Housing Affordability: Insights Beyond the Headlines with Justin

Rent constitutes the preeminent financial burden in an individual's life, yet it is disconcerting that many tenants enter lease agreements devoid of negotiation, lacking a comprehensive understanding of the prevailing market conditions, and underestimating their inherent leverage. In this discourse, we delve into the intricate dynamics of housing affordability, transcending the superficial narratives commonly presented in the media to uncover the underlying realities that often remain obscured. Our esteemed guest, Justin Falk, the founder of Rental Secrets and a seasoned expert in residential property management, elucidates strategies that empower renters to navigate the rental landscape with greater acumen. Through a meticulous examination of the landlord-tenant relationship, we unveil how tenants can effectively articulate their value while negotiating terms that align with their interests. I invite you to engage with this enlightening conversation as we explore the mechanisms that can transform the renting experience into a more equitable and informed endeavor.

The discourse navigates the intricate terrain of housing affordability, elucidating the often-overlooked dynamics that govern the rental market. It commences with a stark acknowledgment of the fact that rent constitutes a substantial financial burden for many individuals. Yet, despite the significance of this expense, it is alarming to note that a majority of renters enter into lease agreements without engaging in negotiations or comprehending the prevailing market conditions, thereby overlooking the potential leverage they possess in this arena. The guest, Justin Falk, a seasoned expert in residential property management and the founder of Rental Secrets, offers illuminating insights into this paradox, emphasizing that renters can indeed negotiate their leases more effectively by understanding the underlying motivations of landlords and property managers. A critical theme that emerges from the conversation revolves around the misconception that rental prices are immutable. Falk argues persuasively that this belief is fundamentally flawed. Rather, the rental landscape is dynamic, and renters often possess more negotiating power than they recognize. By adopting a strategic mindset and leveraging market knowledge, renters can negotiate terms that are more favorable, thus alleviating some of the financial pressures associated with housing costs. Moreover, the episode highlights the importance of viewing rent not merely as a fixed expense but as a negotiable element of a broader economic interaction between landlords and tenants. The discussion further delves into the psychological aspects of renting, illustrating how landlords create a sense of urgency that dissuades potential renters from negotiating. Falk elucidates the process by which property managers guide conversations to emphasize scarcity, often leading renters to make hasty decisions without fully exploring alternatives. Through this lens, renters are encouraged to adopt a proactive approach, continuously surveying the market and understanding the competitive landscape, thereby empowering themselves to make informed decisions that align with their financial capabilities and housing needs. The episode concludes by underscoring the notion that knowledge is the key to leverage in rental negotiations, urging listeners to approach their rental situations with a strategic mindset that prioritizes informed decision-making.

Takeaways:

• Rent constitutes a significant portion of an individual's financial obligations throughout their lifetime, often surpassing other expenses.
• Many renters remain unaware of their negotiating power, frequently accepting lease terms without question or market awareness.
• Understanding the nuances of housing affordability requires a deeper exploration beyond mere headlines and statistics.
• Awareness of market dynamics can empower renters to negotiate better terms and potentially lower their costs effectively.
• It is crucial for renters to recognize the importance of their role in the property management ecosystem, as their feedback can significantly impact landlords' operations.
• Adopting a long-term perspective on renting can lead to financial benefits, such as lower renewal rates and protection of security deposits.

Links referenced in this episode:

• rentalsecrets.net
• justinntalsecrets.net

Companies mentioned in this episode:

• Rental Secrets
• Wharton
• Uvas
• Fox News
• CNBC
• RealTail.com

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Transcript

SPEAKER_00 0:00

Rent is often the single largest expense in a person's life. And yet most renters sign leases without negotiating, without understanding the market, and without realizing that they may have more leverage than they think. So

Understanding Housing Affordability

SPEAKER_00 0:20

today we are talking about housing affordability. Not from the headlines, but from the behind the scenes. Yes. Hey dear listeners, welcome back to another powerful episode of Mind Meets Machine, where we explore the systems shaping our lives from markets to mindsets. I'm your host, Avik, and today I am joined by a lovely guest. Please welcome Justin Falk. So welcome to the show.

SPEAKER_02 0:47

Thanks, Abby. Happy to be here.

