Tenant is unhappy with the rent increase

Member since 2021 · 388 posts · 277 votes

I have a tenant that pays on time and keeps place clean.

I also offer him a desirable place to live that is being taken care of.

To me nice tenant is not the one who expects me to subsidize their rent.

I provide a service and a roof and that is why I have responsible tenants that I chose to have a professional relationship with.

The place has lot of very desirable amenities and has a great location..

He has been with me for 3 years and I have only raised rent $125 in all these years and last year there was no rate increase.

However, things have changed.

I have expenses, taxes and other costs that must be covered as otherwise I will be in negative..

Also, there is a lot of demand.

I sent a very nice letter to a tenant stating the data and a comparison rate with the market properties.

In my market rental properties went up 124%.

The hike is $400.

Small apartments in my area go for the same as my discounted rate for him.

But the place is spacious and is a townhouse.

He is highly unhappy.

He calls it is a money grab.

He is saying that he is under duress if he decides to stay as summer is a busy season for him.

Well, the contract ends end of summer and the rate increase letter went out prior to that.

There is no rent control in my state.

And in my state I do not even have to send rent increase letters.

This tenant makes 300K in income.

I have been nice responding to his texts but it makes me think if I actually want to keep dealing with him.

He states that my property is not worth the increase.

Well, my property is in such a location and condition that it is difficult to find anything similar.

It is also a business.

Any one wants to share a relevant experience?

Please do not bother to send me points on how to write letters to tenants; mine was very much to a point with all the data, comparison photos, prices....

I just think if as a business person himself he does not value my business why should I renew the contract especially now he says he is under duress.

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

IF you are charging too much, they will move. And you’ll find out you were wrong about market rates. But maybe they’ll look around and find out everything else is waay more. And they’ll either have to admit they were wrong or that they can no longer to live as nicely as they could before.

If gasoline is up 250% what percent rent increase do they think is justified? My smallest rent increase in the last 2 years was 10%, the average is just over 20% and several we’re over 30%.

You didn’t include the previous and current rent amounts so we can’t determine what percent you’re raising rent. But I’m going to assume your $125 over 3 years was part of the problem. You set expectations very low and you were probably under charging.

People are strange that way. If you charged someone $1.000/mo for 10 years and then doubled it to $2,000 they would have a COW. But, if you raised it $100/mo for each of those 10 years you would have collected $60,000 more in rent and they would be fine with the increase to $2,000 (from $1900).

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Branden Yang:

Quote from @Kar Sun:

Quote from @Branden Yang:

Why are you basing your investments on other people? Unless your property is bad, I would just raise it twice if he complains. Go get a property manager or something because I don't know why you have a single-unit building. You could probably get a 4-8plex with the money you could get from your townhouse.

My goal is to get a passive income I can accept with a low maintenance property and low maintenance tenant. I have no plants to sell the property and will most likely keep it in the family. It is not my goal to upset the tenant and to raise it so high that it is out of reach. He is financially able to afford it plus the market demands it. I discounted my rate since he is a long term tenant. I am also a small time investor. I do not think I can do more units at this point and I am good with that decision. I am a first generation American and started out pretty late with investing. But better late than never. I also have a full time job.

Well, if you can find another low maintenance property that cashflows more, would you sell it? Getting a low maintenance tenant is also good, but unless your income is 1.5x or 2x your expenses, I recommend getting more properties, but with higher unit counts. If you got a good property manager, you wouldn't worry about the property, instead you can just retire easily. If you have a full-time job, just spend an hour or two finding deals. I'll find you one if you want to be a partner.

No, I would not sell the property. It has doubled in value and there is no way I can find something like this now. If I had to buy now my rent would be very high. The property cash flows but I need to bring it to market and I have some expenses for this property that need to be covered.
All the more reason to sell. Your property is bleeding money with every dollar increase in property value (and thus equity). As your equity increases in "face value", it decreases in "actual value"...and loses potential cash flow by not maximizing the buying power of your equity.

Thanks for the advice. At this time I have no plans to sell. The property is in a great location, great shape, updated, low maintenance and near my residence. Too many pluses. It is am A class property. It does cash flow and I can use it to acquire more RE since I have the equity in it. I prefer to use the other people money and not worried about debt on the invested properties.
Ha - ha. OK. Everything you just said right now is all the more reason to sell, but it appears as though you are emotionally attached to the property, and for some reason you are mistaking where the value of a deal is found...and it isn't the property.
You say you "prefer other people's money...", and yet keeping the property is actually doing the exact opposite.
0 Reply
Kar Sun
OP
Member since 2021 · 388 posts · 277 votes
4y
Quote from @Henry T.:

I had one for 15 years. Fantastic tenant and person. But property taxes became so out of control I had to do a significant raise. I still kept her under market, only a little. It was a 22 percent raise. She immediately sent notice that she would be leaving. Her grown kids were still living there, one with baby. I think she took it as an opportunity to say bye to her kids, and for them to get it together. I accepted the possiblility that she would leave, giving me the opportunity to do a much needed rehab. After the rehab I was able to increase the rent 75 percent. Even though the place looked like crap and there was some damage, and she made no effort to clean, I didn't hesitate to return the damage deposit in full. I hated to do that increase on her, but I had no choice. I could not take these increases any longer and do nothing. Like someone said, If I had often raised by a little, consistantly, maybe she'd still be there. But 15 years of no paint, old carpet, etc, is not good. But it all worked out for the best in my case. And really, I think it was an excuse that helped her get out of her kids bumming off of her. All None of my business of course, but I hope she's doing well. I don't know if this info helps. I'm more strictly business these days. These were the days when your lease was one page, and you were able to have an understanding with your tenant. I think today is awful. Tenants unions and city councils are all about how to screw your landlord, and my 30 page lease reflects all of that nonsense. I miss those old days before "just cause', there's nothing "just" about it if you're the owner. Protect yourself. Raise regularly. Don't explain or give any info that can be used against you. Today it's Shut up and do your job.

