I'm currently looking for a new apartment. I am prepared to pay a whole year's rent up front in exchange for a discount. How much of a discount should I seek?
It adds risk for me and I lose some opportunity cost; meanwhile, the landlord's risk is reduced. So, I know I should get a discount. How much?
What discount they'd agree to (if any) will depend on a lot of factors.
From my discussions with other landlords and reading on landlord discussion boards, many don't want to deal with prepayment. The primary concerns seemed centered around potential for it to be ill-gotten cash or just feeling like anything outside the normal monthly payment was just weird/unnecessary. Some, like me, don't feel the need to discount because we have very low non-payment rates.
I've been offered a half year's rent in advance and turned it down because they had no documented income source/credit history. Even if it had been an otherwise well-qualified tenant who pitched the idea of a full year up front I'm not sure I'd give much discount for it. It does eliminate non-payment risk, but it would throw off my income for that first year and the year I switched back to monthly, not everyone would care about that, but I doubt I'm the only one.
As a tenant, paying for a year up front carries risks. There are times when a tenant is justified to withhold rent, if you've already paid it you've given up that leverage and a crappy landlord could take advantage (imagine a broken furnace/water heater for months). If they are in a bad spot financially they could take your year of rent, stop paying the mortgage, and bail on the rental altogether, which would be at minimum an annoyance to you and potentially quite costly.
In my market, I have no interest in discounting rent. I think that in general, at most, a 5% discount is reasonable for those interested in entertaining the notion at all. If it's an area where eviction rates are quite high they have already baked a high non-payment rate into their rental rate, so they will have more room to negotiate on guaranteed payment and I bet 10% would be pretty agreeable in such markets.
It doesn't hurt to ask, but I'm not convinced it's worth the risk to you.
I'm in the US, depending on country some of the considerations above might not apply. In the US landlord/tenant rights vary by state, so the withholding rent statement might not apply where you are.
Your statement
the landlord's risk is reduced.
Is actually not correct, from the landlords perspective. Unless you have a clear intent to move out at the end of that year, and maybe not even then.
If you intend to move out at the end of the first year, the landlord is going to be less interested in renting to you then someone who plans to stay for several years. Loss of incoming and additional overhead, make short term tenants less desirable.
Landlords are in the game of long term profits. A lump sum payment does not offer any real incentive, they either fully own the property or they have a long term bank loan. If they wanted quick profit they would sell the unit and not be a landlord.
If you plan to stay beyond the one year, you will have lived there without paying rent monthly for 12 months, most likely you will have developed spending habits that are going to be difficult to adjust when you suddenly need to part with a significant part of your income that you are used to having available.
Which leaves your final statement, incorrect.
So, I know I should get a discount. How much?
You can ask, but you should not expect it. And you may actually lower your chances of being granted a lease. Just because you want to live in the apartment does not mean you are the most qualified candidate.
Edit Final note; If you have a years rent in hand and you have the ability to pay the monthly rent. Put the extra money in the bank and save it for emergencies and/or a down payment on a home.
Hart CO's answer gives a good reason for a landlord not accepting such a discount negotiation, and why you probably would not receive much of one even if successful.
From the other side, you should ask yourself what the minimum discount you would be willing to accept in order to prepay is. There are plenty of things you could be doing with that money in the meantime (such as investing it), and prepaying your rent means giving up those opportunities. If the potential landlord is not willing to at least match your minimum discount, just pay month-to-month.
Step one
You're not entitled to a discount so clear that mindset right out of your head.
Step two
Humbly ask the landlord:
Do you accept a full year's worth of rent up front?
If the landlord says no then there is nothing else to discuss.
If they say yes then you can inquire:
Oh great, is there any sort of discount for doing so?
If they say no then choose whether you still wish to offer a year's worth of rent.
If they say yes then ask how much it is and decide if it's worth it to you. I doubt that haggling for a better discount will be met with positivity. It can even cause you issues because if something breaks the landlord will remember that you haggled them so they might drag their feet a little when getting it fixed.
One thing to note is that if you plan to stay there beyond 1 year then you need to either save up for a whole year's worth of rent or avoid living paycheck to paycheck so that when the time comes to pay monthly you won't have trouble handing over hundreds of dollars which you may have already budgeted for your car, food, hobby, or whatever.
Paying monthly has a psychological budgeting benefit which keeps you on track with your spending. A huge yearly bill is not something most people can swing. This is the same reason why a mortgage company offers an escrow to pay your property taxes.
Keep in mind that this psychology could be why the landlord doesn't wish to risk allowing you to pay for a whole year. They wouldn't want to deal with the headache of you having trouble paying once the new lease starts.
As others have said, the risk reduction is probably not significant. If the landlord has already performed a credit check, he's presumably concluded that you're not much of a risk for non-payment.
But there's another factor that might work in your favor: "float". When you prepay for something, the recipient has more time to invest it. So instead of you getting a year's worth of interest payments, the landlord gets them (this is why getting a large income tax refund is not a net win -- you've been giving the government an interest-free loan all that time, when you could have pocketed the cash and earned interest on it).
This suggests that the most you should expect as a discount is the amount of interest the rent payments could earn in a savings account. Don't consider investments in other securities, because even though the stock market has much higher historical returns, it's too volatile in the short period of a year to use as a benchmark.
Also remember that the number of interest payments the landlord gains is higher for the later months in the year -- the landlord could already get a full year of interest from the first month's rent check, he's only gaining 11 months for the prepayment of the last month. So you can average this out to about 6 months of interest (the actual amount is a little different, because of compounding, but this is close enough for estimation purposes).
Back when savings interest rates were high, this might allow you to get a discount of several percent. These days, the top savings account interest rates are around 1.7%, but the landlord may not have one of these, so figure on something between 1% and 1.5%. This suggests that the biggest discount you could reasonably ask for is about 0.75%. And if interest rates drop, you should expect the landlord to renegotiate (but don't expect any largesse if they go up).
I would say any landlord would be willing to make a discount: I am guessing somewhere around half a month's rent to a month's rent in total. If a tenant leaves the apartment in the middle of the year, it will be troublesome to collect payment for most of the tenant situations (you can't go to small claims if you have an apartment complex for example, you would have to pay for a lawyer, then for collection etc.), and if you would try to re-rent the apartment there might be a gap (2 weeks? a month?). Plus the landlord can make investments which might be more profitable.
I was curious myself, and came across this website: https://www.dnainfo.com/new-york/20160510/greenpoint/when-paying-years-rent-upfront-helps-get-you-deal-when-it-wont
..decided it was worth dipping into his savings to secure a light-filled two-bedroom in a three-unit building with a 1,000-square-foot shared garden. The unit originally asked $3,400 a month and then was about to be dropped to $3,200 a month. After offering the whole year’s rent, Meng got the unit, which he is sharing with his boyfriend Andrew, for $3,040 a month.
“They said 'the only way we’d go for that (no increase next year) was to pay more upfront,'” Andrew, 33, said. “Then I didn’t have to pay an increase.”
The couple offered to allay any concerns (puppy ownership) by paying everything upfront and got the apartment.
dropping the monthly rent for an “oversized one-bedroom” from about $5,300 a month to $5,000, she noted.
When won’t landlords accept a year’s rent upfront?
many landlords are barred from accepting advance rent under the stipulation of their mortgage agreements.
Banks worry if a landlord collects all of the rent by January, he’s most likely going to spend it by June and then by July and for the rest of the year, he won’t have any money, Zumin said.
Also, landlords of rent-stabilized apartments can’t take upfront rent since they’re only legally allowed to ask for one month’s security and one month’s rent when signing a lease.
