How do I quit being a SOFTY LANDLORD?!

30 Replies

***think AA meeting*** Hi my name is Maria and I am guilty of being a softy landlord. First step to recovery is recognition right?  How often do I raise rents? I have been used to renting during the recession. I have failed to raise rents on the tenants that scored my homes during the down economy...Any advise?

The recommendation is to reassess rent every time the lease ends (typically 1 year). You want to keep it slightly lower than market rates, to reduce turnovers (very costly for single landlords). 

If the tenants are on month-by-month, I recommend assessing every 4 months, but keep in mind that you shouldn't raise during down seasons (e.g. winter) -- you don't want the tenants moving out and leaving you with a turnover at an inopportune time.

I raise rents annually, every year without fail, have never missed a year yet. You simply need to decide how much each year. If you are soft, guaranteed, you will not raise them high enough.

You make annual rent increases a strict business policy regardless of what is happening. Costs go up every single year regardless of what the economy is doing therefore your rents must go up to cover the added costs and provide you a higher return.

As far as converting you from a softy landlord to a professional landlord is concerned I do not hold out hope for that transition. A landlord is either professional and turns the tough on and off at will or they lack that personality trait and will never have it. It can not be learned. Some have it some don't.

Great question. I suffer from the syndrome myself and it is a constant battle. One thing that I have learned on this forum is to always take my time when making a decision. My basic nature is to say Yes, let me help you walk all over me. Now whenever a request is made I always say I'll get back to you on that. It allows me to think things over and make a better judgment.

I have also learned on this forum that it is easier to raise rents a smaller amount every year as opposed to letting it go a few years and then insisting on a large increase or worse yet, being far below market value.

Mediocre at best I suppose, I'm a much better landlord then when I began this journey less than 2 years ago. I have faith that you can get your business on track.

I like the tough advise! Let me put it this way...I have been an unintentional landlord and then I ran into Brandon and Josh on a little Podcast that Flipped the light switch to Intentional Landlord/Real estate investor. Let's do this! Since listening 4 months ago, I have closed on two additional properties. Time to get serious about this investing!

As long as you have a lease that covers every situation, or a business plan in place to cover every situation, as a landlord you should never be in a position to make a personal decision. All answers to every possible tenant question should be established in advance for business purposes and if a tenant makes a request that is not in your business practices the answer is always no.

Landlords should never have to think of a answer and should never for any reason waver from the planned answers.

No emotions, no feelings, no compassion. They do not belong in business.

I'll disagree slightly with @Thomas S. I think that becoming a landlord can be learned to a certain degree. It just depends on the type of landlord you intend to become. Most people think of two types, the pushover landlord with under market rents and, on the opposite extreme, the landlord that is unwilling to help a tenant in any situation. 

When I started I was a total pushover. Still have some of that in me yet. I'm lucky to be able to rely on the 'owners' whether they be actual owners or your llc shouldn't matter because they are the ones that make the final call. IMO, its fine to always to go back and blame the owner. 

My mindset is as follows: most tenants have to fight with the owners, neighbors, other tenants, the landlord, the local law and jurisdiction of what they can and cannot do, etc. I place myself in the position of being the one party that is on their side. If you've ever rented I'm sure you've felt the same predicament and if someone in charge is willing to work with you, instead of shoot you down, you're willing to work with that other party a whole lot more. It doesn't always work, but you don't look so much like the bad guy all the time.

My parents and grandparents were and are landlords.  They taught me to always say yes to tenant requests followed up with the price (rent raise) required to make it happen.  This approach has worked well for me too with my properties.  Often, the tenant decides that they don't want the request at the price it costs.  When they do, we are both happy.

I have anecdotal experience that you can change.  I was/am a softy engineer used to dealing with only technical people.  I learned my lease inside out, and stick to the lease unfailingly.  As a PM, I analyze rents on every renewal and make my recommendations to the landlord, then the tenant gets the word on the decision from me.  Occasionally we revisit to negotiate.  A tenant will seldom move if rents keep up with the local rate of increase.  Moving expenses will also total about 3% of annual rent, so it doesn't hurt to point that out.

My wife and I manage 336 units and have learned one valuable lesson over the last 7+ years of doing this. No good deed goes unpunished. We tell our staff the same. Your best intentions and efforts to be helpful or "nice" will still not matter at move out. That does not mean you have to be a terrible person or landlord but at the same time it is imperative to be consistent. With rents, with rules, with applications everything. Your consistency becomes your reputation over time.

Even with almost 600 tenants I go unit by unit in a spreadsheet and assess what the current tenants are paying, what market rate is for that unit and start there. 

For me (make your own judgments) I put my first line at $30 under market. Anyone who is within $30 of market rate for their unit can keep their rate for another year.

Next line was at $40 under, those rents went up $10. That $10 increase was about a 1.5% increase. 

Anyone that was $70 under market, their rate went up $20

We had a few people that hadn't had a rent increase in years and were $150+ under market. However, most are great tenants and I want to keep them. I raised anyone that was further than $70 under market by $40.

