online services. If you are ready to be done with paper checks, maybe it’s time to help them move into the 21st century.
Try incentivizing tenants to transition to online rent payment with these step-by-step ideas:
- Send out a notice to all tenants that you are now offering online rental payment.
- List the benefits, such as avoiding writing and mailing a check, finding a stamp and sending the rent several days in advance of the due date. Online payments are more convenient: rent can be sent electronically on the due date. Tenants can schedule payments ahead of time to cover travel or vacations. Checks can’t get lost in the mail. And, it saves paper!
- Offer a one-time $10 or $25 gift card for tenants who sign up right away for online rent payment.
- You will be notified which tenants choose the online option.
- For those who choose not to use online payment, inform them that beginning with their next lease renewal, you will be requiring them to do so.
- If they still balk, give them the option of paying the entire new rent at renewal (whatever amount you would normally raise the rent) or a lowered amount for paying online.
Landlords may not be able to force all tenants to pay rent online. There will likely be situations where a tenant can’t get to a public library to use a computer, or is not able to understand how to use online banking. And tenants with disabilities are protected under law. Be reasonable and flexible, and collect rent online to the extent that you can.
Protect your rental property and assets through tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.
If you’re new (or not) to landlording, you may be wondering about how to set your security deposit requirements. Many landlords charge one month’s rent, plus extra for pets. Others charge higher deposits, to protect themselves from paying for excessive damages when tenants move out.
But it’s important to know that many states mandate what rental property owners may charge tenants for security deposits. Limits range from one month to three months, to no statutory limits at all
Here are some examples of states that do require limits on tenant security deposits:
||One month’s rent, except for pet deposits
||Two months’ rent, except where rent exceeds $2,000 per month
||One and one-half months’ rent
||Two months’ rent
||Two months’ rent for unfurnished rentals, three months’ rent for furnished. Extra one-half month’s rent for waterbed
||Two months’ rent for tenants under 62 years of age; one month’s rent for tenants 62 years of age and over
||One month’s rent on one year or more leases; no limit for month-to-month rental agreements; no limit for furnished units
||One month’s rent (unfurnished), one and one-half months’ rent (furnished), extra one-half months’ rent for pets
||One and one-half months’ rent
||One month’s rent for no pets, one and one-quarter months’ rent with pets
||Three months’ rent
||One month’s rent or $100, whichever is greater (!); no limit when landlord and tenant share facilities
||One and one-half months’ rent. Additional security deposit may not exceed 10% of the current security deposit.
||One month’s rent on one year or less leases; no limit for leases of one year or more
||One and one-half months’ rent for month-to month agreements, two months’ rent for if term is longer than two months
||One month’s rent, with pet, not to exceed the greater of $2,500 or two months’ rent
||Two months’ rent for first year of renting; one month’s rent during second and subsequent years
||One month’s rent
||Two months’ rent
Be sure to check your local rent control laws, state landlord-tenant laws, and rent regulations for deposit limits and other regulations you need to know.
Countless landlords and tenants enjoy the convenience of online rent payment. Whether a tenant sets it up through a bank’s online bill pay system, or the landlord offers a web-based rent payment service, it’s becoming a more common way to complete this common transaction.
But what about tenants who prefer not to—or cannot—use online rent payment? Can they be forced to do so? One property management group in Los Angeles will soon find out. Residents of Woodlake Manor Apartments are suing the landlord, Jones & Jones Management Group, Inc. over a new requirement that every tenant make rent payments online.
Some, like 86 year-old Margaret Beavers, have no interest in paying rent online. She has lived in the building since 1963 and in her own words, is “computer illiterate.” She and other tenants fear that refusing to cooperate with the new requirement leaves then vulnerable to eviction. They claim that the company’s new rule is a cover-up for an attempt to evict the low-income, elderly residents who fall under rent-stabilization laws. An attorney for the property owner said the claims were “completely unfounded.”
The property owner stated that their objective was to “go green” and make rent payment easier for tenants. Opponents say they are eager to shed low-income residents in favor of higher-income tenants. A California state senator who filed a bill banning the requirement of online rent payment said that not everyone has a computer, and even those who do may not want to pay bills online for security reasons. The legislation is pending.
Jones & Jones owns 38 buildings throughout Los Angeles and Ventura counties. The lawsuit was filed on behalf of four residents, all over age 62. An attorney who represents landlords pointed out that the state of California has no right to ban online-only rent payment requirements by landlords—especially when California requires online tax payments.
Do you offer online rent payment to your tenants? If so, is it required, or are you flexible about whether tenants must pay online?
As a landlord, you must cover your expenses of the maintenance and repairs you perform between tenants. If you or a tenant ends a lease, it is your right to make appropriate deductions from his or her security deposit to cover all damages or extra cleaning required to return your rental property to the condition in which they found it.
Examples of Damage or Excessive Cleaning Required
• Broken tile in bathroom or kitchen
• Water stains caused by open windows
• Damaged or missing mini blinds or window treatments
• Large holes in walls
• Stopped-up toilet due to debris, diapers, or other items left inside
• Doors pulled off hinges
• Gouges in walls or floors that require filling
• Cigarette burns or stains anywhere
• Stains in carpet
• Excessive dirt, grime and stickiness, on countertops, floors, etc.
However, landlords may not deduct money from a tenant’s security deposit to cover ordinary wear and tear.
Examples of Ordinary Wear and Tear
• Minor wall scuffs
• Small tack or nail holes in the wall
• Faded paint or carpet
• Worn areas in carpet or hardwood or linoleum floors
• Dusty or dirty mini blinds
• Water stains in the bathroom or kitchen caused by faulty faucets or hard water
• Dents in walls caused by doorknobs
• Mild dirt or spots on carpets
To facilitate the return of a tenant’s deposit, set up a move-in checklist and inspection for each tenant, and compare it to a move-out inspection and checklist. Conduct the move-out inspection with your tenant, and indicate which items need to be replaced or repaired. Get the tenant’s signature to prove they were present and agree to the list of damages. And don’t forget that you’ll avoid disagreements over security deposits by being reasonable—cover your expenses, but don’t gouge your tenants.
Protect your rental property and assets through tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.