Is raising rent with a long term tenant a good idea?

Member since 2020 · 2 posts · 4 votes

I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).

What are the thoughts on increasing rent? The lease renews this August.

Another data point is, I’m breaking even each month as is but building equity.

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Bill B.

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

Why don’t you just write them a check for $72,000? That’s how much rent you missed out on. You’re going to wake up one day with a 5 or 10% rent increase cap and they will never move while you continue to lose $6,000/year.

Do you really believe there are no other “good tenants” out there that would like a nice place to live at a fair rent? Raise the rent $400/mo and you’re still losing money. But either you get to keep your good tenants or you find out they weren’t really good tenants when they move out, just people who appreciate a 25% discount on rent.

Ps. This is another case where a property manager would have done all the work AND given you $50,000 more rent in your pocket. You paid $50,000+ to be the property manager.

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Eric Gerakos
Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes
3y
Quote from @Eric McCusker:

I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).
What are the thoughts on increasing rent? The lease renews this August.
Another data point is, I’m breaking even each month as is but building equity.

While I think it’s admirable that you have been running a charity, if you want to be a real estate “investor” you will need to make some changes. Not raising rents due to fear of losing tenants is a common mistake. If you buy properties in areas where people actually want to live then there will always be demand for your rentals and people will be happy to pay market rent. I have great tenants and take very good care of my properties and I raise rents every year to maintain maximum profits and to keep up with my rising costs. I never have vacancy. As others have said, if you go long periods with no rent increases it becomes difficult to catch up to market rent. You’re losing a lot of money now but you can turn this around.
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Daylen Fiallo
Specialist · Miami, FL · Member since 2018 · 72 posts · 24 votes
3y
Hi Eric, most of the time tenants are expecting an increase in rent when they know that they are paying under market. I would not raise it drastically to $2100 but somewhere in the $1,900-$1,950 considering that they take good care of the property and never bother you. In conclusion don't lose money because if they want to move out they will not be considerate of you.
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Vicente Terán
Contractor · Phoenix, AZ · Member since 2021 · 26 posts · 14 votes
3y
Hi Eric! I'd agree that a rent increase is in order... and may be worth increasing the rent annually based on current market conditions.. it doesn't have to be huge increases but in my opinion its important to stay current with market rents in the area.
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Sarah Beilke
Real Estate Broker · Palm Coast, FL · Member since 2023 · 23 posts · 10 votes
3y
I would raise the rent but to make a huge jump to get it up to the market rate probably isn't the best idea. We have found that doing a slight increase each year to account for any market rate increase is the best option. That way you are not passing along such a huge increase that your tenants may not be able to afford it and look elsewhere. Also think about this from a re-sale standpoint. If you are ever looking to sell the property and your rents are significantly below market value that makes the value less because in the current market conditions most investors will have to either raise the current rents significantly to get it to cash flow and if the current leases are locked in at such low rental rates that usually makes their offer price lower because it will take them a while before they can raise the rents and get it to a point where it can cash flow. Just some food for thought there.
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Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
3y
Quote from @Bill B.:

Why don’t you just write them a check for $72,000? That’s how much rent you missed out on. You’re going to wake up one day with a 5 or 10% rent increase cap and they will never move while you continue to lose $6,000/year.

Do you really believe there are no other “good tenants” out there that would like a nice place to live at a fair rent? Raise the rent $400/mo and you’re still losing money. But either you get to keep your good tenants or you find out they weren’t really good tenants when they move out, just people who appreciate a 25% discount on rent.
Ps. This is another case where a property manager would have done all the work AND given you $50,000 more rent in your pocket. You paid $50,000+ to be the property manager.