Thank you. Good perspective. If the raise is due I will do it without hesitation. I am not worried about vacancies as there are no plans to sell. Next time I will learn that in a market that demands it I should raise at least 5% and I should set up the expectation with the tenant at the start. I probably did not do it well. A reward for a "good tenant" is not subsidizing his rent. A reward is when I renew their contract. "Good tenant" is simply the one that follows the agreed upon contract. I do not know where the people got the idea that tenant that pays on time is extra special. They are just following the contract. BTW my place is in a top shape. I update it regularly.
0 Reply
Kar Sun
OP
Member since 2021 · 388 posts · 277 votes
4y

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Branden Yang:

Quote from @Kar Sun:

Quote from @Branden Yang:

Why are you basing your investments on other people? Unless your property is bad, I would just raise it twice if he complains. Go get a property manager or something because I don't know why you have a single-unit building. You could probably get a 4-8plex with the money you could get from your townhouse.

My goal is to get a passive income I can accept with a low maintenance property and low maintenance tenant. I have no plants to sell the property and will most likely keep it in the family. It is not my goal to upset the tenant and to raise it so high that it is out of reach. He is financially able to afford it plus the market demands it. I discounted my rate since he is a long term tenant. I am also a small time investor. I do not think I can do more units at this point and I am good with that decision. I am a first generation American and started out pretty late with investing. But better late than never. I also have a full time job.

Well, if you can find another low maintenance property that cashflows more, would you sell it? Getting a low maintenance tenant is also good, but unless your income is 1.5x or 2x your expenses, I recommend getting more properties, but with higher unit counts. If you got a good property manager, you wouldn't worry about the property, instead you can just retire easily. If you have a full-time job, just spend an hour or two finding deals. I'll find you one if you want to be a partner.

No, I would not sell the property. It has doubled in value and there is no way I can find something like this now. If I had to buy now my rent would be very high. The property cash flows but I need to bring it to market and I have some expenses for this property that need to be covered.
All the more reason to sell. Your property is bleeding money with every dollar increase in property value (and thus equity). As your equity increases in "face value", it decreases in "actual value"...and loses potential cash flow by not maximizing the buying power of your equity.

Thanks for the advice. At this time I have no plans to sell. The property is in a great location, great shape, updated, low maintenance and near my residence. Too many pluses. It is am A class property. It does cash flow and I can use it to acquire more RE since I have the equity in it. I prefer to use the other people money and not worried about debt on the invested properties.
Ha - ha. OK. Everything you just said right now is all the more reason to sell, but it appears as though you are emotionally attached to the property, and for some reason you are mistaking where the value of a deal is found...and it isn't the property.
You say you "prefer other people's money...", and yet keeping the property is actually doing the exact opposite.

The property is mortgaged. So it is not my money that I put in it. Tenant pays all expenses and it also cash flows. I do not use my money. I use bank's money. But you are right that I am emotionally attached. I love the property. And it is performing. After doing lots of research on line I can say it is a rare gem. Top shape, location and is within 2 miles from my residence. Many investors would be coveting something like this. And I actually have a few like this. I consider myself lucky and assertive enough to have gotten them. It all started as educated guesses without having actual investor's knowledge.

Current

IRR=27.3%

Cash on cash =4,495%

Cap rate = 7.34%
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Branden Yang:

Quote from @Kar Sun:

Quote from @Branden Yang:

Why are you basing your investments on other people? Unless your property is bad, I would just raise it twice if he complains. Go get a property manager or something because I don't know why you have a single-unit building. You could probably get a 4-8plex with the money you could get from your townhouse.

My goal is to get a passive income I can accept with a low maintenance property and low maintenance tenant. I have no plants to sell the property and will most likely keep it in the family. It is not my goal to upset the tenant and to raise it so high that it is out of reach. He is financially able to afford it plus the market demands it. I discounted my rate since he is a long term tenant. I am also a small time investor. I do not think I can do more units at this point and I am good with that decision. I am a first generation American and started out pretty late with investing. But better late than never. I also have a full time job.

Well, if you can find another low maintenance property that cashflows more, would you sell it? Getting a low maintenance tenant is also good, but unless your income is 1.5x or 2x your expenses, I recommend getting more properties, but with higher unit counts. If you got a good property manager, you wouldn't worry about the property, instead you can just retire easily. If you have a full-time job, just spend an hour or two finding deals. I'll find you one if you want to be a partner.

No, I would not sell the property. It has doubled in value and there is no way I can find something like this now. If I had to buy now my rent would be very high. The property cash flows but I need to bring it to market and I have some expenses for this property that need to be covered.
All the more reason to sell. Your property is bleeding money with every dollar increase in property value (and thus equity). As your equity increases in "face value", it decreases in "actual value"...and loses potential cash flow by not maximizing the buying power of your equity.

