I have a very nice apartment rental in Maceio, Brasil ..owned by a nice Italian man .. who thought he was smart… managed and rented by a nice Brasilian man who thinks he is smart.. in a wonderful country ..Brasil which is governed by people who think they are smart.
The Italian at the time he brought his money (savings) here it was relatively cheap and easy to bring capital here.. and the government welcomed outside investment.
The apartment I’m in now has condo fee, tax and management fee of a little more than 35%. This new apartment when the market was rising seemed like a smart investment. The imagined total apartment value increasing 10% per year so the FOREVER fee expenses at 35% being high was of no consequence..because of the imagined new value.
Something they didn’t calculate ..the rising RENT value for these apartments .. never equaled the new price values ..and new new apartments were being built at speed.. so there is a GLUT of new luxury apartments … which can’t sell for value and can’t rent for value..
Now back to my smart rental agent.. he shows up last night with a 10% increase to my rent.. Why I say? Are you not happy with me ..paying the highest rent in the building.. every month a week before its due. Do you think I’m so lazy that I won’t move ..just because I have said ..many times I love my apartment and want to stay here.
He smiles and says to me no Christian ..this is a negotiation ..prices go up.. I say oh.. I did not realize this is a negotiation… are you sure prices only go up ?
.. Yes he says..this is a negotiation.. Now armed with the rules of the game.. because I thought we were friendly.. I say.. OK .. how long will it take you to rent the apartment if I leave .. he says 3 months.. I know it to be longer ..but ok.. let’s do the math ..at even one month… what price would you need to rent the apartment to equal the money you lose ..plus the 35% monthly expenses now the owner will pay out of his pocket..
He is perplexed ..math not being a strong point for him ..nor logic..nor market principles.. I lay it out for him quickly .. on a sheet of paper.. again I ask ..are you sure you want to negotiate with me ? Be careful I warn ..because I think maybe you should be happy with the way things are..
He says no of course let’s negotiate.. I say .. again ..my friend ..you are smart .. please I don’t want to negotiate with you.. I am happy with the way things are.. he still doesn’t get the point .. he wants to negotiate .. so I dance his dance.. ok .. I offer 5% less than the current rent.. he says he doesn’t understand.
I say I offer 5% LESS than the current rent ..and in fact .. the offer is final ..and only good ..right now ..this minute .. or starting tomorrow I will begin to look for another new apartment.
He shakes his head … says no .. I say ok I will move..
So who is so smart ..the government of Brasil restricting capital flows … the Italian with his savings now stuck in a non liquid investment that pays no return and has MONSTER expenses.. the real estate manager.. who thinks brilliantly ..I know..let’s just charge more.
Truly smart men will be prepared for change without the expectation to always have the wind at the back pushing luck and fortune along easily with a nice tide pulling them too…
My view is..not the government of Brasil .. the Italian owner ..nor the Brasilian manager are smart or prepared for what is coming..they forget what hard times were like.
I remember hard times .. know what true economics is.. and sense the winds of change.
PS ..The manager came back 2 days later ”.. let’s leave it the way it is… the old rent” .. not in the mood to be charitable or let him off the hook just yet ..I put next months 5% discounted rent on the table .. I said ” No ..for this month .. I get the discount and will try to forget next month that we are just doing business and it’s just a negotiation” … He signed the receipt took the money and left glum and disappointed. The sting will come out of his pocket I’m sure .. and maybe he will learn a bit from the clumsy careless way he handled a good customer.