I just love this perspective. Incredible view point here.
I was in the same boat actually. Didn't raise rents on long term tenants bc they were "great tenants" I finally did it. They stayed and still live there.
I'm going to save this post because I've never seen anyone paint such a clear picture on not raising rents on good tenants!
1 Reply
Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
3y
Raising rents can be a tricky situation for Real Estate owners. It's important to maintain good relationships with your tenants by making sure you're not increasing their rent too drastically year-over-year. I suggest raising it around 3-5% as this will ensure that your tenants don't feel like they are being taken advantage of and that you're respecting the agreement between both parties. Doing this will also help ensure that you never wind up in a situation where you have an overpriced rental property.
[email protected]832-889-5607
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Gaudys Rivas
MIAMI LAKES, FL · Member since 2014 · 41 posts · 18 votes
3y
Raise it up
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Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
I recommend raising rents. You are running a business, and as someone said here, not a charity. That being said, if they have been their for a while I would imagine their property condition is not the most updated. Raise their rent based on the fair value of what you would rent it out for if they were to vacate. If you want to be really nice you can cut them a small break (I.E. Fair rent is 1800, you can increase to 1750). It doesn't make sense for you to keep holding at a loss/breakeven. From there, stick to doing annual rent increases.
Generally the tenants won't be happy, but once they realize they cannot find anything cheaper and the cost of moving out wouldn't justify, they will happily sign their renewal.
Give them more time than required, and let them know gently.
[email protected]267-767-0111
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Kira Voden
New to Real Estate · Milwaukee · Member since 2023 · 23 posts · 6 votes
3y
Quote from @Eric McCusker:

I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).
What are the thoughts on increasing rent? The lease renews this August.
Another data point is, I’m breaking even each month as is but building equity.

I just started managing a property that was in a very similar position. Renter had been there 10+ years and rent had never been raised. They were at $800-market rent is now $1300-$1600. We raised $100 every year, tenant has stayed for 2 years so we're up to $1000. Slow going, but the owner did not want to raise rents too fast.
Something to keep in perspective, even if your tenant is upset about the increase, the second they start to look for comparable rentals they'll realize how great they have it and may likely stay. You have a track record with them(hopefully a good one) and they trust and know you. Just have an honest and upfront conversation with them and you may be surprised how well they take it.
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Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
3y
@Eric McCusker
It's a business at the end of the day. I think it's better to offer them the opportunity to pay the higher rent vs kicking them out as long as they can afford it unless you plan to renovate the property.

[email protected]614-412-4565
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Jacob Hornberger
Real Estate Agent · Tipp City, OH · Member since 2018 · 65 posts · 35 votes
3y
I would not raise the rent all the way to $2,100 all at once. That drastic of a raise will probably run them out. If you're wanting to keep them in the unit, gradually increase it to market rent or even a little less and explain to them that they have been getting a good deal for quite some time.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Eric McCusker:

I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).
What are the thoughts on increasing rent? The lease renews this August.
Another data point is, I’m breaking even each month as is but building equity.

I fail to comprehend how this is even a legitimate question. I simply don't believe anyone is this daft. I 100% believe this is just trolling, and am exhausted of the lack of policing such on the forums.
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Marci Stein
Rental Property Investor · New York, NY · Member since 2011 · 956 posts · 510 votes
3y
Raise the rent $30 each year. Everybody can afford that …this is your business.
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Marci Stein
Rental Property Investor · New York, NY · Member since 2011 · 956 posts · 510 votes
3y
Raise the rent $30 each year. Everybody can afford that …this is your business.
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John Wayne Maderos
Rental Property Investor · San Francisco, CA · Member since 2016 · 1 post · 1 vote
3y
Im sending a 2 year lease renewal today. No increase the 1st year, im offering a 7% increase the next year. Thats 7% over 2 years. About a 3.5% avg.