Thanks for the advice. At this time I have no plans to sell. The property is in a great location, great shape, updated, low maintenance and near my residence. Too many pluses. It is am A class property. It does cash flow and I can use it to acquire more RE since I have the equity in it. I prefer to use the other people money and not worried about debt on the invested properties.
Ha - ha. OK. Everything you just said right now is all the more reason to sell, but it appears as though you are emotionally attached to the property, and for some reason you are mistaking where the value of a deal is found...and it isn't the property.
You say you "prefer other people's money...", and yet keeping the property is actually doing the exact opposite.

The property is mortgaged. So it is not my money that I put in it. Tenant pays all expenses and it also cash flows. I do not use my money. I use bank's money. But you are right that I am emotionally attached. I love the property. And it is performing. After doing lots of research on line I can say it is a rare gem. Top shape, location and is within 2 miles from my residence. Many investors would be coveting something like this. And I actually have a few like this. I consider myself lucky and assertive enough to have gotten them. It all started as educated guesses without having actual investor's knowledge.

Current

IRR=27.3%

Cash on cash =4,495%

Cap rate = 7.34%
Equity is your money that you are not accessing. It is the price you are paying for the property.

Example: $100k property; 20% DP = $20k = $20k in equity at purchase...meaning for every dollar in equity you have $5 in PV
1 - PV increases to $120k; equity increases to $40k; ratio of PV to Equity is 3 to 1...meaning for every dollar in equity you have $3 in PV
2 - PV increases to $160k; equity increases to $80k; ratio of PV to Equity = 2 to 1...meaning for every dollar in equity you have $2 in PV
Same example but instead of keeping the property you sell it at the 2 timelines above...
3 - Sell at $120k; $40k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $200k...$80k higher than if not sold.
4 - Sell at $160k; $80k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $400k...$320k higher than if not sold.
Same example, but selling properties every time there is a doubling of the original equity at purchase...
6 - Sell at $120k; $40k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $200k...$80k higher than if not sold.
7 - PV from #6 increases to $240k (which also doubles the original equity at purchase of $40k to $80k) Sell at $240k; $80k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $400k...$320k higher than if not sold.
Now, if you had a total PV of $400k, instead of $120k, how much more CF do you think you would have?...even if the CF was less per $1000k of PV than your first property?

1 Reply
Rodney Sums
Laveen, AZ · Member since 2016 · 584 posts · 528 votes
4y
Quote from @Kar Sun:

I have a tenant that pays on time and keeps place clean.

I also offer him a desirable place to live that is being taken care of.

To me nice tenant is not the one who expects me to subsidize their rent.

I provide a service and a roof and that is why I have responsible tenants that I chose to have a professional relationship with.

The place has lot of very desirable amenities and has a great location..

He has been with me for 3 years and I have only raised rent $125 in all these years and last year there was no rate increase.

However, things have changed.

I have expenses, taxes and other costs that must be covered as otherwise I will be in negative..

Also, there is a lot of demand.

I sent a very nice letter to a tenant stating the data and a comparison rate with the market properties.

In my market rental properties went up 124%.

The hike is $400.

Small apartments in my area go for the same as my discounted rate for him.

But the place is spacious and is a townhouse.

He is highly unhappy.

He calls it is a money grab.

He is saying that he is under duress if he decides to stay as summer is a busy season for him.

Well, the contract ends end of summer and the rate increase letter went out prior to that.

There is no rent control in my state.

And in my state I do not even have to send rent increase letters.

This tenant makes 300K in income.

I have been nice responding to his texts but it makes me think if I actually want to keep dealing with him.

He states that my property is not worth the increase.

Well, my property is in such a location and condition that it is difficult to find anything similar.

It is also a business.

Any one wants to share a relevant experience?

Please do not bother to send me points on how to write letters to tenants; mine was very much to a point with all the data, comparison photos, prices....
I just think if as a business person himself he does not value my business why should I renew the contract especially now he says he is under duress.

Renters enjoy not being responsible for maintenance. The same tenant that gripes about rent increases is the same tenant that will DEMAND you fix things when they break. If it's serious enough they'll demand hotel stays and not at no Budget Inn either.
That $4800/yr he's mad about can be wiped out if you need a new HVAC.
He won't be like "oh yea he didn't raise my rent $400 when he could have. Nevermind the a/c I'll just turn up the ceiling fan"
Neither of you is a bad person. It's just business. And you know this, mannnnn.
2 Reply
Kar Sun
OP
Member since 2021 · 388 posts · 277 votes
4y
Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Branden Yang:

Quote from @Kar Sun:

Quote from @Branden Yang:

Why are you basing your investments on other people? Unless your property is bad, I would just raise it twice if he complains. Go get a property manager or something because I don't know why you have a single-unit building. You could probably get a 4-8plex with the money you could get from your townhouse.

My goal is to get a passive income I can accept with a low maintenance property and low maintenance tenant. I have no plants to sell the property and will most likely keep it in the family. It is not my goal to upset the tenant and to raise it so high that it is out of reach. He is financially able to afford it plus the market demands it. I discounted my rate since he is a long term tenant. I am also a small time investor. I do not think I can do more units at this point and I am good with that decision. I am a first generation American and started out pretty late with investing. But better late than never. I also have a full time job.

Well, if you can find another low maintenance property that cashflows more, would you sell it? Getting a low maintenance tenant is also good, but unless your income is 1.5x or 2x your expenses, I recommend getting more properties, but with higher unit counts. If you got a good property manager, you wouldn't worry about the property, instead you can just retire easily. If you have a full-time job, just spend an hour or two finding deals. I'll find you one if you want to be a partner.

