As new owners, how to raise rent for a long-term tenant?

21 Replies

We are purchasing a 2BR/2BA single family rental in Las Vegas from my family.  The current tenant has lived in the house for about 7 years now and have been on a month-to-month agreement since 2012.  My family has increased the rent for this property ($25 every few years) over the rental period.  Current rent is $900 month.  Last rent increase from $875 to $900 was in January 2017.  As the new owners, we would like to rent the property out at $950, but we also want to keep the existing tenant who has been excellent and not start relationship off poorly.  According to rentometer.com, Median rent for that size of property and zip code is $960.  Average rent is $995.   Should we bother raising rent or keep consistent with previous increases and only raise it $25?  We would sign a new contract with her as the new owners.

 thanks for your help! 

Hi @Cynthia Oistad .....one option is to lock in a long-term lease (2-5 years) and have the tenant take over some of the maintenance of the property to keep the rent lower ($925-$950) OR offer the a higher rent of $975 for the rest of the year with an increase to $995 after the new year with no maintenance responsibilities for the tenant.

Also if you want a referral to the best eviction attorney in town...just reach out to me at my number below and I'm happy to pass his info along to you.  Best of luck!

Thanks! The HOA covers all the maintenance and tenant maintains the grounds. Desert landscaping so not much maintenance. aside from us wanting to make rent more align with market, there isn't much more tenant could take on to keep costs down. Unless water/sewer? We currently pay that as landlord.

I would claim that if the existing tenant has been in the unit 7 years, the unit is unlikely to be worth median market rent.  Most units when they enter the market have been refreshed.  For a unit that has been rented 7 years this likely means new paint and new carpet if the flooring has any carpet.

I would raise the rent $25 as they are due for a rent increase as it has been more than a year.  A year after this increase I would raise the rent another $25 assuming market rent did not appreciate a lot more than $25.

If you raise the rent to near median market rent ($950 when median is $960) the tenant can easily move and get a clean, freshly painted with new carpet unit for $10/month additional.  They may decide to spend some additional and get some other desire met (more room, a gym, a pool, whatever they decided in the last 7 years would be nice to have).

If the tenant leaves you are likely going to need to spend money to paint the place and possibly replace carpet.  In addition you will likely have over a month vacancy (beware of tenants that can move in sooner than a month).  It is a rare tenant that leaves a place clean enough for tenant turn over so you likely will have some cleaning costs or effort.  You also will be losing a good tenant for a tenant that has more risk (i.e. even though you screen well you will not know if they are a pain in the ***, etc.).

Good luck

I would agree with Dan.  Vacancy kills returns.  A long-term tenant turn will cost more than typical and the loss of income if the current tenant moves due to vacancy while you turn and re-rent will take a while to recover even with the added monthly rent.  If you can keep a tenant and avoid vacancy income loss while gradually pushing rent, you are likely to have the most optimal outcome.  Most tenants evaluate small rent increases compared to the cost to move...if you make the increase small, most of the time the tenant will stay...change it by more, they will move.  If you wanted to try to move rent you might see if the tenant might want some improvements done to the property which you could do to get the higher rent and/or lock in a multi-year lease.  My two cents.

you’ll lose 3 years worth of your $25/mo increase if they move out and it only takes 4 weeks to turn a 7 year rented property and find a new tenant. And that doesn’t count the 3 more years or more to cover the rehab costs. I’d say no vacancies for 7 years is worth at least 10% under market. I assume 90% of landlords on here would take 90% of fair market for a guaranteed 7 year tennant. 

I recently raised the rent by $200 on my long term tenant after 11 years of no rent increases. I gave her six months notice of the increase, so she had time to work on her budget or decide to move if that was her decision. My property is still underpriced, but not as significantly. She chose to stay. 

If the tenant pays on time and keeps the property in good shape, keep the rent a little below market to keep it attractive to this tenant.  I’d go ahead and tell them that rent goes up $10-25 every year. Everyone is right that vacancy is expensive, and you don’t want to have to foot that bill. 

As a new owner this is the best time to make changes.

Whether you wish to collect market rent from your income property to maximise your investment or continue to supplement your tenants rent depends on the direction you want for your future. This can be a professionally operated business or a hobby.

Many hobby/semi professional landlords will choose to supplement their tenants rent, keeping it below market, mistakenly believing this some how improves their business profitability. They will site the cost of turnover as a deterrent to charging market rents. Turn over costs are built into ever landlords expense estimates so that argument is without justification. Most are choosing to pay a price to avoid professionally managing their properties to simplify their lives. Really all it does is stroke their own emotions as a landlord...... Whatever works for them.

Bottom line it is your new business and you decide what is most important to you. Money or emotions.

I think you get your market rent.   If you are at market, then the tenant is not going to move to the same or similar type property to get the same rent.  If you want to be nice, give the tenant the option of signing a long term lease with a moderate rent increase.   If the tenant refuses the long term lease, you have to move it up to market .  

I think you get your market rent.   If you are at market, then the tenant is not going to move to the same or similar type property to get the same rent.  If you want to be nice, give the tenant the option of signing a long term lease with a moderate rent increase.   If the tenant refuses the long term lease, you have to move it up to market .  

Exactly. Market rent for a condo that hasn’t been renovated, painted, or updated in at least 7 years. Who knows how many “quirks” the current tennant is living with. Broken this, stained that, scratched this, and cracked that. Maybe because they caused them, maybe because they got used to them. Doesn’t mean the new tenant will want to live with that when for “market rent” they can get a newly renovated condo.

Then again, most people are lazy. Way too lazy to move. You can always try the small yearly raise. Who’d move out over that? And if they do, you can go in and make it nice again, and start over at market rents if there’s a good reason to pick yours over others at same price.  Maybe your rent increase can be the kick in the pants that finally get this renter’s live moving forward and onward. 

For tenants we want to keep we typically raise the rent 3-5% annually but making sure we stay at or below market rent. If you raise it more than that you may lose them. 

thank you SOOO much to everyone who took time to respond and provide your feedback!!  This is our first time buying a home with an occupied tenant, so we were unsure on best way to move forward.   Appreciate this BP community very much. 

@Cynthia Oistad

Let them know there is a new sheriff in town and you will be increasing rent to market on the next renewal. Always expect they may not agree and plan accordingly. 

They've been there for 7 years and if they've always paid on time I'd say don't look solely at the money 50$/month is not worth losing a good tenant :)

I find that existing tenants are usually expecting the new landlord to increase the rent. They’ve already mentally prepared themselves for it. I agree that now is the best time to do it. If the unit is in a desirable area and in halfway decent shape then most people would rather just pay the increase at a place they’re already comfortable, rather than having to deal with the hassle of searching for a new place and moving.

Raising rents on existing tenants is always a balancing act. Certainly a modest increase if that is still below market would be appropriate. If I were taking on a long term tenant in a new to me property, I would let them know that the rent will be increasing slightly. I would also ask them if there are any maintenance items that need to be attended to? This will let them know that you intend to take care of the property and than you're not just milking it. Fixing a leaking faucet or toilet or changing out a broken ceiling fan would show goodwill in addition to keeping your new to you property in good order.