Need advice on Rent Raise

5 Replies

Need some advice on how to handle a tricky situation. 

This year I took over managing a few rental properties for my elderly aunt. She has a 4plex (all 2 bed, 1 bath) in the SF bay area that she's owned since the 70's. One tenant has been there for 20 yrs, and my aunt has barely raised rents in all that time....last time she did it was $10!   Market rate is $2700 in current condition. 

This tenant is paying $1300. Currently there is no rent control in this county. All that's required is 30 day notice for anything under 10% increase, and 60 day for over 10%.  They're nice people, but I can't justify giving them a 50% discount on their rent any longer. I sent them a rent increase notice bringing it to $1950 in 60 days....still a $700+ discount because we like them. They are arguing it's unfair and want a justification for the large increase etc... And saying that they can't afford it. I don't think they're all that aware of the current rental market.

How do I respond to this? I don't want to cruel, but it is a business for our family. And there is a chance rent control could pass this year, so I can't risk keeping it that low. 

Be firm and professional.  You run the risk of losing them as tenants -- Consider, if they leave -- how easily and quickly can you replace them with market rate tenants? If easily, your downside to that is low (at least financially). You may have repair costs and some vacancy, but may be worth both those costs to replace at a much higher rent.  And if they do re-sign, you are still giving them rent well below market rates.  The biggest thing is to keep as much of an arms length transaction as possible.  It's hard when they are dealing with you as the owner and not the property management company. Professionalism is key - don't make it personal, but also don't let THEM make it personal.  

If you are comfortable with them potentially leaving, I would say "Rental increases are in consideration of market rates and reflect rising cost of maintaining the property" and leave it at that.  There are a zillion ways to phrase it, but most important you stand firm in the decision.

You don't have to justify it, but if you want to give them a reason just tell them it's nothing personal but it's WAY under market and you can't afford to subsidize their rent any longer since the cost of everything associated with owning the property (i.e. property taxes, insurance, etc) is increasing and you have to raise their rent to off set that.  If the market rent is truly $2700/mo, they're still getting a heck of a deal.  If you think they're not aware of the comps (and why would they be since they probably haven't been looking with rent that low), you could provide them with some comps to show them what comparable properties are renting for and what a bargain they're still getting at $1950/mo.  Granted, that's a big increase but it sounds like you're being more than fair given the cost of the comparable properties.  At the end of the day, it's their decision to stay or move but you're missing out on a lot of money by not raising their rent to the full market rate so even if they decide to move it could be a blessing in disguise. 

Thanks for the replies.   

I'm definitely trying to keep it professional. The rent increase was a brief l one paragraph letter stating they've been great tenants, so we don't intend to raise it to market rate, but we need to raise the rent to keep up with rising costs of owning property in the area. Left it at that.

But they are trying to make it personal. Sent a lengthy letter explaining all the reasons it's unfair etc...and that they can't afford it and proposed doing a $200 increase...and contacted my aunt to plea their case. Luckily she's good at deflecting it and telling them to contact me.

And market rate really is $2700. We rented another vacant unit at $2650 in 2 days. If they want to stay at $1950, I'm happy with that. But yes, might be a blessing if they choose to move on. 

I'll reply to their letter saying I sympathize, but it's still a bargain at $1950. And provide some comps. And leave it at that.  Is that better done via email for a record of the conversation, or is a letter better?

they’ll eventually settle into staying in your property. They will most likely shop around and notice rents around the area are significantly higher than what your asking. You should be fine 

Tell them to do their on research on comps and after they see what it will cost to move they will be begging you to only raise the rent to $1950. 

It won’t have the said effect if you waste your time putting comps together for them.