No, I would not sell the property. It has doubled in value and there is no way I can find something like this now. If I had to buy now my rent would be very high. The property cash flows but I need to bring it to market and I have some expenses for this property that need to be covered.
All the more reason to sell. Your property is bleeding money with every dollar increase in property value (and thus equity). As your equity increases in "face value", it decreases in "actual value"...and loses potential cash flow by not maximizing the buying power of your equity.

Thanks for the advice. At this time I have no plans to sell. The property is in a great location, great shape, updated, low maintenance and near my residence. Too many pluses. It is am A class property. It does cash flow and I can use it to acquire more RE since I have the equity in it. I prefer to use the other people money and not worried about debt on the invested properties.
Ha - ha. OK. Everything you just said right now is all the more reason to sell, but it appears as though you are emotionally attached to the property, and for some reason you are mistaking where the value of a deal is found...and it isn't the property.
You say you "prefer other people's money...", and yet keeping the property is actually doing the exact opposite.

The property is mortgaged. So it is not my money that I put in it. Tenant pays all expenses and it also cash flows. I do not use my money. I use bank's money. But you are right that I am emotionally attached. I love the property. And it is performing. After doing lots of research on line I can say it is a rare gem. Top shape, location and is within 2 miles from my residence. Many investors would be coveting something like this. And I actually have a few like this. I consider myself lucky and assertive enough to have gotten them. It all started as educated guesses without having actual investor's knowledge.

Current

IRR=27.3%

Cash on cash =4,495%

Cap rate = 7.34%
Equity is your money that you are not accessing. It is the price you are paying for the property.

Example: $100k property; 20% DP = $20k = $20k in equity at purchase...meaning for every dollar in equity you have $5 in PV
1 - PV increases to $120k; equity increases to $40k; ratio of PV to Equity is 3 to 1...meaning for every dollar in equity you have $3 in PV
2 - PV increases to $160k; equity increases to $80k; ratio of PV to Equity = 2 to 1...meaning for every dollar in equity you have $2 in PV
Same example but instead of keeping the property you sell it at the 2 timelines above...
3 - Sell at $120k; $40k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $200k...$80k higher than if not sold.
4 - Sell at $160k; $80k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $400k...$320k higher than if not sold.
Same example, but selling properties every time there is a doubling of the original equity at purchase...
6 - Sell at $120k; $40k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $200k...$80k higher than if not sold.
7 - PV from #6 increases to $240k (which also doubles the original equity at purchase of $40k to $80k) Sell at $240k; $80k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $400k...$320k higher than if not sold.
Now, if you had a total PV of $400k, instead of $120k, how much more CF do you think you would have?...even if the CF was less per $1000k of PV than your first property?

Thanks you for the numbers and I will look at them tomorrow as my head does not work well now.
One problem with selling is that at the current rate of inflation cash loses its power fast and I am not ready to purchase another property at this time. Being an investor is just something more "fun" and part time. It is still a business but I work full time and cannot spend all my time on the properties. I also like to keep my stress levels down.
0 Reply
Kar Sun
OP
Member since 2021 · 388 posts · 277 votes
4y
Quote from @Rodney Sums:

Quote from @Kar Sun:

I have a tenant that pays on time and keeps place clean.

I also offer him a desirable place to live that is being taken care of.

To me nice tenant is not the one who expects me to subsidize their rent.

I provide a service and a roof and that is why I have responsible tenants that I chose to have a professional relationship with.

The place has lot of very desirable amenities and has a great location..

He has been with me for 3 years and I have only raised rent $125 in all these years and last year there was no rate increase.

However, things have changed.

I have expenses, taxes and other costs that must be covered as otherwise I will be in negative..

Also, there is a lot of demand.

I sent a very nice letter to a tenant stating the data and a comparison rate with the market properties.

In my market rental properties went up 124%.

The hike is $400.

Small apartments in my area go for the same as my discounted rate for him.

But the place is spacious and is a townhouse.

He is highly unhappy.

He calls it is a money grab.

He is saying that he is under duress if he decides to stay as summer is a busy season for him.

Well, the contract ends end of summer and the rate increase letter went out prior to that.

There is no rent control in my state.

And in my state I do not even have to send rent increase letters.

This tenant makes 300K in income.

I have been nice responding to his texts but it makes me think if I actually want to keep dealing with him.

He states that my property is not worth the increase.

Well, my property is in such a location and condition that it is difficult to find anything similar.

It is also a business.

Any one wants to share a relevant experience?

Please do not bother to send me points on how to write letters to tenants; mine was very much to a point with all the data, comparison photos, prices....
I just think if as a business person himself he does not value my business why should I renew the contract especially now he says he is under duress.

Renters enjoy not being responsible for maintenance. The same tenant that gripes about rent increases is the same tenant that will DEMAND you fix things when they break. If it's serious enough they'll demand hotel stays and not at no Budget Inn either.
That $4800/yr he's mad about can be wiped out if you need a new HVAC.
He won't be like "oh yea he didn't raise my rent $400 when he could have. Nevermind the a/c I'll just turn up the ceiling fan"
Neither of you is a bad person. It's just business. And you know this, mannnnn.

Thank you. Agreed. And I had to put a new AC unit recently. I got a great deal on it.
0 Reply
Rodney Sums
Laveen, AZ · Member since 2016 · 584 posts · 528 votes
4y
Quote from @Kar Sun:

Quote from @Rodney Sums:

Quote from @Kar Sun:

I have a tenant that pays on time and keeps place clean.

I also offer him a desirable place to live that is being taken care of.

