While you might expect a slight rent increase each year, a higher-than-expected spike in your monthly housing costs can throw a significant wrench into your retirement, vacation or debt-reduction plans. In some cases, you might not be able to afford the increase. Knowing your options will help you make the right decision regarding how to handle the increase.
Check the Law
Before you respond to a high rent increase, check your lease and local rent-control laws with a real estate attorney to determine if the increase is legal. You might find a provision in your lease that limits rent increases or requires notice the landlord didn’t give. In some municipalities, laws control rental rates and the landlord cannot raise the rent above a certain rate, or at all in some cases.
Cut Your Spending
Review your monthly spending and determine what you can cut to compensate for the net effect of the rent increase. If your rent will increase $300 per month, but you can easily cut $150 per month in spending, your net decrease in your discretionary income will be only $150. Looking at the rent increase as only $150 per month will help you determine whether your other options for dealing with the increase make financial sense.
Make a Counteroffer
Make a counteroffer to see if your landlord will consider lowering the rate increase. In some cases, a landlord who rejects a lower rent offer will lose money preparing the property for a new tenant, advertising it and potentially losing one or two month’s rent while he looks for a new tenant. Even if you can afford the rate increase, counteroffer at least $50 to $100 less per month, which is about what the landlord might lose if you move out. In addition to negotiating rent, ask for a shorter vacate notice, a longer lease to lock in your rate, free parking, month-to-month terms, certain repairs or additions, re-painting or re-carpeting or other benefit. At the very least, make sure you don’t have to add more cash to your security deposit. If you have a skill your landlord can use, offer to trade services for a reduced rent. This could include business communications, accounting or tax preparation services or construction or landscaping work.
Offer to Buy
Depending on what type of property you’re renting, it might be cheaper to buy the place than to pay the rent increase. Work with a mortgage lender to see how much home you can afford, what your down payment and closing costs would be and your monthly mortgage payment. Determine if you can make an offer to your landlord, who might be happy to sell the property. If you negotiate directly with the landlord, you can eliminate some real estate commissions. If your landlord won’t budge or sell, look into buying another property.
An obvious option to a rent increase is to walk away and move into a new place. This might seem like a pain, but you might be surprised at how much money a savings in rent can give you in just a few years. Determine how long you might stay in your next apartment, condominium or house. Multiply the savings by that time and factor in investment or debt-reduction interest to determine the true cost of paying the increase. For example, if you save $300 per month by not paying the rent increase, that’s a savings of almost $20,000 over 5 years, if you factor in the money you earn by investing that money or the money you save using that $300 a month to pay down credit cards. You can more than double your $300 savings if you it in an employer 401(k) match account.
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