If & How would you increase rent? (Unique situation)

20 Replies

Hi fellow BP'ers!

I recently purchased a duplex to owner occupy and have been living there since December 2017. I inherited the tenants on the other side who also happen to be excellent neighbors. 

They are long term tenants of 8 years, and their rent hasn't been increased in the last 6 of those. I increased their rent from $900 to $1050 in April, but the market rent in this area is $1200-$1600 for a 4/2.

The odd thing is almost the entire neighborhood is a collective group that have lived there and rented from the same two landlords for almost as long. It's one of those situations where everyone knows everything about everyone else and i was definitely not aware of this dynamic when i decided to buy and move in.

Getting back to my tenants/neighbors dilemma. I consider myself very fortunate as they truly are amazing neighbors. They'll text if i left my garage open, they've brought our runaway dog back, signed for deliveries, they don't make a ruckus on weekends, etc...

That being said, I would like to get their rent up to $1200-$1300 come lease renewal but that would be another significant increase. On the one hand this is a business and not one of charity. But on the other, i run the risk of having a whole neighborhood that's out to get the new landlord on the block. I caught a lot of grief for increasing it the first time, with of course the comments from the tenants that maybe they should move out. I explained at that time that i understood if they needed to go that route, but I explained that I couldn't maintain the rent that far below market.

Fast forward to now and as more time goes on, they are growing on me as neighbors and so not only would i not want the wrath of the neighborhood if they are forced to move, i also would like to keep tenants that i know are great neighbors while i reside there.

So all that being said, if you were in my shoes would you take an income hit and not increase the rent or only increase it by $75 or so in favor of maintaining a quality life with good neighbors? or would you go for the solid increase of $150-$200 and let the chips fall where they may?

If the latter, how would you approach an increase like that to someone you know on more than just a professional level? And as a side note to this, i have tried everything I can to remain respectful, but not become "buddy-buddy" with them. While they're great and have invited me over numerous times for a beer and BBQ, I don't want to blur the lines of our Tenant/Landlord relationship. But of course that position can only be maintained so far when living next to someone.

Any advice is appreciated! Thanks in advance BP! =)

You have to be careful. Sometimes a tenant will play your friend in order to avoid a rent increase. When push comes to shove, they'll drop you like a hot potato and leave you holding the bag. Then you'll be back on this board complaining about how your "friends" screwed you.

Even for a really good tenant I won't lower rent more than 10-15% below market. Yes, there is value to having a good tenant but what you don't understand is there are good tenants willing to pay market value! Just because you kick these people out and raise the rent doesn't mean the next tenant will be grumpy and complaining to all the neighbors about how high the rent is.

If your current tenants were truly grateful, they would have recognized that even an increase to $1,050 was a generous offer. They don't see this, so they are even less likely to appreciate a bump to $1,200. This is a red flag. I would give them no more than 60 days notice of intent to increase rent to $1,200 or whatever you decide. Show them what comparable homes are going for and that your price is below market. If they don't like it, they are free to move out and find a 4/2 for $900 a month.

@Shane H. Did you buy the property In Order to have drinking buddies and family friends or to make money? Are you okay giving up 1,200$ a year in income so that you can go over to their yard and eat hotdogs ?

@Nathan G. This is very true Nathan, and one of my other questions was how far in advance would you give the rent notice? I was actually planning on having the discussion with them about getting the unit up closer to market rents and what that would look like over the coming years and what to expect. last year i gave them a 90 day notice on the rent increase.

@Dennis M. Haha! oh man that's definitely NOT why i bought the duplex. But to reiterate, i have been keeping myself at arms length and NOT going over for beers and BBQ's when they've invited me. My question is not a "wow i got lucky and want to make new friends!" as opposed to being more of a "how do i keep from getting my home Tp'd/egg'd and daughters bike in the driveway if the neighborhood doesn't like that i've raised the rent on their friends". I honestly don't actually think those things would get THAT bad if i raised the rent, but anyone who's had a "bad neighbor" can tell you how miserable life can be with one. And right now i'm concerned that if i nab an extra $1200 a year out of this while living there that it could be the worst $1200 i've ever made.

This would be a moot point if i wasn't owner occupying the unit, or if they were already paying close to market rents and i only had to increase by 5% to stay current. But neither of those are the case.

Thank you for the input so far, I truly appreciate it! =)

My point was not about the bbq it was to get you to ask yourself “why I’m doing this ? what is my motive buying this property ?” Hopefully the ansewer is : to make money  . Knowing this , you need to start thinking of it as a business not emotional. You can’t be worried about what the neighbor thinks or what the neighborhood thinks ! Those neighbors aren’t pulling their weight because good tenants pay market rents . I can’t blame em’ I’d invite the landlord over for a Pabst blue ribbon. Too if I was able to keep a couple extra hundred in my pocket each month 

@Shane H. some people will give a lot of notice like 3-6 months but I don't see the point. Either they can afford the increase or they can't. If your market is tight, it can be hard for them to find another rental in 30 days so I would recommend giving them 45 - 60 days. That should be plenty of time for someone to find other accommodations.