To me nice tenant is not the one who expects me to subsidize their rent.

I provide a service and a roof and that is why I have responsible tenants that I chose to have a professional relationship with.

The place has lot of very desirable amenities and has a great location..

He has been with me for 3 years and I have only raised rent $125 in all these years and last year there was no rate increase.

However, things have changed.

I have expenses, taxes and other costs that must be covered as otherwise I will be in negative..

Also, there is a lot of demand.

I sent a very nice letter to a tenant stating the data and a comparison rate with the market properties.

In my market rental properties went up 124%.

The hike is $400.

Small apartments in my area go for the same as my discounted rate for him.

But the place is spacious and is a townhouse.

He is highly unhappy.

He calls it is a money grab.

He is saying that he is under duress if he decides to stay as summer is a busy season for him.

Well, the contract ends end of summer and the rate increase letter went out prior to that.

There is no rent control in my state.

And in my state I do not even have to send rent increase letters.

This tenant makes 300K in income.

I have been nice responding to his texts but it makes me think if I actually want to keep dealing with him.

He states that my property is not worth the increase.

Well, my property is in such a location and condition that it is difficult to find anything similar.

It is also a business.

Any one wants to share a relevant experience?

Please do not bother to send me points on how to write letters to tenants; mine was very much to a point with all the data, comparison photos, prices....
I just think if as a business person himself he does not value my business why should I renew the contract especially now he says he is under duress.

Renters enjoy not being responsible for maintenance. The same tenant that gripes about rent increases is the same tenant that will DEMAND you fix things when they break. If it's serious enough they'll demand hotel stays and not at no Budget Inn either.
That $4800/yr he's mad about can be wiped out if you need a new HVAC.
He won't be like "oh yea he didn't raise my rent $400 when he could have. Nevermind the a/c I'll just turn up the ceiling fan"
Neither of you is a bad person. It's just business. And you know this, mannnnn.

Thank you. Agreed. And I had to put a new AC unit recently. I got a great deal on it.

Well there went your rent increase for a year. Feel free to tell him if he don't want his rent raised you'll gladly swap that ice cold crips A/C for a bargain swamp cooler LOL
1 Reply
Roy Nash
Rental Property Investor · Spokane, WA · Member since 2018 · 64 posts · 59 votes
4y
Quote from @John Underwood:

I would not do a $400 increase to a good tenant. I'd do maybe $75 to $100 at most in one year.

Agreed $400 is too shocking to the tenants. Our rents have gone up alot in my area in Washington. In some cases my Rents are $400 to $600 under Market even though I have been agressively raising them 10% a year (except duing Covid Eviction Moratorium where it was illegal in WA State). My raises were $75 to $150 max this year averaging about 11% and they just went out with 60 day notices which is alot to most of these people.
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Joe Villeneuve:

Quote from @Kar Sun:

Quote from @Branden Yang:

Quote from @Kar Sun:

Quote from @Branden Yang:

Why are you basing your investments on other people? Unless your property is bad, I would just raise it twice if he complains. Go get a property manager or something because I don't know why you have a single-unit building. You could probably get a 4-8plex with the money you could get from your townhouse.

My goal is to get a passive income I can accept with a low maintenance property and low maintenance tenant. I have no plants to sell the property and will most likely keep it in the family. It is not my goal to upset the tenant and to raise it so high that it is out of reach. He is financially able to afford it plus the market demands it. I discounted my rate since he is a long term tenant. I am also a small time investor. I do not think I can do more units at this point and I am good with that decision. I am a first generation American and started out pretty late with investing. But better late than never. I also have a full time job.

Well, if you can find another low maintenance property that cashflows more, would you sell it? Getting a low maintenance tenant is also good, but unless your income is 1.5x or 2x your expenses, I recommend getting more properties, but with higher unit counts. If you got a good property manager, you wouldn't worry about the property, instead you can just retire easily. If you have a full-time job, just spend an hour or two finding deals. I'll find you one if you want to be a partner.

No, I would not sell the property. It has doubled in value and there is no way I can find something like this now. If I had to buy now my rent would be very high. The property cash flows but I need to bring it to market and I have some expenses for this property that need to be covered.
All the more reason to sell. Your property is bleeding money with every dollar increase in property value (and thus equity). As your equity increases in "face value", it decreases in "actual value"...and loses potential cash flow by not maximizing the buying power of your equity.

Thanks for the advice. At this time I have no plans to sell. The property is in a great location, great shape, updated, low maintenance and near my residence. Too many pluses. It is am A class property. It does cash flow and I can use it to acquire more RE since I have the equity in it. I prefer to use the other people money and not worried about debt on the invested properties.
Ha - ha. OK. Everything you just said right now is all the more reason to sell, but it appears as though you are emotionally attached to the property, and for some reason you are mistaking where the value of a deal is found...and it isn't the property.
You say you "prefer other people's money...", and yet keeping the property is actually doing the exact opposite.

The property is mortgaged. So it is not my money that I put in it. Tenant pays all expenses and it also cash flows. I do not use my money. I use bank's money. But you are right that I am emotionally attached. I love the property. And it is performing. After doing lots of research on line I can say it is a rare gem. Top shape, location and is within 2 miles from my residence. Many investors would be coveting something like this. And I actually have a few like this. I consider myself lucky and assertive enough to have gotten them. It all started as educated guesses without having actual investor's knowledge.

Current

IRR=27.3%

Cash on cash =4,495%

Cap rate = 7.34%
Equity is your money that you are not accessing. It is the price you are paying for the property.

