HOW TO NEGOTIATE FREE RENT
There are two really cool ways that you can get some free rent. Let’s talk about how to score some free rents in your negotiations and so that way you can either get ahead on your business or you can just kind of cut in and live for a little bit less in a completely normal scenario. You don't have to do any work in trade there's nolike hidden catch. All you have to do is say that you want it and the landlord would say yes. Let’s talk about how to get these and then why a landlord would agree to just giving you money for free. That’s essentially what you're asking them to do is just give you free cash.
The first one is front end at least concessions. What is a front end lease concession? That is where a buildingwill give you something on the front end a concession typically tends to be cashback or free months of stay.In Houston, for example, the there are so many new apartment complexes that buildings in order to kind of entice you to live there they'll say that will they'll give you eight weeks free a lot of times buildings will try to prorate that so what they'll have is they're advertised market rate which is like two thousand dollars a month. If they give you two months free they're going to give you that four thousand dollars off over the course of a year all right that's a prorated concession you can simply negotiate this on the front end and even if a building isn't ant advertising a front-end lease concession or any lease concession at all you can still ask for it now.
Why would a landlord agree to that? Let's look at northern states let's look at Wisconsin, Illinois andPennsylvania. I’m doing a lot of negotiation in these states and they states can suffer from the fact that people don't move in in the winter. Right now it's October. Let’s look at November, December and January,those are tough months for a landlord to fill new tenants. Coming into the season you can tell a landlord “I’mgoing to take this place now you're probably not going to have a landlord into you're not going to have a tenant until you'd say February or March. Your odds of getting a tenant is low or you have to really drop your rates anyway so let me take the lease from you now and let me get the front two months free and that way I can realize a little bit of the savings of moving in at an optimal time and that way you're guaranteed to have a tenant you don't have to worry about if this front is going to be paid starting in January because I’m going to be paying it because I’m on the lease with you so landlord would love to have that lease right because having that leases guarantee didn't come in the future and a lot of landlords are under pressure because they have a bank note.”
If buildings don't stay if certain percentage occupied, then the owner could get there like building taken awayby the bank. There's a building in Houston where I was talking to a property manager one of her previous buildings that she was in she was hired on specifically to help them fill leases. This was an older building , not a brand-new building trying to get up to 90 percent. This is another typical common situation in Texas right now. Her building had a huge loan and if they didn't get over ninety percent occupancy the bank was going to take the building back from them. In this case being 90 percent leased is wonderful even if they're not ninetypercent occupied. They would still be 90 percent leased the bank would accept that. In this case you areguaranteeing rent in the future in exchange for two months for free now. This makes sense.
Here are a couple tips for this. Not only do we talk about taking the lease immediately but if you can gauge the landlord's expectation so when they would think they would get this place full then you can really realize what his benefit or her benefit is by taking it faster then you can maybe split that difference. You think about “If it was going to take you ten weeks to fill give me five of those weeks free right?” This is a good way to negotiate this is the way that you as a regular tenant. You don't have to be a business with a lot of money to play with you can just realistically and logically make this small negotiation.
Another way to get a higher likelihood of yes with a multi-month front and lease concession is to sign a longer lease. If they look at the total percentage off that you're getting off your rent by giving you a 36 month lease and they give you two months of rent for free, or they give you three months of rent for free on a three-year lease. Upfront first three months free what they've done is they've given you a month per year off it's muchmore likely to work in your favor. If you asked for two months free on a three-year lease then on a one-year because they're still making more money off of your lifetime and that percentage just got smaller.
You can still potentially do it as a regular tenant but this one really more for by Airbnb business owners. If you're not an Airbnb business owner, maybe this will turn you on to the idea of running an Airbnb business by renting.
In a lease contract or any other contract a trigger is when something happens something triggers or a part of the lease that comes into effect or a part of the contract comes into effect. It's like a dormant provision in alease. One of the most popular triggers that I’m seeing lately in leases is called a recession trigger. Here’s anexample.
Let's say I take an entire building and there's a builder. I’m taking one in Philadelphia right now we'renegotiating 28 units in a 28 unit building that's a master lease. Essentially where you take the whole thing yousay I’ll pay you this lump chunk of rent. Let's say all just all like apocalypse comes with a recession andeverything just goes terribly people stop traveling stuff like that if I have no flexibility in that negotiation and I have to pay say thirty thirty five thousand dollars a month in rent for this building maybe more and I have no business because the recession just like took the bottom out of the market if he loses me as a tenant and I pay him $0 he suddenly loses all of his revenue and the bank could come calling on that note like we discussed earlier.If a building doesn't stay full the bank will come and come after you so he needs to stay full and normally his risk is diversified if he has 28 tenants. In a 28 unit building and three of them to get evicted because they couldn't pay because of the recession the owner finds three new tenants but he's still 25 to 28 full.
The owner has invested to you in a big way. It doesn't have to be a whole building you could have 10 or 20 leases. When someone has a good relationship with you in volume you can make these types of recession triggers. For example, there's a landlord in Philadelphia that's signed with a company called sander many of you know solder they're worth over a billion dollars they're kind of the poster child for rental arbitrage right now but there's a lot of players in the game. Sonder signed an agreement with a landlord in Philadelphia and what they put as one of their recession triggers is that if the Dow Jones drops 700 points in a day they get a month of rent for free. If you remember there was a time in 2021 when the Dow Jones went crazy. Sonder got two months of rent for free in a week.
That makes the landlord rethink how they want to negotiate that recession trigger right like if they could get a free month of rent every single week because the Dow Jones goes that crazy you know they probably want to put a cap on that because otherwise Sonder could essentially just live for free if the Dow Jones went like that that's an example of a recession trigger.
Another way that you can do this you can tell your landlord well the season tends to be slow in the winters and we're going to take 20 properties from you. What we'll do is we're going to pave this what we call base contribution the rent that you want is $1,500 so what we'll do is we'll pay you $1,000 a month completely and then these months we'll pay you 1,800 instead we're in the winter we'll pay you a thousand or we'll pay you a thousand every month and then as we make profit what we pay you goes up so that's like a hybrid rent model.
That's not a trigger but that's a way that you can pay less rent and kind of just be on the books and the landlord's cool with it because the landlord wants enough money to pay their bank note there's a lot of ways that people make money on properties if you watch my buddy Sean Ray's stuff he talks about how you know you can you can take a building it can go up in value like appreciate and of course you could be depreciating the property as an income property and all those things work out for a builder even if they're making like positive cash flow on you they're still making money elsewhere believe it or not so with that said I’ll leave it right there
