How do you know if the rent is high and how do you negotiate?
The most common mistake in rental negotiations is to start from what the tenant "feels" the apartment is worth or what the landlord "wants to get." The market works better with comparisons.
An ad for a four-room apartment for 7,200 shekels says very little until you place three other ads from the same street next to it. An asking price is a request, a closed deal is a fact, and the distance between the two is the space for negotiation. Comparison only works when it is normalized. An apartment of 92 sqm without parking and an apartment of 112 sqm with registered parking appear in the same category of four rooms, but 7,200 shekels for 92 sqm is 78 shekels per sqm, and the same amount for 112 sqm is 64 shekels. A gap of about 22% in the real price is hidden behind the same ad. Floor, elevator, balcony, and MAMAD (protected space) enter the same exercise.
The condition of the apartment enters the pricing: a 25-year-old kitchen, old air conditioners, and windows that let in noise lower the price, and a MAMAD, underground parking, and a storage room justify a premium. The building committee fee (va'ad ha-bayit) and municipal tax (arnona) are taken out of the calculation and compared separately, because they vary from building to building in the same neighborhood. An apartment for 6,800 shekels with a committee fee of 150 and arnona of 380 ends up being cheaper than an apartment for 6,600 shekels with a management company of 700 and arnona of 450. The rental price database provides a starting point, and from there you go down to the street level and the properties competing with that apartment that same week.
One figure almost always disappears: how long the apartment has been on the market. An apartment uploaded yesterday for 7,000 shekels with ten visits scheduled gives the landlord power. The same apartment after five weeks tells a different story, because the landlord has already given up a month of income. The calculation of the empty month is simple. An apartment worth 2 million shekels rented for 6,000 shekels generates 72 thousand shekels a year, a gross yield of 3.6%. One month without a tenant wipes out 6,000 shekels, which is 8.3% of the annual income, and the yield drops to 3.3% even before arnona, insurance, and repairs. A concession of 300 shekels a month costs 3,600 shekels a year, about 60% of the cost of that empty month.
For example: a landlord asks for 7,000 shekels a month, and a tenant with an organized file offers 6,700 and is ready to move in in three days. If the landlord continues to search for a month and finally finds a tenant for 7,000, he lost 7,000 shekels to earn 3,600 a year, and it takes him almost two years to cover the empty month. The landlord's full account reaches the same conclusion from another direction. The local authority softens part of the blow. An empty property is eligible for an arnona discount of up to 100% in the first six months, up to 66.66% from the seventh month until the end of the year, and up to 50% in the second and third year. A period shorter than 30 consecutive days is not counted at all, so an apartment that stood empty for three weeks is charged full arnona. The discount returns hundreds of shekels, and the lost rent remains lost.
The same calculation works in the opposite direction. An old tenant pays 6,000 shekels, the landlord asks for 6,300, and the addition is 3,600 shekels a year. The tenant finds an apartment for 6,100, but the moving costs 3,500 shekels, the adjustments another 2,000, and the deposit in the new apartment is larger. The move intended to save 200 shekels a month ends in the first year with a loss. This is one of the reasons why price increases for contract renewals tend to be more moderate than the price paid by a new tenant entering the same property. A premium has been created for apartments with a MAMAD, and in some areas, it increases the bargaining power of the owners of protected apartments.
The tenant's bargaining position is built on three things that are difficult for the landlord to obtain elsewhere: the duration of the commitment, the date of entry, and a file proving that the money will arrive. Three pay slips, a balance confirmation from the bank, a phone number of the previous landlord, and an offer for a standing order instead of post-dated checks reduce the risk for the landlord that an eviction process will be needed, and that is worth more to him than two hundred shekels a month. Good negotiation relies on the exchange of value. A tenant can offer a two-year contract and organized securities in exchange for a lower price, and the landlord saves the risk of searching in a year. It is also possible to work in steps: 6,500 shekels in the first year and 6,650 in the second, so the tenant gets certainty and the landlord gets a known increase in advance. In an apartment that requires improvement, one can talk about money in another way. A tenant entering an apartment that lacks an air conditioner in a room offers one price if the air conditioner is installed at the landlord's expense, and another price if he installs it himself and receives an agreed credit. The amount and date are entered into the contract. Instead of asking what the final price is, it is better to arrive with an argument: the price of similar apartments in the area, the gaps between the properties offered for rent, and the final amount that should reflect the true price of the apartment. The amount is only one part of the deal. A tenant who lowered 150 shekels a month, 1,800 shekels a year, and received in return a clause that obliges him to pay until the end of the period even if he is forced to leave, can lose many times that in clauses that are worth money in the contract.