Example: $100k property; 20% DP = $20k = $20k in equity at purchase...meaning for every dollar in equity you have $5 in PV
1 - PV increases to $120k; equity increases to $40k; ratio of PV to Equity is 3 to 1...meaning for every dollar in equity you have $3 in PV
2 - PV increases to $160k; equity increases to $80k; ratio of PV to Equity = 2 to 1...meaning for every dollar in equity you have $2 in PV
Same example but instead of keeping the property you sell it at the 2 timelines above...
3 - Sell at $120k; $40k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $200k...$80k higher than if not sold.
4 - Sell at $160k; $80k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $400k...$320k higher than if not sold.
Same example, but selling properties every time there is a doubling of the original equity at purchase...
6 - Sell at $120k; $40k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $200k...$80k higher than if not sold.
7 - PV from #6 increases to $240k (which also doubles the original equity at purchase of $40k to $80k) Sell at $240k; $80k in equity is now cash and moves forward as DP on new property based on 20% DP (back to a 5 to 1 Ratio); New PV = $400k...$320k higher than if not sold.
Now, if you had a total PV of $400k, instead of $120k, how much more CF do you think you would have?...even if the CF was less per $1000k of PV than your first property?

Thanks you for the numbers and I will look at them tomorrow as my head does not work well now.
One problem with selling is that at the current rate of inflation cash loses its power fast and I am not ready to purchase another property at this time. Being an investor is just something more "fun" and part time. It is still a business but I work full time and cannot spend all my time on the properties. I also like to keep my stress levels down.
Inflation has no impact here. If you are buying using the cash from the equity as you 20% DP, then the PV will be 5 times that...so it won't matter what the inflation is.
0 Reply
Roy Nash
Rental Property Investor · Spokane, WA · Member since 2018 · 64 posts · 59 votes
4y
Quote from @Kar Sun:

Quote from @Joe Villeneuve:

So what's the problem? Your rent increase is based on cost increase. That means you MUST increase the rent to cover it...with profit (please don't forget that...or stop investing). IF the tenant doesn't like it, they can leave. Whining tenants over a rent increase isn't anything new. If they leave, so what. If the property is as desirable as you say it is, then you should be able to replace the tenant without a problem.
Just make sure you follow the landlord/tenant laws (as you seem to be doing) and also make sure the end result of that rent increase is right inline with the area.
In the future, don't deal directly with you tenants as the landlord.

Agreed.
Personally I would rather he moved after his whining.
He makes enough money and this is not about someone being on the street.
My biggest raises are always reserved for the ones I wish would move!

1 Reply
Kar Sun
OP
Member since 2021 · 388 posts · 277 votes
4y
Quote from @Roy Nash:

Quote from @John Underwood:

I would not do a $400 increase to a good tenant. I'd do maybe $75 to $100 at most in one year.

Agreed $400 is too shocking to the tenants. Our rents have gone up alot in my area in Washington. In some cases my Rents are $400 to $600 under Market even though I have been agressively raising them 10% a year (except duing Covid Eviction Moratorium where it was illegal in WA State). My raises were $75 to $150 max this year averaging about 11% and they just went out with 60 day notices which is alot to most of these people.

yes, it is shocking. so is the gas at the pump, the food and everything else. The market supports my rent increase. I cannot subsidize the tenant. My property is not exactly the "affordable" kind. I will rent it fast if I put it on the market. $400 is not that much for this tenant. He is qualified financially to have it. He just does not want to. I was not trying to get rid of him. But it is doing a serious disservice to self for all my hard work by not raising the rent when the market is screaming for it. All good things come to an end and him paying well under market was a good thing that needs to come to an end. I have gotten more experienced and wiser. And I won't cry if he has to go. In fact, after his mean words I would prefer it. I am in southeast by the way. so thank God I never had to deal with any moratoriums and I am not planning to by carefully selecting tenants.
0 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
4y
This is why property management isn't for a lot of people. Getting emotionally invested in the situation, caring what a tenant feels, texting with tenant, etc. Rather than treating this as a business. You notify tenant if you decide to increase rent. Tenant leaves or pays higher rent. That's it. Nothing else matters.
3 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Eric James:

This is why property management isn't for a lot of people. Getting emotionally invested in the situation, caring what a tenant feels, texting with tenant, etc. Rather than treating this as a business. You notify tenant if you decide to increase rent. Tenant leaves or pays higher rent. That's it. Nothing else matters.
That about covers it.
1 Reply
Scott Esmail
Investor · Orlando, FL · Member since 2016 · 162 posts · 125 votes
4y
Raise his rent to market rent. You have market rent bills to pay and they increase just like rents do. If he decides to leave tell him to give you 60 days notice and post online. You should be able to pre rent it in this market. When you post online ask for market rent.
2 Reply
David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
4y
@Kar Sun I bought a property where the exisitng lease was way below market. Of course I was bound by law to honor the low rent lease. Several months before expiration, I sent a letter to the tenant saying that the rent would be $200 higher per month with the renewal. The tenant yelled and screamed and called me a bunch of names. Even had a legal advisor call me on her behalf to say that the rent increase was too high. I told them both that the expenses were up, including utilitites, insurance, taxes, and maintenace. I told both of them if you can find a better place for your situation, you are free to move out. The tenant looked for months and could not find any place that was lower priced than my $200 rent increase. She renewed the lease and ended up staying for 3 more years. Today here the electric company got a 50% rate increase, the gas company got a 33% rate increase, and the water company got a 25% rate increase, as well as insurance and taxes increasing this year. Also repairs cost more, several vendors are charging a fuel surcharge to there bills to cover higher gas bill. The rent increases can't keep up with the increased costs. Since Covid tenants have stayed in place at their rentals so there are fewer rentals available in our market. In addition other landlords are taking advantage of higher price to sell their rental properties at historic high prices. In the case of single family rental properties many are being converted from rental to owner occupants. And as mortgage interest rates are rising, there are less home buyers, and therefore more potential renters.
1 Reply
John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
Quote from @Kar Sun:

Quote from @Roy Nash:

Quote from @John Underwood:

I would not do a $400 increase to a good tenant. I'd do maybe $75 to $100 at most in one year.

