Vinny has a one-bedroom apartment in Dayton, Ohio, and he needs to get out of his lease early
Let's help Vinny.
He asked us to put together a cost-benefit analysis of his options and used this free lease takeover calculator to figure out the economics of his situation. Then we put together the following analysis for Vinny.
Our calculations are based on...
- The particular economics of his situation (his monthly rent, his security deposit, etc);
- And data we put together by talking to over 700 tenants who have done a lease takeover as a way to get out of their leases early (which might be the most complete data-set that exists on how much getting out of your lease early actually costs).
The result, hopefully, is that Vinny will be able to make a more informed decision about not only whether or not getting out of his lease early makes economic sense at all, but also which method would save him the most money.
Let's look at the math.
Option # 1: The cost of doing a lease takeover
Here are the economics of Vinny's current lease. Vinny pays $699/month for rent. There are only three months left on his contract. And his landlord is holding Vinny's $699 security deposit.
If Vinny were to do a lease takeover, how would he do it? Most people put up ads for the lease they want someone to take over for them--maybe on Craigslist or a school-wide forum, for example. His goal would be to say, "this is the attractive thing that I have," and hope that someone bites. It is very much like fishing: the less attractive your bait, the longer you should expect to wait.
Here are the economics of a lease takeover in Vinny's case. Now Vinny said that he is not offering any sort of sign-up incentive to the new tenant--no cash, no pre-paid rent, etc. And so without even digging too deeply into the data yet, we can already expect that the time it will take Vinny to find a suitable new tenant will likely be on the upper end of the range, which would actually exceed the number of months he has left in his contract (something to consider, obviously; but for the sake of the analysis, we will assume that he can get the lease takeover done within three months).
So, in Vinny's favor is that he does not have to budget to pay any sort of upfront incentives. But not in Vinny's favor is that he should probably budget to pay 2-3 extra months of rent. You see the assumption of three months calculated in the itemized list above: $2,097 of extra rent to be paid over three months. And just to spot-check this assumption against Vinny's experience so far, I believe that he has already spent at least two months looking for a new tenant, and he still has not found anyone. So this assumption that we derived form our 700+-person data set appears to hold true here.
And just as Vinny will need to budget to pay 2-3 months of extra rent while he is looking for someone, he will also need to budget for the cost of the time he will have to spend looking--his actual man-hours. He gave us a dollar value for how much he thought his time was worth per hour, and we calculated a total time cost based on the average number of man-hours it takes to successfully complete a lease takeover. That is the $368 number in the itemized list above.
Also, some people do not mind talking to strangers on Craigslist for dozens of unpaid hours. I suppose that just as some people like fishing and others do not, some people find lease takeovers more annoying than others. And Vinny told us he pretty much hated this lease takeover process. So just like any inconvenience, the best way to decide which inconveniences to spend money to solve and which inconveniences to endure is to just assign some sort of relative measure to any given inconvenience, and then to assign a dollar value to that. So that is what we did, and that is the $100 number you see in the itemized list above.
Here is a more nuanced point. If your landlord charges an application fee, those can quickly add up when you do a lease takeover. Here is why. First, in the same way that you might offer some sort of cash incentive to remove any barriers to a new tenant considering taking over your lease--although, remember, Vinny chose to not to--it is almost always the case that the person trying to do the lease takeover--in this case, that is Vinny--will pay whichever fees the landlord charges to evaluate the proposed new tenant. This might include an application fee. This might include a "transfer fee." And there are a few other landlord-imposed fees we often see. Basically, Vinny will likely have to offer to pay these fees so that a prospective tenant will even put his/her name in the hat. And when you combine that fact with the average number of applicants a landlord must look at before he/she finds an acceptable one, then those application fees quickly add up. In this case, we assumed Vinny's landlord will have to evaluate three applicants before finding one to be acceptable, and that is the $150 number you see above.
Lastly, less than 1% of tenants who do a lease takeover will ever get their security deposits back. So Vinny must consider that he would be leaving $699 behind, and you see that number reflected above as well.
All told, we estimate that a lease takeover will cost Vinny $3,414. Ouch.
Option # 2: Do not get out of the lease early
This is not a solution to whichever problem prompted Vinny to want out of his lease in the first place. Rather, this is a decision to simply not try to solve the problem, a decision to stay put.
And the math on this one is easy. Vinny has three months left under contract, and his rent is $699/month. So this decision would result in an additional $2,097 leaving Vinny's pocket.
(And of course, that does not factor in the dollar value of Vinny continuing to endure whatevere inconvenience staying put would impose).
Basically, we hope Vinny is not so burnt out yet that he just settles for staying put, but having spoken to over 700 tenants who have done a lease takeover, we know how frustrating the process can be...so we would not blame him.
Option # 3: Veeto the contract
This option might not even be available to Vinny. It depends on whether he has any legitimate gripes with the property or his landlord. If he has legitimate gripes, then he has this option.
And how it works is actually pretty simple.
- You identify your gripes.
- Sign up for Veeto membership.
- Veeto will turn your gripes into a legal demand letter and send that letter to your landlord.
Need us to put together a cost-benefit analysis for your lease? Or just want to know how much your lease takeover will cost?
And if you like, you can send us the results and we will compare the economics of your current situation to our 700+-tenant data-set and produce a cost-benefit analysis like this one for you.
Hope this helps.