How to Spend Less on Rent
This article deals with rentals, another article will talk about mortgages.
First a disclaimer: There is no magical technique that can turn a £1200-per-month apartment into a £1000-per-month apartment. You can’t reduce the rental cost of an existing contract. I wish it weren’t so, because it’s typically the biggest single item we pay for each month, but once you’ve signed the lease, you’re locked in.
That lease, however, expires at some point, and then you’ll be faced with a decision. To move or stay, to accept a proposed increase or reject it. To try to renegotiate or to sign without making a fuss.
Your other alternatives involve using the home as a revenue source. This you can do by renting out a room (either long-term or on a holiday lettings basis), or by renting out your place on AirBnB or through an agency when you’re away on holiday or business.
We’ll cover these money-making options in another article because there’s a lot to consider. Here we’ll just look at the cost of rent.
The decision on where to live is an important one. If you massively overpay on your rent, you’ll have a very hard time motivating yourself to make much effort to save elsewhere because any savings you make barely dent the massive hole in your finances caused by your rental costs.
For that reason, you must not make that decision when the contract comes to an end. You need to be thinking about options constantly, understanding the rental market, the places you’d be willing to live and how much is a reasonable amount on your income.
People typically spend between 20% and 30% of their income on their rental costs.
Evaluating The Financial Benefits Of Moving
If you’re going to move to save money, it’s worth figuring out how much money you’ll really save.
A new rental contract for an apartment costing £1200 per month will, at least in the United Kingdom, cost you about £200 in fees to the estate agent and anywhere between zero and £3000 for movers depending on how much you have and how willing you are to do everything yourself.
Assuming you can save £50 per month but it’s going to cost you £2000 to move into your new home, that’s not a good deal. Looked at another way: it will take you 40 months to save enough on rent to make up for the cost of moving.
If you can rent a van for £120, get free used packing boxes from locals and recruit your friends to help you move over a weekend in exchange for two cases of beer and a dozen pizzas, then you can probably make it work.
You should also take into account additional costs in your new location. Will you have to pay extra for parking? Will the trains, subway or fuel cost more or less? Will you lose access to an affordable grocery chain? The financial consequences of moving are more than just the rent – you’re changing everything about your context.
Reducing Costs Without Moving
You should always have an idea of the rental market in your neighborhood. When you see an apartment or house similar to yours for rent, either online or in a shop window, it’s worth getting the brochure to see the floorplan and photos. That way, by comparing it to your own apartment, you know if you’re getting a good deal or not.
If you’re not getting a good deal, then you can renegotiate your rent at the next contract date.
A negotiation is a discussion, not a confrontation. You should always keep in mind two things: What you want to get out of the discussion, and what you’re willing to walk away with.
What you want is a rent reduction. You are not likely to get this through unfriendly behavior or by accusing your landlord of being exploitative. Far better to explain that you feel you’re overpaying based on evidence you’ve gathered, which you’re willing to share, and that you’d like an adjustment to reflect the current market. Put yourself in their position: Would you want to help someone rude or aggressive?
What you’re willing to walk away with is, in negotiation terms, called a BATNA – the Best Alternative To a Negotiated Agreement. In other words, if the landlord tells you that there’s no way they’ll consider a reduction in rent, are you willing to stay for the current rent? If they insist on increasing the rent despite your arguments, is your best decision then to leave?
You need to decide what your BATNA, or walk-away point is before the discussion starts, and stick to it. That way you set the parameters of your position with a clear head. During a negotiation, in the moment, stress, fear, anxiety and high stakes can lead to terrible decisions.
Don’t bluff. That’s for the movies and for people who have nothing to lose. If you say you’ll leave if the rent is increased, it has to be true. If it isn’t, you could find yourself having to move home when you didn’t really want to.
Only you know the mood of the discussion and only you have the relationship with the landlord, so it’s up to you to decide what you can say and how you have to frame it. That said, here are a few arguments that can sometimes help, if properly presented:
- I’m a good tenant. I pay on time, take care of the property and never complain unless there’s a real problem. That’s worth something to a landlord.
- Similar properties rent for less, even in similar locations and in equal or better condition. That implies that the landlord will end up with a lower rent even if they get a new tenant.
- If I leave, there will be a vacant period. If the property is empty for a month, it would take a 9% increase in the rent to make up the difference over the subsequent 11 months, just to break even that year.
- When a tenant leaves, there are additional costs, including redecoration to refresh the property, an inventory of the contents, transition of the gas, electricity and water utilities and some fees due to rental agencies that will market the property. Keeping me as a tenant defers all of those costs.
In my own case, I faced exactly this situation in 2018. We were in an apartment we had rented at the top of the market and we desperately wanted to reduce our rental costs.
The landlord was unwilling to negotiate a decrease in the rent, but I had seen an almost identical apartment only one street away. This other apartment was less expensive, in better condition and had access to a garden, unlike ours. We had other choices too: A friend was offering us a property for a year at a really good price and I own an apartment that’s not ideal for us but is in excellent condition. We could move there if necessary (I was renting it out on Airbnb at the time).
Ultimately the negotiation did not go as I had hoped, but since I’d thought it through beforehand, I knew I was willing to move out because I could save 40% on my rent. We traded down slightly, and had to put most of our belongings in storage, but ended up in a much cooler location and achieved a massive reduction in our monthly costs.
I walk past our old apartment sometimes. We moved out five months ago. It’s still empty.