Figure out where you stand and raise them up! An extra $10 is negligible if they don't want to move for another reason. That's 1 hamburgers a month, come on. It would cost them a few hundred bucks to move plus ponying up deposits and other costs. We rarely get any kickback from anyone that we raise $10-20 even $30 bucks. 

Hi @Maria S.

Welcome!

You are correct, The first step is recognizing there is a problem. The fact you did that is important. The second thing in your case is to take a step back. If your tenants are getting in contact with you directly at all times, put in place a process that puts it into a system (Email to a generic address for your business) That way you or your representatives can handle the issue. It may not sound like much but it makes a difference.

As far as raising rent, I am of the opinion it should be done yearly unless the market is really that flat. It is a whole lot easier when you raise it $30 this year and then $30 next year vs skipping a year and jumping up $60 or $70 because something unexpected happened. Like the village decided to mess with "non owner occupants" taxes.

Good luck and Welcome to the site!

Now I am the WORST landlord on the planet no one is worse than me.. I believe every story.. I concede rent all the time.. last winter when it was cold I let tenants go 3 months without paying so they could afford heat then they just moved out when they needed to start again.

But then again rental income to me is inconsequential to what I do..and so I don't focus on it much.

things like this.. I NEVER raise rent.. not worth the risk of a turn over.. 10 bucks a month or a turnover that cost you 1500 and a vacant unit for a couple of months.. do the math..

What I did was simply had one of my secretaries take over.. She was a single mom and renter.. so she took no BS from these folks.. so as soon as they renter could not get to me personally things got a lot better.. LOL.

Originally posted by @Maria S. :

***think AA meeting*** Hi my name is Maria and I am guilty of being a softy landlord. First step to recovery is recognition right?  How often do I raise rents? I have been used to renting during the recession. I have failed to raise rents on the tenants that scored my homes during the down economy...Any advise?

Treat real estate investing as a business.  It is a business and you provide a product (housing), a service (property management) to customers (tenants). You must provide a product and service that efficiently meets your customers needs...and you must maximize your profit or you will not survive as a business!!!

To maximize your success, you should treat your customers fairly and maximize the value you can provide them...but charge them for it!  

I buy properties below market so I can lease them competitively (generally $100 below market) and still generate a 12% cash on cash. Jay is right, you lose much more money from vacancy as you generally will by leasing below market.  I present the tenant good value: providing a high quality clean rental at below market rents...so they stay forever and never leave even when I raise rents.  Most have been with me over 10 years (no vacancy).

Done right, you can run a portfolio of SFR at a lower vacancy rate than a multifamily building. SFR is the most preferential living space for most families in the United States, which means, if done right and you own the right property in the right locations, you can attract the very best tenants.

It don't think what I'm doing is that unique. @David Krulac and a few other experienced investors have mentioned that most of their tenants are 10+ years and will only move out "sideways".

I like to look at adjusting rents to market at the natural tenant turnover and at lease renewals. 

Two items to keep in mind.

1. My view is that for the small scale landlord very small increases may not pencil out versus the costs of a turnover (vacancy, fix up, paint, floors, time to show, screen, etc). If you have a 100 units, ten or twenty bucks adds up. For four units, not so much. So I have a bias towards tenant retention even if just below market.

2. Before adjusting rents, really dig into whether a rent raise is merited by your rental market. Get granular and really see what is being offered and occupied. Read the listings and watch what gets filled and how soon.

Example: An anecdote on this. I have a fourplex on a street of similar fourplex properties that have similar rents (within a range). 

One fourplex was extensively remodeled and the rents were increased substantially (by a couple of hundred bucks), so I considered trying to get up closer to that amount when the leases came due; however, I then saw they had trouble renting and keeping those units filled. 

The lesson for me was not jump the gun and use the asking price of one comp or a higher end comp (otherwise,  prospects may not and tenants may keep moving to cheaper options). 

A few weeks later, a property manager (very knowledgeable about the rental market) offered a unit across the street like mine for exactly the same rents I charge. Filled it and has kept it filled.

Sure enough, I was within the realistic rental range and glad I did not reach in this case. But I will keep tracking the trends.

There is not always perfect information on the rental markets in an area or neighborhood but check first. 

Study and verify the market rents the best you can. Plus, this can even let you show the tenant what comparable units charge in the area (so they see the increase is based on some objective information and not arbitrary). Even a softy can point to the market with confidence.

Best of luck

Maria;

Oh dear, you and the softies...to those who have ears, let them hear.

Being soft is a state of mind. Call it big hearted, call it soft, call it reckless...? What? Reckless?

Would you be reckless with something entrusted to you? Or would you care for it and protect it?

As a Christian couple renting in an upside world, we too struggle to keep our emotional side in check and manage our units based on facts and figures.  What keeps me focused on this is from the Bible, Matthew 25:14-28; you may know if as the Parable of the Talents. Jesus tells the story of three servants and what each of them does with 'talents' trusted to them by the master who goes off on a journey. Two of the servants grow the masters 'talents' and are rewarded by the master. One servant, however, does nothing to promote or protect the 'talent' of the master, and has his taken away by the master, who calls him a "lazy, wicked servant!'

