The Beauty of Supply and Demand

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Supply and demand is an economic principle that we know all too well. When demand goes up, prices tend to follow. When supply is high, expect discounts.

Thanks to supply and demand, we might be moving to a bigger apartment. Let me explain…

The Free Upgrade

Yesterday, we went to tour some of the brand new apartment complexes near where we lived. They were gorgeous. Granite counter tops, stainless steel appliances were all standard and the complex was in a much quieter location than where we are now. It was also in a more spaced out area of town and ten minutes closer to where Emma works. Of course, the price also reflected the premium, as it was 10% above what we pay currently. Hmm. Thanks but no thanks.

Then the agent laid out a deal that was hard to refuse. He told us that if we can put down a refundable deposit on the spot, he will give us a 10% discount on the monthly payment and two additional free months of rent as long as we sign a lease for 14 months. Since the new complex was under the same management as our apartment, we could also break our lease without penalty as long as our rent was $100 higher than it was previously. After some negotiation and some discussion, the only way it would work is for us to get a two bedroom apartment as opposed to one. The math then looked like this:

New Rent as Compared to Old

  • $100 more per month in rent
  • 13 month lease (as opposed to our current one that expires in six months)
  • $1600 free up front which would cover our increase in rent (after you calculate the extra security deposits and assuming we won’t get any of our current deposit back)
  • They are asking corporate to give us even more up front incentives, but they are currently waiting approvals.

So all in all, we will be moving into a brand new and bigger unit that includes an extra bedroom, be in a quieter, brighter location that includes a shorter commute to work without really paying more financially. Minus some hassle, this seems like a free way to experience a different living environment before we move to a more permanent location when we buy.

One Little Caveat
The reason why they are desperately trying to fill the apartments is due to weak demand. Being a brand new apartment complex, there are many empty units that need to have paying renters. Therefore, you can bet that all those discounts won’t be extended when our lease is up. Luckily, we were planning to buy our first home in a year or so, which meant that it didn’t matter to us what they do when our lease is due.

Extending The Idea Further

Sometimes, the obvious decision isn’t the most prudent. The pricey version may include promotions that make the cost on par with other choices. The hybrid cars were a good deal when the tax incentives were present, and now a bigger and better apartment turns out to cost less money.

What I learned in this experience is:

  • Even the More Expensive Options Shouldn’t be Ruled Out – Especially when the economics are in your favor
  • Always Ask for Discounts and Negotiate – They didn’t give us everything at first, but we kept asking for more. Actually, we might get even more if corporate approves more discounts so keep asking because potential customers have the most leverage.
  • Be on The Lookout for Imbalances – When supply and demands are at an extreme, prices are at abnormal levels.

What Do You Think?

Moving is a decision that Emma and I don’t take lightly. What do you think of our decision? As we still have another two days to back out, any comments or suggestions are much appreciated.

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{ read the comments below or add one }

  • DDFD @ DivorcedDadFrugalDad says:

    It never hurts to ask and it never hurts to negotiate . . .

    Supply and demand is often used against you– the least you can do is return the favor now that the tables are turned.

  • RB @ Financial Samurai says:

    Hi CD – You’re not being rude at all. What’s important is figuring out one’s Lifecycle of Money.

    I firmly believe that most of us who care about finances will retire with much more money when we die. That’s even after leaving money for your relatives. Having too much money at death is a mistake. The key is to try and spend it in a balanced way throughout one’s life.

    You’re only in your 20’s, 30’s, 40’s etc once. Live it up within reason. There are too many miserly people out there who save, save, save and then die. What was it all for? It was for nothing.


  • RB @ Financial Samurai says:

    Life is short MoneyNing. You should strive to live in as nice a place as you can. Have no regrets. It’s about living life now and in the moment especially if you have a family.

    Sounds like a good deal.

    • CD Rates says:

      RB, not to be rude and I’m sure you have all good intentions but living for the moment, got the country in its current situation.

      Please don’t just live for the moment. Moments are just that. Lifetimes are far longer and decisions and actions taken just in the moment, can cost you far into the future.

      This isn’t to say, never have fun. You want to create those memories that also last a lifetime. But create them with prudence. cd :O)

  • Wilson Pon says:

    Sounds like a great deal, Ning. I think you’ve made up your final decision, isn’t it?

  • CD Rates says:

    And who knows, you may end up needing that 2nd bedroom. :O)

    Seems like your research is on the spot. I would go for it.

    cd :O)

  • Ada says:

    I wish there were new developments in my area. It really looks like you are actually SAVING money for moving to a bigger and nicer place.

    I wonder if new apartments have the “new car smell” too. Keep us updated.

  • Jessica says:

    The deal sounds great. It’s amazing that even for something as big as your home, you can save by going “big”.

    • MoneyNing says:

      I’m in a unique situation because I’m only in it for the short term (I’m buying a home in a year). For those that will stay, year two will be much more expensive as the incentives are taken away so don’t jump in with two feet if you see a similar deal and run the numbers.

  • Craig says:

    A lot of apartments are doing that and I know people who have taken advantage because of the situation. Like you mention, don’t just rule something out because they may be able to help you out because they are craving for the demand and don’t have it right now. Whatever it is, look at your options. If you aren’t in a rush, you can get some good deals or upgrades.

  • Mike Piper says:

    All in all, sounds like a pretty sweet deal.

    By the way, be sure to factor in moving expenses as well. If you need to hire movers, that’s at least a few hundred dollars.

    • MoneyNing says:

      I figured that moving will be less than $500 for sure even if I find a premium moving company that doesn’t need us to pack (remember, we only have a small one bedroom apartment so we don’t have much stuff).

      With that cost factored in, we are still breaking even. Of course, I can also tax deduct some of that since the home is a home office. Additionally, the higher monthly rent ($100) can add to my tax deduction for home deduction come year end. Lastly, I might be able to increase my office space if I use the second bedroom as an office, getting additional taxes back from Uncle Sam.

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