Raising rent and eventual sell to section 8 tenant.
Orlando, FL · Member since 2023 · 2 posts · 1 vote
Raising rent and eventual sell to section 8 tenant.
Most Popular Reply
Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votesYou aren't doing anyone any favors by keeping her rent below market- I would suggest you get your rents up to market asap and if you are uneasy about that, it's time to find yourself a great property manager.
This is a super common dilemma and lots of new landlords want to be nice to their tenants, but I promise you, that kindness will not be returned. You will be an evil landlord to them either now or later, it just is a matter of whether or not you lose money getting there.
If you keep the rents artificially low, your taxes, insurance and cost of maintenance and capex will continue to rise. You'll have to raise rents eventually, and you won't get a "thanks for all of the years of discounted rent," you'll be an evil landlord at that point.
Often after a few years in the scenario above, landlords just sell to avoid having to kick out their tenant or raise their rents significantly since they've dug a hole for themselves. When you go to sell, the new landlord will be either booting the tenant or raising rents to market. At that point, you'll also be an evil landlord.
There's no bucket of gold at the end of this path, you lose no matter what. It's best to do the hard thing now so you are't saddled with a worse situation later.
Also, there's no benefit to a lease longer than one year, I'd caution you against anything longer- lots of upside for your tenant, no upside for you.
Sorry if I sound like a downer, but it's the truth.
Best of luck!
8 Replies
- Member since 2021 · 50 posts · 35 votes3y
Don’t do a 4 year lease. That only benefits the tenant and locks you in limiting future options. I’m local, and can’t think of many areas in the central FL area that would be so difficult to sell in that you had to accept a rent amount significantly under market for 4 years to be able to sell.
If you want to use the profit from the potential sale to invest in something else, raise the rent to market rent and list your property for sale- being $800/ month under market is going to hurt the sales price when you try to sell (and even worse the longer that lease is) since the buyer has to honor the lease.
Basically, you are giving the tenant $800/ month right now. Although that is very nice of you, think of the reasons you started investing, and if they include having more money for you and your family, then charge market rent and then decide whether selling or continuing to rent is in your best interest.
- Rental Property Investor · MD, FL · Member since 2021 · 16 posts · 5 votes3y
I would be interested to buy :) But, in order to answer your question, I would never do a 4 years lease, I would get more information with the section 8 program to see how they could reassess what they call "fair rent" and also check in your state about laws on increasing rent ( for example in Ny you have a % to increase rents, but I doubted this would be an issue in Fl). I also wouldn't raise rents +800 at once, that would be a big hit for your tenant, I would increase in small amounts until it is close to the expected rent. ( just remember market rent and the rent for a voucher can be slightly different). Hope it helps!
- 3yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
You aren't doing anyone any favors by keeping her rent below market- I would suggest you get your rents up to market asap and if you are uneasy about that, it's time to find yourself a great property manager.
This is a super common dilemma and lots of new landlords want to be nice to their tenants, but I promise you, that kindness will not be returned. You will be an evil landlord to them either now or later, it just is a matter of whether or not you lose money getting there.
If you keep the rents artificially low, your taxes, insurance and cost of maintenance and capex will continue to rise. You'll have to raise rents eventually, and you won't get a "thanks for all of the years of discounted rent," you'll be an evil landlord at that point.
Often after a few years in the scenario above, landlords just sell to avoid having to kick out their tenant or raise their rents significantly since they've dug a hole for themselves. When you go to sell, the new landlord will be either booting the tenant or raising rents to market. At that point, you'll also be an evil landlord.
There's no bucket of gold at the end of this path, you lose no matter what. It's best to do the hard thing now so you are't saddled with a worse situation later.
Also, there's no benefit to a lease longer than one year, I'd caution you against anything longer- lots of upside for your tenant, no upside for you.
Sorry if I sound like a downer, but it's the truth.
Best of luck!
- 3yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
@Krista Moreno is this a nonprofit hobby for you or are you running a business?
The tenant is playing you to get what she wants.
If you want to run a business, suggest you hire a PMC. They will more than pay for themselves via running your property like a business.
Logical Property Management4.9453 Reviews - Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes3y
Why don’t you just write her a check for $10k every year? That’s what you’re doing now. In 4 years you will have given her at least $40k off and you’re worried about a “low-ball offer”?
Her payment is either a portion (it appears 1/4th) or a maximum amount (it appears $300). If you raise the rent to $2,000 either she will still be paying $300 or she’ll be paying $500. If she can’t afford $500 she’s obviously not about to buy your property.
You are literally paying to be a landlord. If you hired a PM and they got ONLY the $2,000 you think you can get, they’d take about $160-$200/mo. So you’d net $1,800 to $1,840/mo. So you’re paying $640/mo or more to be a property manager. WHY?
Hire a PM and buy a new car with new found income. Or send the tenant $500/mo until you stop feeling bad about it, you’ll still be ahead.
- Rental Property Investor · Montréal, QC Canada · Member since 2019 · 28 posts · 17 votes3y
@Krista Moreno I must say this is very sweet of you, and I appreciate the human factor in it. But at the end of the day it is a business and there must be a happy middle ground. Have you asked section 8 what they would cover if you raised the rents closer to market rate? I own a 4 unit in Syracuse NY and when I bought it I inherited a section 8 tenant, and all 4 of the rents were way below market. I called section 8 and had a very honest conversation with them about what they would pay, and I ended up raising the rents from $400 a month to $625 (56% increase), and for my section 8 tenant it only cost him $7 more.
Not sure if you've explored that Avenue yet but it could be an option. Also, you could just start raising rents slowly, but start raising them nonetheless. People usually do what they have to do to make ends meet.
Side note, I'm actually moving to Orlando in 2 weeks (from Canada) and would love to connect with some like-minded investors and start making some connections. Let me know if ever you've got some time and want to meet up one day, and/or know of any local REI meet up's.
- Member since 2021 · 50 posts · 35 votes3y
@Jeff Wydra. There is REIA in the Orlando area, and @Bernadeau C. co-hosts a monthly meetup, welcome to the area!
- Rental Property Investor · Montréal, QC Canada · Member since 2019 · 28 posts · 17 votes3yAwesome! Thanks Kimberly
Quote from @Kimberly Elson:
@Jeff Wydra. There is REIA in the Orlando area, and @Bernadeau C. co-hosts a monthly meetup, welcome to the area!
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