Good Tenant for the past year. Would you raise rent?

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Good Tenant for the past year. Would you raise rent?

Will LHeureux

Rental Property Investor · Nashville, TN · Member since 2020 · 5 posts · 5 votes

Would you raise rent in a good tenant that has paid on time without issue for the whole year?

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Jeff Fountain

Saint Simons Island, GA · Member since 2017 · 34 posts · 64 votes

@Will, I would not. But, that is my opinion. I own six properties on Saint Simons Island, GA and a property up in Alexandria, VA. I only mention my number of properties to convey my limited experience. While we all want to make more money, the solid dependable tenant is golden and is worth more to me than a bit of extra money. If you raise the rent on your current, you run the risk of the tenant looking elsewhere. Consider raising the rent after a tenant moves out. My goal for all my properties is to maintain solid long-term renters. Gives me more time for the beach. I recommend finding that balance between great monthly cash flow and keeping great tenants. Just my $.02.

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Yes. At least to keep up with inflation......so 7% or so....
3 Reply
Jeff Fountain
Saint Simons Island, GA · Member since 2017 · 34 posts · 64 votes
4y
@Will, I would not. But, that is my opinion. I own six properties on Saint Simons Island, GA and a property up in Alexandria, VA. I only mention my number of properties to convey my limited experience. While we all want to make more money, the solid dependable tenant is golden and is worth more to me than a bit of extra money. If you raise the rent on your current, you run the risk of the tenant looking elsewhere. Consider raising the rent after a tenant moves out. My goal for all my properties is to maintain solid long-term renters. Gives me more time for the beach. I recommend finding that balance between great monthly cash flow and keeping great tenants. Just my $.02.
28 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
Yes.

According to an article in the Tennessean four days ago, rents in Nashville increased nearly 19% last year. If your tenant moved in 01/01/2021 at $1,000 a month, they are now $190 below market. If rents increase just 10% in 2022, your unit rent will be $399 below market.

You can explain the situation to your tenant, then offer a modest increase to prevent you from getting too far behind. I think 10% is fair given the market. If you don't and market rates continue climbing, I doubt you'll be willing/able to give them a 30% rent hike next year at renewal.