SPEAKER_00 0:50

Amazing. Thank you so much for joining, Justin. And uh, dear listeners, before we'll delve deep into the discussion today, I'll quickly introduce you to Justin. So Justin is the founder of Rental Secrets, author and real estate consultant with more than 20 years in the residential property management. So he has developed and managed apartments across the US, holds degrees from Wharton and UVA's Darton School, and has been featured on Fox News, CNBC, and RealTech.com. So what makes his work unique is he writes and teaches not for landlords but for the renters, empowering them with the practical and market-based negotiation strategies. I believe all of you will learn a lot of things in our discussion today. So I'll not take much of time. Let's get started. Welcome to the show again.

SPEAKER_02 1:47

Yeah, let's dive in.

SPEAKER_00 1:48

Amazing. You noticed something unusual early on, and there were countless books for the landlords and the investors, but none for the renters.

SPEAKER_02 2:02

Most renters don't understand that being a landlord is actually difficult. Like when you invest in a property, you essentially become a small business owner. And most of the real estate investment seminars and real estate investment books, they don't talk about it from that perspective. So what that kind of sparked in me was you actually have a partner in your renter. If your renter will tell you when things are broken, if your renter will keep you abreast of what's going on around the property, if they'll they'll send you a picture of what's going on every once in a while, it makes your job as a landlord easier. And why that has value for the renter is as a renter, you want more people to invest in housing. You want more people to supply housing so that the housing costs can remain stable and affordable. Because part of what's been happening is in a lot of in a lot of cities, the supply has not been increasing, which means that the cost has been driven out of out of control in many cases.

SPEAKER_00 3:06

So, like um, if I if I have to ask that, many renters assume that rent is kind of fixed. So either you take it or you leave it, right? So, from your experience, how accurate is that belief?

SPEAKER_02 3:22

It's not accurate at all, really. What's been happening is, and then this kind of ties in with one of my uh favorite quotes from The Simpsons, where uh Homer Simpson says, I don't need to know what I want, the TV will tell me. There's a consumer mentality that we've all been trained on through commercials and advertisements, where we walk into a store, we see a price on the shelf, we pick up that item, and we expect to pay that I pay that price when we go to the cashier. But if you've ever gone to a flea market, you'll see little old ladies, and they are they are negotiating with the fruit vendor or the vegetable vendor over every last string bean that they're purchasing. And that's that's a mindset that we've that we so when we go to look at a property, you have to understand that this person, the landlord, the property manager that you're talking about, they have a bias towards renting that property to you today, as soon as possible. And the reason why that bias exists is because of the nature of their business. They're renting space for time. And every day that that space stays vacant, not only do they not get paid, but they can't recover that revenue. Like nobody rents an apartment, nobody rents use of an apartment from last week. So if they can't recover that money, we need to rent it today, and we need to move this property today. So that gives them that that incentive to rent it as soon as possible. Now, you as the renter, you have you have options. There are there are plenty of other places that you could rent. So it's kind of so you so that in itself, that in and of itself gives you negotiating power. And that that's and that's kind of just the beginning.

Understanding the Rental Market: Insights for Renters

SPEAKER_00 5:18

What's happening, I mean, behind the scenes, like in property management, that renters typically don't see?

SPEAKER_02 5:26

Well, we'll start with the initial conversation. So say you're looking for a two-bedroom apartment, you call up an apartment complex, and you say, look, I'm looking for a two-bedroom apartment.

SPEAKER_01 5:40

Yes.

SPEAKER_02 5:40

And we start talking about what they have available. And the way that conversation usually goes is they start asking you questions about what you want. You know, do you want a one-bedroom or two-bedroom? Do you want it to be on the first or second floor? Would you like it to be near the pool? Would you like it to be near the laundry room? As you answer these questions, they're crossing off apartments that they have vacant. And they're they're narrowing it down to the one that fits your needs. And you get to the end of that conversation and they say, Great, we have one apartment available that fits your needs. When can you get here? And all of a sudden, in that moment, FOMO sets in, and you're thinking, they only have one apartment, I have to get down there now. So so mentally, you've already been set up to not negotiate.

SPEAKER_00 6:29

That means it was it's just creating that urgency.