Agreed $400 is too shocking to the tenants. Our rents have gone up alot in my area in Washington. In some cases my Rents are $400 to $600 under Market even though I have been agressively raising them 10% a year (except duing Covid Eviction Moratorium where it was illegal in WA State). My raises were $75 to $150 max this year averaging about 11% and they just went out with 60 day notices which is alot to most of these people.

yes, it is shocking. so is the gas at the pump, the food and everything else. The market supports my rent increase. I cannot subsidize the tenant. My property is not exactly the "affordable" kind. I will rent it fast if I put it on the market. $400 is not that much for this tenant. He is qualified financially to have it. He just does not want to. I was not trying to get rid of him. But it is doing a serious disservice to self for all my hard work by not raising the rent when the market is screaming for it. All good things come to an end and him paying well under market was a good thing that needs to come to an end. I have gotten more experienced and wiser. And I won't cry if he has to go. In fact, after his mean words I would prefer it. I am in southeast by the way. so thank God I never had to deal with any moratoriums and I am not planning to by carefully selecting tenants.

Look at it from the tenants perspective. They are dealing with higher gas and food and now you are kicking them while they are down. This is not the kind of person I am. I refuse to focus on just the market rent aspect. These are people you are affecting. Just because you can doesn't mean you should. Is this how you would want someone to treat you? I am in the business of taking care of my properties and my tenants.

You were likely already cash flowing on a fixed rate mortgage so your payments have not gone up. It is your fault that you haven't gradually increased the rents every year but you are ok with a shocking price increase to fix your own mistake? Again I am not that person. I don't blame the tenant for being upset. I think if you were in his shoes and are being honest you'd be upset too.

2 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @John Underwood:

Quote from @Kar Sun:

Quote from @Roy Nash:

Quote from @John Underwood:

I would not do a $400 increase to a good tenant. I'd do maybe $75 to $100 at most in one year.

Agreed $400 is too shocking to the tenants. Our rents have gone up alot in my area in Washington. In some cases my Rents are $400 to $600 under Market even though I have been agressively raising them 10% a year (except duing Covid Eviction Moratorium where it was illegal in WA State). My raises were $75 to $150 max this year averaging about 11% and they just went out with 60 day notices which is alot to most of these people.

yes, it is shocking. so is the gas at the pump, the food and everything else. The market supports my rent increase. I cannot subsidize the tenant. My property is not exactly the "affordable" kind. I will rent it fast if I put it on the market. $400 is not that much for this tenant. He is qualified financially to have it. He just does not want to. I was not trying to get rid of him. But it is doing a serious disservice to self for all my hard work by not raising the rent when the market is screaming for it. All good things come to an end and him paying well under market was a good thing that needs to come to an end. I have gotten more experienced and wiser. And I won't cry if he has to go. In fact, after his mean words I would prefer it. I am in southeast by the way. so thank God I never had to deal with any moratoriums and I am not planning to by carefully selecting tenants.

Look at it from the tenants perspective. They are dealing with higher gas and food and now you are kicking them while they are down. This is not the kind of person I am. I refuse to focus on just the market rent aspect. These are people you are affecting. Just because you can doesn't mean you should. Is this how you would want someone to treat you? I am in the business of taking care of my properties and my tenants.

You were likely already cash flowing on a fixed rate mortgage so your payments have not gone up. It is your fault that you haven't gradually increased the rents every year but you are ok with a shocking price increase to fix your own mistake? Again I am not that person. I don't blame the tenant for being upset. I think if you were in his shoes and are being honest you'd be upset too.

You do realize your first paragraph contradicts your second, right?

Also, if you're interested, I have access to a property that might interest you. It has a tenant that hasn't missed a payment in 5 years. Of course the rent is lower than market rate, but for Thanksgiving every year they make the current owner my favorite desert...pumpkin pie. All of this sounded great, until I found out the rent was so low the property had negative CF...so I never made an offer. The owner kept trying to convince me it was a great deal because of the great tenant and the pumpkin pie, but I couldn't bring myself to take it on,...knowing that the impact of the negative CF would also impact my other properties...and those tenants...maybe to the point where I would lose the house and that nice tenant would have nowhere to go. Although, if I did buy the house, and I did give the tenants a month warning of the rent increase, which would allow them that month to find a house to rent that would be more in line with what they could afford, they wouldn't be surprised and left out on the street.

Funny, but as I recall, I did buy that house. That was the first one I ever bought. It had a $50/month positive CF from the start (which didn't last long). When I did increase the rent, they were real unhappy. I felt bad and gave them an extra month to find another place,..then another month, and another, ...finally I had to evict them...or go broke and lose the property.