Always stay close too market. Getting too far behind can get you in a pickle you can't escape, like the Landlords in cities that established limits to rent increases last year.
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21 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
@Nathan Gesner Makes a great point. If you don't raise it a little now, you'll be stuck having to do a larger raise down the road. You're almost doing him a favor by doing it a little at a time......at least that's one way to look at it.
7 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
Yes. Even if it is a small amount, your expenses have increased over the last year. I have rentals in areas where there are caps on how much we can increase the rent (and we couldn't during covid). My costs have gone up. I have great tenants, but when my costs go up, so do their rents even if it is $10/month. Those small amounts add up over time.
1 Reply
Tim Davis
Real Estate Coach · Nashville, TN · Member since 2018 · 38 posts · 40 votes
4y
Listen to @Nathan Gesner. That is the correct advice in my opinion. Simply explain that your cost have gone up so you’ll have to pass some of that increase along. Everyone understands that. However, increase it only enough that you’re still under market rate. That way if they shop for new comparable places they will realize they still have a great deal and you can keep a good tenant. Even though you’re below market rate after the rent increase your savings on turnover more than make up for that.
10 Reply
Zack Berridge
Houston · Member since 2018 · 55 posts · 24 votes
4y
everywhere I've lived in which I paid rent, it went up every year. It was expected.
7 Reply
Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
4y
@Will LHeureux I have it in my leases that I can raise the rent up to 4% per year upon renewal of the lease. I know that’s not much but it allows for inflation in a normal year. I’m trying to keep up with approximately that amount in most locations simply due to rising costs and have increased by more with turnovers.
3 Reply
Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
4y
It would depend. But don't expect that if you fall far behind the market rate for the property, the tenant will deeply appreciate your decision and reciprocate by taking special, tender loving care of your property. My goal, for small multifamily (2-4 units) and single-family is to keep rent for the tenants I've decided I want to do long-term business with at approximately 10% under my conservative estimate of the current market rate for the property. That still means I raise the rent approximately every year.
9 Reply
Dave Villa
Member since 2020 · 20 posts · 12 votes
4y
I agree with most people in these replies which is to raise rent a small amount. Vacancy is usually the highest expense, I believe 3% rent increase every year is typical but I would use your judgment. I raised rent on my rentals this year but not to what market rent should be, I would do your best to hold onto good tenants.
6 Reply
Ron Brady
Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
4y
This is a point of debate with my wife and business partner. I believe raising the rent annually, keeping a solid tenant and being on the lower end of market rent is a good long term strategy. My wife is not as willing to raise rent annually. This is a rare moment when I am right and she’s not. And since she rarely reads the forums I won’t get in trouble for awhile for sharing this take. ☺️
20 Reply
Scott M.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
4y
Yes, you should. If you don't in the blink of an eye you will be losing thousands of dollars every year. Just like when a tenant is late you need to start eviction on day 1. If you don't, by the time you turn around they owe you thousands.
Need to stay current or close to it. Unless the property is a dump (respectfully). If it is then no, I would not.
3 Reply
Michael BlumBusiness Member
NC · Member since 2018 · 55 posts · 49 votes
4y
@Will LHeureux
Great advise here. I would definitely set the precedent that you will raise rents (if even a little) every year. It’s much easier to have the tenant expect rental increases every year then to skip it a couple years and then do one (even if it is small). For some reason, tenants think that how things have been is how they always will be. So even a small raise after years of no raises is likely not to be received well. Do yourself and your investment a favor and set expectations from the beginning.
4 Reply
Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
4y
@Will LHeureux Yes, I had tenants renew in May, they broke the lease in January and I rented for $200 more, I am sure it will have gone up somewhat in your area and you don't want to be too far below market. You are paying yourself and with inflation you are decreasing what you are paid if you renew at the same rate since costs went up. No one is going to move over a reasonable increase unless they were moving anyway.
2 Reply
Eric Bilderback
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
4y
Have to raise rent. You don't have to raise it by the amount the market increased but at least half that I would say. Or you will just screw yourself in the future.
2 Reply
John Bartlett
Member since 2021 · 62 posts · 46 votes
4y
@Will LHeureux you didn't state where the property is.
Short answer is yes, look in Zillow and see what rent is going for in your area today, as it was a lot more then yesterday(when the lease was signed) At least 10%.
I'm going to use an example in my neighbor. 2019 rent for a 3/2 SFH was in the range of 1200-1400/mth.
2021 Q3 house across the street rented for 1850/mth.
2022 January, rent one street over same 3/2 they are asking $2440/month.
That's a 74% increase in 3 years.
30% increase in 4-5 months.
If rent estimates went up enough, having then move out on their own might even be better as you can increase rent by 30%+. All depends on your market and conditions.
3 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
@John Bartlett Great example!