SPEAKER_02 6:34

Right. Right. So they're creating that urgency. Now, it may very well be that that particular community only has one apartment that fits your needs. But it very well could also be that there's nine other apartments that they have that could be useful for you, but we're not talking about those because of that previous conversation we've had, and they've got you focused in on this one apartment that's available. The other aspect of that is when people usually are answering those questions, they're thinking about what would be nice to have. It would be nice to be, you know, in the penthouse suite, or it would be nice to be above the swimming pool. Well, each of those things that will be nice to have cost more. So in so in the in the apartment world, they call it amenity-based pricing. So the closer you are to a swimming pool, the more expensive that apartment is.

SPEAKER_01 7:37

Exactly.

SPEAKER_02 7:39

So because you're because you're talking about you're expressing wants versus needs, you've you've also pushed yourself into a more expensive unit. And all this is happening behind behind the scenes, like this, and this is even before you've actually set foot on the

Understanding Apartment Pricing and Market Competition

SPEAKER_02 7:58

property. So you've already, in this conversation, you've you've mentally pushed yourself towards a more expensive apartment, and you've put yourself in a mental frame of mind to not negotiate because they only have one.

SPEAKER_01 8:10

Totally agree.

SPEAKER_02 8:11

And that's kind of the first thing that's happening behind the scenes that most people, most renters don't don't realize, they don't see. So the next thing that happens is when they tell you the price, they say this wonderful phrase that's both true and not true.

SPEAKER_01 8:30

Okay.

SPEAKER_02 8:31

Our rents are competitive with the market. And it sounds so great. It sounds like we've done all the research for you, you can't find a better deal ever. You this this is it, this is the one, this is where you need to be. And the problem with that phrase is they've decided who their competition is, and most Rangers don't even know how they did that. So, what they've done is they took out a map, they put a pin in the location of their community, and they went about a mile out, and they drew a circle. And every and they've picked a few communities in that circle that they think are their competitors. Okay, and they're comparing themselves to that. That has nothing to do with you and what your needs are, where your job is, the places you like to go that you need to be close to, the daycare that your kid likes to go to, the job that you have, the restaurants that you love. It has nothing to do with any of that. So they don't really know who their competition is from your perspective, unless you tell them. And this is another source of power that renters have. Because they're not really competing with the communities that are within that circle. They're competing with the communities that while they might be a half hour east of your job, they're commute, they're competing with communities that are a half hour west of your job. Because you want to be within a half hour of your job from your perspective. But they don't know what that means. They haven't met you yet. They're looking at some marketing avatar that has 1.5 cars and 2.5 kids. Um, so this is a kind of another phrase that's used to adjust, to influence your mindset. Um and if you don't really know what it means, then it has then it can very well have that effect on your mindset as you're going through this process.

SPEAKER_00 10:45

I agree. Totally agree. And you know, like so once you understand like how landlords think, then that dynamic shifts from kind of powerless to a kind of strategic, right? So um also I I feel like if I have to talk about your book, right? Your book emphasizes on negotiating in the landlord's language. I really love that. So so uh what does that actually mean? I mean, I I totally understand. Like uh you should be communicating as per the landlord's language, but if you can just help us, yeah, yeah.