Inflation is 4% minimum. You're losing money every year not raising rent. Its not like they have not gotten raises in life in 10 years. Protect your investment.
1 Reply
R. Elle Berry
Real Estate Broker · Cleveland, OH · Member since 2016 · 146 posts · 110 votes
3y
@Eric McCusker I wouldn’t raise rent annually but after 2-3yrs you have to do what’s best for your expenses. As long as the rental increases are reasonable I’m sure the tenant will understand. Lastly, not increasing rents will hurt you in the long run if you ever “need” to increase and/or sell the property. The potential buyer/investor need those numbers to make their purchase make sense, unless you want to give the property away. I would also say along with rent increases is rental updates. Hope this reply helps!
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Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
Will a 12 year old since last turn unit command market rent, or is the rent kind of inline with other units in thesame state of wear, fit and finish.
Will the renter look for a bright and shiny newly redone unit down the road for the same price you are asking for a 12 year old worn unit, and walk on you (costing you a turn in time= lost rent and dollars to rehab)?
Can the renter absorb the rent increase or will he look for a cheaper place to live with the same rent he pas now?
Good Luck!
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Andrea ProeberBusiness Member
Ocala, FL · Member since 2018 · 39 posts · 30 votes
3y
While it is far kinder and better business practice to do slow incremental increases, at times for various reasons, situations like this arise.
I'm not sure what you pay out in commission to find a new tenant to your property manager or leasing agent, but I bet it's not over $6,000!
In the math mentioned of $1,595 going up to $2100 that's $505 increase monthly. On a long term (aka annual) lease term of 12 months that is $6,060.
Even if you miss a full month of rent because of turnover, it's still in your best interest to do an increase.
The tenant then has the choice to continue renting at that price or find a unit elsewhere. Are they really going to find something better for less? If that is truly the market rent, it probably doesn't make sense for them to pay costly moving expenses.
Maybe negotiating down to $1995 per month may allow you another year, without having to pay for turnover and leasing commissions.
Hope this helps!
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Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
3y
HELL YES..... I just do it less frequently and keep it a bit below current market level.
If you don't, you will have a "great tenant " that stays there for a LONG time and you lose A LOT of $$ by getting farther and farther below market.
You don't go crazy and stimulate a turnover, but you don't steadily fall farther and farther below market.
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Blake B.
Real Estate Agent · Chicago, IL · Member since 2017 · 75 posts · 37 votes
3y
Not much more to say than what's already been said. Do it gradually over a year. $100, a quarter.
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Jack KrusinskiBusiness Member
Realtor · Cleveland/Akron OH · Member since 2019 · 147 posts · 93 votes
3y
I would recommend increasing rents but not right up to the market rate. Increasing their rent to $2,100 would likely lead to them leaving. But if you increase rent by $100 or so this will allow you to cash flow and keep your tenants.
[email protected]216-789-6736
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3y
@Eric McCusker
Don’t ever do this again. Lol. I’d raise it $150 at lease renewal. Then at least $100 every year for the next several years. I tell my tenants my expenses have gone way up and they always thank me for explaining it to them while I raise rent. They all know what market rent is. They know they’re getting a steal of a deal with your rental. Don’t feel bad.
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Laura Stayton
Property Manager · DE · Member since 2023 · 248 posts · 133 votes
3y
We've had owners who have kept rent the same for years like this (we always discuss with them and they make the decision) When you think of how many turnover costs you've saved by not having to paint and prep, vacancies, time spent marketing and showing (or paying leasing fees to management companies) it always benefits your bottom line to keep a good paying tenant.
Through covid many of our owners decided to keep the rent the same as well. Now we are raising ~5% on renewal and will increase gradually.
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Ned J.Pro Member
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
3y
Its was briefly mention before but I think its important to mention it again....

Your 12 years old, never been touched unit is not going to compete with a much newer, nicer unit that is available at or real close to the same rent level. So you really need to be figuring out what the "market rent" is for a 12 year old, never renovated unit is..... not the open market. It's NOT the same.

Turnover cost $$....sometimes a LOT of $$.....especially if you haven't done ANYTHING to it in 12+ years. So you need to maximize the true value of your unit in its current state....raise the rent FOR SURE....factor in the cost to make it all nice and new for a new tenant and figure out the math....be smart but if you think you can squeeze every last dime out of a old unit, it may bite you.
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Account Closed
Real Estate Broker · Nashville, TN · Member since 2022 · 45 posts · 34 votes
3y
@Eric McCusker - raising rent should be expected after a year or two. They’ve got quite the gift so far!
I would send them a 60-90 day notice, instead of the usual 30 (assuming in your local area and current lease agreement, you only need to give 30).
You can start with letting them know how great they’ve been as a resident and appreciate their timely payments. Note that you’ve not raised the rent thus far, note to them the current market value, and split the difference.
Then maybe in another year or two, raise the remaining or keep splitting the difference.
Raising more than $200 can be shocking to many. Giving them plenty of time to plan is key.
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