By Ian Tai: Assuming that you’re a tenant who rents a condominium unit at RM 2k / month presently. 2 months before the tenancy expires, your landlord wishes to hike up 10% of your current rent to RM 2.2k / month. So, what could you do? Are there other options than to extend your rent at RM 2.2k / month?
As I write, I’m a homeowner, a landlord and also a tenant.
Such allows me to view this situation from multiple angles. For a start, irregards to one’s position, be it a landlord or a tenant, all of us want a good deal. No one likes to be taken for a ride. Landlords want to earn rent. Tenants want to secure a roof over their heads. So, it’s ideal to strive for a mutually beneficial outcome.
In this article, I’ll share from a tenant’s perspective on how to resolve this issue. Together, we’ll negotiate a rent discount from your landlord. This could be done by accumulating some “bargaining chips” in hand. These chips include:
Chip 1: Trust
First of all, are you a trustworthy tenant in the eyes of your landlord?
You see. When a landlord rents out a property to you, he expects prompt rental payments from you and his property to be kept in good condition. So, if you are already paying rent on-time and keep his property fairly clean, that’s great.
This is because you’re consistently building trust and working relationships with your landlord. You are making yourself familiar to your landlord in terms of how you behave as a tenant. Such trust, relationship and understanding is important and could serve as a bargaining chip in rent negotiations.
So, rent negotiations start way before the actual negotiation kicks off. It already began from Month 1 when you rent the property from your landlord. Hence, as a tenant, it pays to be a good steward of your landlord’s property.
Chip 2: Market Research
You can utilise websites like: iProperty and PropertyGuru.
Hypothetically, let’s assume that there are 2-3 condominiums within the 1-2 km radius from where you rent currently. Rents for similar units range between RM 1,800-2,500 a month. Plus, one of the 2-3 condominiums is fairly new and thus, comes with newer facilities.
Here, the key is to have 2-3 options in-hand. They come in handy as “bargaining chip #2” in rent negotiations. Also, they serve as your back-up plans just in case you fail to extend your rent with your landlord. Remember: There’re options for us to choose and many landlords would want you if you are a good tenant.
Chip 3: Have a Landlord’s Perspective
Sure, the best outcome for your landlord is that you agree to revised rent which is RM 2.2k / month. His rental income would increase by RM 200 / month. Such equals to RM 2,400 a year. Is that true?
Not quite.
This is because your landlord is also taking a risk and might incur several costs:
1. Minor repairs / replacements / upgrades.
2. Agent’s fee in securing a new tenant.
3. Loss of rental income until a new tenant is secured.
Let me do a simple comparison between what your landlord earns today versus what he could earn with a new tenant:
Now with You:
= Monthly Rent x 12 months (assuming you’re a good tenant)
= RM 2k x 12 months
= RM 24,000
New Tenant (assuming zero repair costs)
= (Monthly Rent x 12 months) – 1 Month Agent’s Fee
= (RM 2.2k x 12 months) – RM 2.2k
= RM 24,200
So, in the next 12 months, he could at best earn an extra RM 200 in rent. But, in most cases, your landlord may incur RM 3k-5k to “touch-up” his unit so that the unit is presentable and attractive to his prospective tenant.
Plus, what if his property is unoccupied for 1 month? It means that his property is rented for 11 months in the next 12-month period. In his case, he would earn RM 22,000 in rental income. Your landlord is better off keeping you as a tenant.
New Tenant (assuming zero repair costs + 1 Month Vacancy)
= (Monthly Rent x 11 months) – 1 Month Agent’s Fee
= (RM 2.2k x 11 months) – RM 2.2k
= RM 22,000
The Rent Negotiation Script
If you are a good tenant, you have 3 bargaining chips. Let me show you how the 3 chips work in negotiating for a rent discount. The “script” is as follows:
Agent (Landlord):
Hi Tenant, I’ll like to extend your tenancy with RM 2.2k / month effective on the 1st of Month.
Tenant:
Hi Agent, thanks for the offer. I really like staying at A condominium and I would be interested in extending the tenancy. But, RM 200 / month is a big jump. How am I supposed to do that?
*What is the Landlord Thinking?*
There are 2 possible outcomes at this stage. First, he had secured a tenant, who is willing to pay RM 2.2k / month. Second, he hasn’t. But, your landlord feels he should get RM 2.2k / month as his neighbours are getting RM 2.1-2.4k a month.
Agent (Landlord):
Hi Tenant, thanks for your reply. As you know, the unit is hot in demand and the market rate here is now RM 2.1-2.4k a month. So, I think RM 2.2k a month is, at this moment, quite reasonable. Let me know if you’re interested in extending & I’ll be happy to make the necessary arrangements. Thanks. ?
Tenant:
Right, you do have a nice unit. I certainly want to extend the tenancy. But, I just can’t do RM 2.2k / month. Considering that I have been prompt in paying all my rents for the past 12 / 24 months, is there a better offer? Thanks.
(You’re playing Bargaining Chip #1)
*What is the Landlord Thinking?*
At this stage, your landlord is weighing his options. Is it RM 2.2k a month in rent from a new tenant or keeping you as a tenant? He already knows that you are a good paymaster and are interested in extending the tenancy but at a lower rate than RM 2.2k a month.
2 outcomes may occur. First, your landlord is adamant on RM 2.2k / month. The stance he makes is untouchable and non-negotiable. In this case, fine! You have done your homework and could choose to vacate his unit for another unit at an affordable rent. Be prepared to let go and move on (Bargaining Chip #2).
The second outcome is more probable. This is because he values you and thinks that it’s worth keeping you as a tenant. In this case, his reply would be:
Agent (Landlord):
Hi Tenant, I had spoken to your landlord. He’s okay to extend the tenancy at RM 2.1k / month. What say you?
Here, you know that your landlord is sincere in keeping you as a tenant. There’s a possibility where you’re tempted to accept the offer as RM 100 in rent raise is better than RM 200. If that’s you, hold onto your horses.
You have not play Bargaining Chip #3.
Here is how you do it.
Tenant:
Hi Agent, I like to extend the tenancy for a longer term. I’m now able to commit RM 1,850 / month for 36 months or RM 1,900 / month for 24 months. Which of the two would Mr. Landlord prefers?
*What is the Landlord Thinking?*
Now, your landlord is presented with a firm offer. Sure, he is not delighted to be offered at a rate below the current RM 2k. But still, he considers this offer as he is already comfortable with you. There’s a risk of dealing with a new tenant that could pay higher rent but can be a pain to deal with. So, what’s next? There will be a counter offer.
Agent (Landlord):
Hi Tenant, I spoke to Mr. Landlord and said that your offer is a bit too low. What about we do RM 1,900 for 36 months or RM 1,950 for 24 months? Is this good?
Congratulations! You have secured a rent discount.
By Ian Tai, Financial expert with KC Lau