Understanding the Landlord's Perspective

SPEAKER_02 11:27

So what typically happens is when a renter is concerned about the price of rent, whether it's at the beginning of the rental process or at renewal or at any time, they usually approach it from the standpoint of emotion. They're they're presenting an emotional argument to to the landlord. Okay. As the landlord, I'm more focused on this is this is this is a this as we pointed out earlier. I've essentially bought a small business when I invested in this property. So I've got to deal with maintenance and my mortgage and these costs that I'm trying to manage. So as a landlord, I'm speaking the language of expenses and revenue, and you're speaking the language of emotion and how paying this much makes you feel. There it's it's like one person speaking French and the other person speaking, you know, Japanese. Like they're not, those two languages don't really communicate well. So when I talk about speaking in the landlord's language, what I'm talking about is getting back to that concept of vacancy and what that and what that means. So let's say the landlord sent you a renewable offer for whatever increase. And you're like, well, I don't want to do that, I want to do half that or a quarter of that or whatever. Don't come to them with emotion, come to them with the fact that if I decide to leave, what expenses are you now incurring that you would otherwise not incur? So if I move, if I move out, you've got to have the apartment cleaned. You've got to come in and not just clean but professionally cleaned, you've got to come in and make repairs to the apartment, to the mini blinds and whatever little things happened while I was in there. But most importantly, you're getting back, your the apartment's going to be vacant for that period of time while it's getting cleaned, while it's getting repaired, while you are advertising for a new renter who, oh, by the way, you have no idea who that person's gonna be, if they're gonna pay on time, are they gonna destroy your apartment? You're essentially rolling the dice again on a whole new situation. And with me, I've been here, I'm in known quantity. You've seen me pay my rent on time, you've seen me get along with my neighbors, you've seen me monitor and you know watch my kids when they're out in the courtyard and not just let them roam, run, run free. You've seen all of that. So you know how I operate, you don't know how they'll operate. And these are all costs and risks that I get to decide as the renter if you have to take. Because if I stay, you don't have to take on that expense, you don't have to take on that risk. If I leave, you do, and I'm in charge of that, not you as the landlord. So it's a total kind of shift on how to think about that. So now you can present a coherent argument to the landlord in the language that they're dealing with. And by the way, an added benefit is if the person that you're talking to is a property manager and not the owner, you've now given them an argument that they can that's coherent that they can take to their owner and have that conversation about what the owner wants to do.

SPEAKER_01 14:56

Exactly.

SPEAKER_02 14:58

Because as a property manager, I can't take I can't take your emotion and have that conversation with my boss. That's not gonna go over well. And it's not gonna reflect well on me because I'm trying to get bonuses behind the scenes and and you know navigate that corporate ladder and all those other things that are going on in my life as a property manager. And that emotion is not gonna help me. But you bring me a coherent argument that I can use with my boss to retain a good to retain a good tenant or renter, that is something I can use in my position in that corporate setting. That's a conversation I can have, and I'm not gonna get blowback from that.

SPEAKER_00 15:36

Very true. Very true. And um, so suppose uh I say like for the for the renters who are thinking for a long-term thing, right? So what habits or kind of I'd say um strategies create more financial stability over the time? What do you say?

SPEAKER_02 15:55

So when you're renting, people a lot of people tend to think of renting, at least initially, as a short-term thing. We're gonna be here a year, maybe two. But if you think about renting as a longer-term situation, five years, let's say, it is statistically true that people who stay in their rental unit and renew every year, they're typically paying less than the market rate. Because of those factors that I that I mentioned before. Because of those, if especially if you've been having those conversations about vacancy costs and all of that, then you're more likely to have small lower renewals and you're more likely to pay less than what the market rate is. So that's so that's one factor that works kind of in your favor if you stay somewhere longer, longer term. The other thing that works in your favor if you stay longer term is if you should ever decide to move out, your security deposit won't be hit with certain costs. So let's give a concrete example. So let's say your child is the Picasso of Crayons and they have scrawled all over the walls of your apartment. Well, most people would think, well, yeah, I'm gonna have to pay to have this place painted when I get out of here because you know nobody wants to keep my kids' wall wall art. Um but it's true nobody wants to keep your kids' wall art, but it's not true that you'll have to pay for that. So what's what's going on is in accounting there's this concept of useful life. And once the useful life has been used, then you cannot charge someone else for it. So for paint, typically useful life is two years. So if you've been in the apartment for more than two years, the useful life has been used up and they can't charge you for it. If you've only been there a year, they'll charge you half the cost of painting in that in that situation. So those kinds of things work in work in your favor as well when you stay longer. So another example is carpet. Typically, carpet has a useful life of about five years. Um, so if we're past that five-year mark, then you don't have to pay for carpet. But the interesting thing about these concepts is not so much the is the timing of when that clock starts. So it doesn't the clock doesn't start when you move in. The clock started at installation. So those items may have been installed years before you got there. Um so even if you've only been there two years, let's say, the carpet may already be five years old, and you shouldn't be charged for that. Um, and most people don't know this, so they don't question when their security deposit gets hit. And knowing that can actually save you thousands when you move out.