To me, we are blessed by God with managing these properties for His kingdom. When we take proper care of them, growing them and maintaining them-both physically and financially-as we should, we are being faithful servants. When we don't, we risk losing them, as we should.

Manage your properties as if they belong to God. Raise the rents the necessary amounts to keep your business operating effectively. Maintain the units as if Jesus might come to rent from you. Do what needs to be done to be fruitful in all your dealings. Treat people honestly and fairly. And the rewards-the blessings-will be bountiful. God bless.

@Thomas S. Just curious if you have something written in your lease regarding the increases?  I know some Landlords that do and some that do not.  I would like to see how the ones that do have it stated in their lease.  

Thanks!

Consistent land lording is what you want to do.

Responses to your tenants should be at business professional level they aren't your pals and yes you can have conversations but in the end your their boss, but their your paycheck... Go figure.. but your big boss is the tax guy, the mortgage company,,, so yes you report to a bigger boss and BOY you'll have to run that by them because you'll doubt it will fly.,, NOPE the electric guy isn't gonna wait to get paid, and nope either is the mortgage company.. so Yup I just checked and your rent is past due the late fee won't be waived and if you don't have it paid by the 5th I'm forced to file eviction which will cost you another $$$ so I recommend you do what ever is necessary to come up with the needed funds.

Be equal and fair and don't be shy about what you have to do to keep it going. the guy at the gas station changes the $$ on that sign all the time and he still get's customers. 

People need housing, you provide that and the service of maintaining the housing. IT"S a big deal, it's risky if your not prepared and sometimes even if you are. 

Know your housing laws in your state and follow those rules. 

Your bank account is your boss you'll figure that out soon enough. 

I know from past postings that most of BP disagrees with me, but I posit that you can be ethical, fair, and compassionate, and still run a good business. If you have more than 100 units, you need to set systems in place that are ironclad, like some previous posters mentioned, such as having spreadsheets that assess rents, etc. Also, at that point you should consider hiring someone on who will be tougher than you.

If you have 1-2 or 10-20 (my category) units, it gets a little more complicated, but my personal view is that being 100% inflexible and hard-hearted will make the job less fun and satisfying, and can also be a bad business practice. I almost never have vacancies, and I attribute it partially to the way I treat my residents. On the rare occasion where a tenant can't pay, I treat them with dignity and respect, give them 3 days without late penalties, and and even offer to pay for their storage unit for a month while they transition (approx $50, vs $1000s in lost rent, court fees and damages if you have to go through eviction); 95% of the time they've just had bad luck and appreciate the treatment.

More importantly, their neighbors see that I'm not just a stereotypical 1980's movie landlord out to ruin the lives of single moms and their adorable band of misfit children, and believe it or not, this really does affect their decision to move on when I do my annual rent raises. Another thing that helps me personally is that I always offer a 2-year contract at the same price when they first move in (it's rare that someone takes it), but then tell them, "hey, rents tend to go up every year; this way you've got a stationary price for two." If they happen to take it (again, rare), you have close to guaranteed income for at least two years and no additional make ready costs, but if they don't (can't stress this enough, they won't), at the renewal date you don't have to feel bad because it's essentially an "I told you so" moment.

I hope this helps, and from one empathetic landlord to another, I hope you don't become too jaded in this business.

I have watched my father be a compassionate landlord while remaining firm.  He sets the rate and doesn't apologize but is empathetic as he hears feedback.  He's up in years and has reduced his number of rental properties to those with tenants who have been there so long they seem like family.  Family who pays their increased rental rates and respects the property because they're respected by the landlord.

@Victor N. I like the idea of explaining your needs financial to make it possible to satisfy the renters needs in the future. I think that strategy certainly engages a point of empathy on your renters and empathy is a necessity in winning a negotiation.

I personally, think that giving a reason for the increase helps justify it in the renter's mind. Most renters are not thinking, "well, that 2% increase is just enough to account for annual inflation." When you explain it as basic logic, who could argue away from 2% increase worse case. I like to think of an example from the book "Influence: The Psychology of Persuasion" in which studies showed people were substantially more likely to let you cut them in line for a copying machine purely by using the word "because" in your request, even if the actual reason made no sense. People are programmed to respond more positively when given a reason.

I think a lot of newer landlords suffer from this at some point when starting out. The problem is not thinking of your rentals as your business. If you were running any other business venture you would (money likely) not make the same mistakes...people let emotion get involved when it's a necessity such as housing.

A lot of good advice above. Set expectations, have a good, strong lease you understand and communicate with your tenants. Everyone's costs of owning properties go up each year, and as much as I want the city to cut my taxes and insurance to give me a break, they don't....their running a business. So are you.

Best of luck.

Hello Maria,

I like the idea of the "nuisance raise" which is a term I had heard a trailer park landlord use once.  Basically the idea is that every year you raise rent by some nuisance amount that is not significant enough for the tenant to leave over, say $15 or so.  This keeps your gross rents rising while minimizing turnover.

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