To raise rent or not to raise rent?

Question

I have tenants in a sfh that are coming up on the end of there lease July 31st. The first year was a bit of a struggle with them, late rent payments and drama within the family. We weren't sure if we would recent to them but the property manager spoke with them and decided to resign. The past year has been much better however the VA has been directly sending their rent checks for the past 5 months. This was the first month they had to start payingagain themselves. I received rent checks a couple of weeks ago for June-Aug. then two days ago I received a text saying their was an issue with their va payment and I wouldn't be able to cash the check for two weeks. The excuse could be true but was oddly reminiscent of the first year of their lease.

Aside from late payments they are very clean and take great care of the house. As long as the rent payments are made for the next two months I do plan to resign their lease. My question is when and by how much do people typically increase the rent? Especially, when the tenants seem to not be able to pay the current rent on time? The current rent is $1195 (I've been renting the house at this rate since purchasing it 2 1/2yrs ago.)

Thanks in advance for your advice!

Account Closed · Answer

Is your property in CA? If so, get this book. It was my bible as a resident apt mgr in Santa Clara:

http://www.nolo.com/products/the-california-landlo...

That said, why would you keep a tenant who can't be relied upon to pay the rent on time every month?

I only used month-to-month agreements. That way, you can not only only give them 60 days notice (60 days required in CA if they've been in the unit for 12 months or longer), but you can also change any terms with just 60 days notice.

Get the above book and just manage the place yourself. If you had a good PM, you wouldn't be here asking these questions. In my humble opinion :-)

At the least, read that book, and know as much or more as your PM, since you are having to not only pay your PM, but manage her as well.

Learn the laws and screening techniques yourself and save the PM fee.

Leandro Rodriguez · Answer

i agree your question is more about keeping the tenant than raising the rent. Look at vacancies in your area and make a business decision about closing your current lease and get new, properly screened tenants. As it is right now, you are making life hard on yourself and rewarding poor habits on your tenants. Bring new ones, educate them on your business rules, reduce the hassle.

If you decide to keep them, there are great suggestions above.

Jeff Semrow · Answer

Carrie, I would probably go with a month to month and include bringing the security deposit up to one months rent also if it isn't already.

Carrie Giordano · Answer

@Jeff Semrow thanks Jeff, I like the idea of not just springing an increase on any tenants. Would you resign the lease with them or just have them sign an addendum raising the rent?

Carrie Giordano · Answer

@Matt Clark thank you, that could be a way for them to decide if they can really afford it

Jeff Semrow · Answer

You might want to consider giving them a 3 month notice of the increase. I have found out that this may solve any issues with them. It gives them time to move or prepare for the increase.

Matt Clark · Answer

Not sure I would renew them; but if you do...

The month-to-month option makes it easier to get rid of them if they continue to pay late.

If you decide to renew, consider increasing their security deposit with the new lease. That would provide a cushion if things don't go well. I think state laws vary on what you can require in regards to the deposit.

Carrie Giordano · Answer

@Jesse T. I had thought about going month to month but thought that I don't want to get stuck without tenants in the winter which is why it renews in July. However, if they can't pay I would anyways. Beyond being able to ask them to leave at a months notice would you say there are other benefits of month to month?

As for their income, I believe (a property manager brought them in) when they moved in it was 3x the rent. However, their jobs have changed so that may not be true currently.

Bradley Behr · Answer

Like so many responses to questions on this site, the answer is almost always some variation of 'it depends'.

What can they rent other similar properties for in your area?

Do you have a cash flow on the property currently that meets your criteria for a good ROI?

You prefaced the question with info about how they had some issues that seem to be re-occurring, are you asking the question about raising the rent inclusive of that info or independent of it? That may change the answer as well.

In my case, I have one rental property that has gone through three six-month leases with the same tenants, and the rent has always been $1050.00. Several reasons for this:

Renter is co-worker and his brother (no screening took place, may bite me later but so far so good. Also this was a co-worker in the sense of 15 people in the office and we spent an hour or so talking each day in group/1 on 1 convos, NOT a co-worker in the sense of "oh you work for this company? Me too, at the downtown location."), so the personal relationship and utmost goodwill is not worth the small increase I would gain, in my opinion.

Market rents for similar properties are very close to the $1050.00 number.

I am not claiming that the above way is the most business savvy or the right way, or even a good way, it's just the way I have decided to operate.

More info: I am currently (and have been since renting) cash flow negative, by roughly $80 a month.) This was an accidental landlord setup, where we purchased a new primary residence and couldn't sell the first residence without incurring heavy losses. I am as close to 'amateur landlord' on the spectrum as is possible.

To raise rent or not to raise rent?

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