@Will LHeureux You are running a business, not a charity. Just sayin'.....
4 Reply
Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
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@Will LHeureux
I have great tenants in one property that moved In 3/2020, right before Covid hit. Payed all thru Covid, I let it go until 18 mos and raised him $50. Didn’t hear a peep about it. Don’t wait, just raise it.
4 Reply
Bill Crow
Investor · Lewisville, TX · Member since 2012 · 106 posts · 103 votes
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@Will LHeureux
Did your costs of ownership go up? Taxes, insurance, maintenance? Yes, you raise rent. It’s good to be mindful of the cost of replacing a tenant, but in an inflationary market with rising property values, a reasonable increase may just keep you cash flowing similar to what you did last year. You don’t have to raise enough to match market, but why would you willingly structure your renewal with less cash flow than what was acceptable to you last year?
3 Reply
Shawn Long
Investor · IN (indiana) · Member since 2020 · 109 posts · 53 votes
4y
@Jim K. That is smart. Thanks for sharing
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
@Will LHeureux I gotta say I am sad how only 1, @Jim K. caught the VERY importance in your comment, that the only correct answer is "it depends".....
There was NO details as to the basis, just blind "would you raise" with equally blind, uninformed yes" of "no".
What if this tenant started first year paying 20% OVER market rates? What if tenant started with 10% UNDER market rates because moved in December mid month? What if tenant ADDED a 2nd adult on lease during tenancy, or lost a co-tenant?????? there is so many variables and 0 information provided.
I will say this, NEVER skip showing a tenant the $. If you want to keep rents static for a year, MAKE THE ANNUAL INCREASE and than in same statement show that your giving the tenant a DISCOUNT of ___ for the year (which happens to match increase) as a REWARD for there Good Tenant Actions of _____. If you don't show the discount, or action, for the tenants experience it dosn't exist and nothing of consideration was ever done. This is also a fantastic measure of Pavlovian Conditioning (that's right buddy, psy op's, lol).
Many years back i talked an investor client into trying this out on 1 property with tenants, and doing the "norm" on the other down the same street. 1yr later we showed up for annual inspections and at the 1 we used conditioning techniques, we showed up to find carpet crews on site, the tenants paid out of there own pocket to have new carpets installed and professional painters come in, all so they could retain their good tenant discounts. Funny part was, the improvements cost more than the discounts. It was awesome, the tenants were amazing, no late anything, place was spotless. The next property, we left with 2 pages of minor items, same rents at both places. And before assuming, bother were 4-plexs. Again, if you don't show the savings to a tenant they don't exist and tenants won't care. Show them the savings and all your doing for them with clearly defined requirements on how they earn it, and they just might surprise ya.
7 Reply
Ana Santana
Real Estate Agent · NYC · Member since 2021 · 3 posts · 7 votes
4y
No matter what , your expenses and inflation increases over the year.
even if it a small amount increment I would say , yes. in my experience my nervous tenants
where asking two month in advance of rent increase. I just told them not to worry ,sat down with
them and negotiated the increment to a point that it was comfortable for them. I left their apartment
that day with $100.00 increment , and happy tenants. there is always room for negotiation.
inflation never goes away.
3 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Originally posted by @James Hamling:
@Will LHeureux I gotta say I am sad how only 1, @Jim K. caught the VERY importance in your comment, that the only correct answer is "it depends".....
There was NO details as to the basis, just blind "would you raise" with equally blind, uninformed yes" of "no".
What if this tenant started first year paying 20% OVER market rates? What if tenant started with 10% UNDER market rates because moved in December mid month? What if tenant ADDED a 2nd adult on lease during tenancy, or lost a co-tenant?????? there is so many variables and 0 information provided.
To be correct, we all said 'raise rents to market rates'.......not just raise rents period. That is the difference you missed.
So if the tenant was already at market - no raise needed. 10% under? Raise by 10%. Added or lost a tenant? Adjust to market.
3 Reply
Eric Gerakos
Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes
4y
Yes. As others have said, small increases yearly so you don't have to make a large increase down the road to get to market rent.
1 Reply
Mekail Grant
Investor · Carson, CA · Member since 2021 · 12 posts · 14 votes
4y
Originally posted by @Jeff Fountain:
@Will, I would not. But, that is my opinion. I own six properties on Saint Simons Island, GA and a property up in Alexandria, VA. I only mention my number of properties to convey my limited experience. While we all want to make more money, the solid dependable tenant is golden and is worth more to me than a bit of extra money. If you raise the rent on your current, you run the risk of the tenant looking elsewhere. Consider raising the rent after a tenant moves out. My goal for all my properties is to maintain solid long-term renters. Gives me more time for the beach. I recommend finding that balance between great monthly cash flow and keeping great tenants. Just my $.02.
I totally agree. I've had the same tenant in my DC property for over 4 years. He doesnt bother me and I dont bother him. The one time I raised the rent in another property my tenants moved out. I kind of wanted them to move out so it somewhat worked in my favor, but finding new tenants cost time and money. When I finally found new tenants I had to fix every little detail that the previous tenants never cared about lol. (bittersweet) But I say all that to say its not always worth it. If you have a good tenants keep them!!!

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