SPEAKER_00 19:01

Understood. Understood. So lovely. I really love that. And and also like for someone who is feeling overwhelmed by the rising costs, because day by day it's rising, right? So, what's the first empowered step they can

Understanding Rental Market Dynamics

SPEAKER_00 19:15

take this week? What do you say?

SPEAKER_02 19:17

The first empowered step you can take, well, my my initial answer would be read this book. But actually look at because one of the one of the pressures that landlords are under is they're competing for you amongst other amongst others. So actually look out in the marketplace and see what the different options are from your perspective, and not just once when you when you initially are looking for an apartment. Do it every time renewal comes around. Um because you'll see like there are like there are markets right now where supply is overbuilt and prices have started coming down. But if you are not out there looking at the market actively, you really won't know that that's what's going on. So that renewal offer that you get that's $25 or $50 higher, you'll be like, that's not so bad. Sign on that line, move forward. But really, if if mark if rents are dropping in your market, even though you're even though you're currently a customer of theirs, your rent should be dropping too. Like you should, that should be part of the conversation too. But you have to be aware of what's going on in order to in order to um to push for that. So all of these landlords are competing for quality renters. Everybody wants the great renter who pays on time, who doesn't disturb the community, who who makes people want to, who makes people want to live there. Um and well, and while we're on that note, also look for free rent opportunities. And and people are like, oh, that never happens.

Navigating Rent and Free Rent Opportunities

SPEAKER_02 21:06

Why why would people give rent away for free? It happens all the time. And there's really two reasons for it.

SPEAKER_01 21:13

Okay.

SPEAKER_02 21:14

One is it's a marketing reason. Just like when I said free rent, a lot of your listeners' ears perked up and they started paying much more close attention to what we're talking about. The same thing happens in the marketplace. So when communities want to increase foot traffic, they want people to pay more attention to their communities, they will offer free rent. And and they'll offer it for two weeks, four weeks, six weeks, depending on the situation and all of that. But it happens all the time. The other way people can get free rent, and we were like we were talking about mindset earlier, is to work for the landlord, and this. Is something that most people never consider because they can they think the landlord is their enemy. Well, why would I work for somebody who I consider to be my enemy? If you have that mindset, you're never going to consider this option. But there are plenty of people who have lived in a small 20, 30 unit apartment complex, worked for the landlord, been there, you know, been there, been their eyes and ears on site, help their neighbor, be the first point of contact for their neighbors, keep the property looking good, clean up the pool, you know, those kinds of things. It's not necessarily a full-time job.

SPEAKER_01 22:40

Yeah.

SPEAKER_02 22:41

But it allows you to save money, it allows you to save money on rent because that is the compensation for the services that you're providing.

SPEAKER_01 22:50

Exactly.

SPEAKER_02 22:51

So there are a number of things that people can do to kind of alleviate that anxiety of costs are going up, everything's more expensive. It just requires you to think about the situation in a different way. Like we've been so trained to be consumers, we've been so trained to just accept what the market provides us without thinking about how the market is providing what it's providing and how we can influence that.

SPEAKER_00 23:27

I agree. Totally agree. That's really amazing. So I'd say, like, if someone wants to connect with you, how they can connect?

SPEAKER_02 23:36

Yeah, no, absolutely. They can go to rentalsecrets.net. So we have that website. We're also on um LinkedIn, Instagram, Twitter, and Facebook under Rental Secrets. Um, and actually, there's we're where we post like tips for for renters, um, different concepts to keep in mind as they're going through as they're going through this process. Um, so those are great places to connect. And if they want to send me any specific questions, they can reach out to me at Justin at rental secrets.net.

SPEAKER_00 24:10

Amazing. That's really great. So, Delisten's what I'll do is I'll put all the links and the details into the show notes for your easy reference so that you can easily reach out to Justin. And before we move, I love to mention one thing that markets evolve, policies will definitely shift, prices rise and fall as well. But knowledge creates the leverage, and leverage definitely creates the options. So, so their listeners here on Mind Meets Machine, we explore the systems shaping your life. So you can navigate them strategically, right? So, if this episode gave you insight, please share it with someone for their next lease renewal, right? So, with this hope until next time, stay informed, stay strategic, and negotiate wise. Thank you so much.