Oh wait, funny, but as I now remember, I did lose that property, and the tenants lost their house. Never found out what happened to them, but that dam^ foreclosure cost me a lot since it was in the beginning of my REI career. I did learn the hard (and expensive) way how to do this without cash or credit, so I guess this was all a good thing,...or not.

Oh wait, funny, but now that I think of it, I did find out what happened to those tenants. They rented a house a mile away, that rented for less, no wait, it rented for more than what the rent increase would have been. Funny how these things go. I guess they could have afforded the rent increase, and stayed in the property (my property), and I would have continued forward with positive CF, and not lost the property, and...I guess it's not that funny after all.

True story.

Also, there's a reason why the flight attendants tell the parents to put their oxygen masks on first, then put on the children's.
3 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
Quote from @Kar Sun:

We need more numbers to better advise you. What is he currently paying? What's market rate?
If he's $500 below market, a $400 increase would be more than fair. I don't want a tenant - even the very best tenant - getting more than 10% below market.
Based on what you've told us, I suspect he's trying to intimidate you into giving him what he wants. I would just stop offering a renewal and terminate his lease. He can jump into the free market and see how far his dollar goes.

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3 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Nathan Gesner:

Quote from @Kar Sun:

We need more numbers to better advise you. What is he currently paying? What's market rate?
If he's $500 below market, a $400 increase would be more than fair. I don't want a tenant - even the very best tenant - getting more than 10% below market.
Based on what you've told us, I suspect he's trying to intimidate you into giving him what he wants. I would just stop offering a renewal and terminate his lease. He can jump into the free market and see how far his dollar goes.

Agreed. Houses are offered to tenants, tenants offer to pay rent for houses. When they agree on house and rent, then you have an occupied property. When they don't agree, both parties move on to other options...an there are always other options for both parties.
0 Reply
Loren Clive
Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
4y
if it's too expensive, he can move. there is no need for you to justify anything to this person
1 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
4y
If it were mine, I'd wait for the rent check, if it's the correct amount, on time under the lease terms, I'd do nothing.
If its short, or non-existent or says signed under duress on it...I'd talk to an eviction attorney before deposit.
Because my guess is he will try to pay with a paper check--if he can under the lease.
And you might want to get ready for a turn, because it seems likely that will happen, either by his impetus or yours.
Good Luck!
1 Reply
Tavares L.
Rental Property Investor · San Antonio, TX · Member since 2017 · 39 posts · 8 votes
4y
I just went to the exact same thing here in Texas. Although I knew that charging less than comparable rents was cheating my business, I still ran the numbers.
Can your savings cover the vacancy rate and turnover? If so, don't fear not being able to locate another quality tenant at the expense of cheating your business.
1 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Quote from @Tavares L.:

Can your savings cover the vacancy rate and turnover? If so, don't fear not being able to locate another quality tenant at the expense of cheating your business.

Yep, and even if you lose a little $$ now, it's always better to have a great new tenant....
1 Reply
Tony Kim
Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
4y
Quote from @Kar Sun:

I have a tenant that pays on time and keeps place clean.

I also offer him a desirable place to live that is being taken care of.

To me nice tenant is not the one who expects me to subsidize their rent.

I provide a service and a roof and that is why I have responsible tenants that I chose to have a professional relationship with.

The place has lot of very desirable amenities and has a great location..

He has been with me for 3 years and I have only raised rent $125 in all these years and last year there was no rate increase.

However, things have changed.

I have expenses, taxes and other costs that must be covered as otherwise I will be in negative..

Also, there is a lot of demand.

I sent a very nice letter to a tenant stating the data and a comparison rate with the market properties.

In my market rental properties went up 124%.

The hike is $400.

Small apartments in my area go for the same as my discounted rate for him.

But the place is spacious and is a townhouse.

He is highly unhappy.

He calls it is a money grab.

He is saying that he is under duress if he decides to stay as summer is a busy season for him.

Well, the contract ends end of summer and the rate increase letter went out prior to that.

There is no rent control in my state.

And in my state I do not even have to send rent increase letters.

This tenant makes 300K in income.

I have been nice responding to his texts but it makes me think if I actually want to keep dealing with him.

He states that my property is not worth the increase.

Well, my property is in such a location and condition that it is difficult to find anything similar.

It is also a business.

Any one wants to share a relevant experience?

Please do not bother to send me points on how to write letters to tenants; mine was very much to a point with all the data, comparison photos, prices....
I just think if as a business person himself he does not value my business why should I renew the contract especially now he says he is under duress.

I always put in the maximum allowable annual increase or increase to market rent to ALL of my properties every year without consideration. For me it's an automatic process and I don't really give it any other consideration. I don't care if the tenant is rich or if they are struggling.
I know it may not be easy, but if you want to accumulate properties and keep your sanity, you should try not to get this involved with the tenant. A rent increase should not create drama. Just submit the increase professionally and in writing and keep the communication professional. Ignore any of his texts that talk about anything other than whether or not he wants to stay or leave. Don't listen to his sob story about how summer is a busy season, lol.
Raising rent by $400 is a lot, but tbh, it's nothing compared to some of the things I've heard in my area. One of my tenants, who is an elderly lady, rented my unit after she was informed of a $900 rent increase by her previous landlord (oh, the joys of not being under rent control). Can you imagine raising the rent on an elderly lady by $900? LoL, pretty ruthless on the surface, but that mgmt company also has an obligation to his/her client to maintain all units at market rent. If I was a syndicator on that property and had to answer to my investors, I would also want that management company to jack up rents for max cash flow.
1 Reply

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