I usually give them 30 days to accept the rent increase or 60 days to vacate. If they find another place and move out early, I usually accept that as long as they give me at least two weeks notice so I have a little time to find new renters.

Originally posted by @Dennis M. :

My point was not about the bbq it was to get you to ask yourself “why I’m doing this ? what is my motive buying this property ?” Hopefully the ansewer is : to make money  . Knowing this , you need to start thinking of it as a business not emotional. You can’t be worried about what the neighbor thinks or what the neighborhood thinks ! Those neighbors aren’t pulling their weight because good tenants pay market rents 

That makes more sense. And yes it is to make money, but just as with everything else in life I need to balance money with happiness. I am leaning towards increasing the rent to $1200-$1250 instead of the more moderate $1125-$1150. And yes that $1200 a year will be a large help to the business model. 

The only reason this is coming up as questionable decision at all is the fact that I have to continue living there for now and need to ask myself if the added income is worth the possible added aggrevation from the neighborhood. Assuming i don't have expensive tools go missing and broken windows, then yes i'd say it's worth it. 

If given a choice between money and neighbors, I choose money. Sure, it's nice to have friendly neighbors that don't hate you, but how much time do you really spend with them? Jack up the rent and be prepared to get new tenants. 

No matter what you do they can leave so look at it from that perspective. They could buy a house tommorrow. If the market says 1600 and you are increasing to 1200 shopping will illustrate the tenants still have a deal. As for the other neighbors are all the rentals low priced or are neighborhood owner occupants going to cause you issues? If it comes up with others I would be clear that the finances at your house are not thier business.
@Shane H. Regarding raising rent on an existing good tenant. What I have found works is to state that you will be raising the rent in the lease. I have a clause in my lease that tells the tenant exactly what the next rental increase is going to amount to. That way the tenant is aware of the increase the day they sign up to lease the property. The tenant has time to think about the increase well before the lease is about to expire. I contact my tenant about 45 days prior to the end of the current lease and have a conversation with them regarding the increase. I let them know I am hoping they would continue to stay as a tenant, but understand if the increase does not fit into their budget. If the tenant decides to end the lease, I have plenty of time to get the property back on the market and shop for a new tenant. I have had the same tenant in the property where I apply this practice now for over five years. Rent increases are normal when the market is dictating higher rents in your area. Try not to surprise tenants of an increase in rent by letting them know well in advance. I also let them know what the going rate for rent is and show them how much of a discount they are receiving by continuing to rent my property. If you are below-market you are well within your rights and being fair by keeping your rent in pace with the competition.
Originally posted by @Colleen F. :
No matter what you do they can leave so look at it from that perspective. They could buy a house tommorrow. If the market says 1600 and you are increasing to 1200 shopping will illustrate the tenants still have a deal. As for the other neighbors are all the rentals low priced or are neighborhood owner occupants going to cause you issues? If it comes up with others I would be clear that the finances at your house are not thier business.

$1600 is truly top end for a 4/2 right now, this unit would need updating before that would be possible. all the other tenants have also been in the neighborhood for 5+ years. Basically there were two owners that bought/built the whole street of duplexes in the 70's. Oddly enough, many of the residents on the street have been there since the 80's, but have changed which unit they lived in. 

Originally posted by @Brett Anderson :
@Shane Hughes

Regarding raising rent on an existing good tenant. What I have found works is to state that you will be raising the rent in the lease. I have a clause in my lease that tells the tenant exactly what the next rental increase is going to amount to. That way the tenant is aware of the increase the day they sign up to lease the property. The tenant has time to think about the increase well before the lease is about to expire. I contact my tenant about 45 days prior to the end of the current lease and have a conversation with them regarding the increase. I let them know I am hoping they would continue to stay as a tenant, but understand if the increase does not fit into their budget. If the tenant decides to end the lease, I have plenty of time to get the property back on the market and shop for a new tenant. I have had the same tenant in the property where I apply this practice now for over five years. Rent increases are normal when the market is dictating higher rents in your area. Try not to surprise tenants of an increase in rent by letting them know well in advance. I also let them know what the going rate for rent is and show them how much of a discount they are receiving by continuing to rent my property. If you are below-market you are well within your rights and being fair by keeping your rent in pace with the competition.

I like that approach, I havent had this problem before but i should've incorporated that when i signed their lease in April. One thing that was a bit of a surprise is how drastically both home prices and rents have increased in our area (along with many others of course). 2 years ago the range for a 4/2 would've been 1000-1200.

You can be a good neighbor, and even quite friendly, as long as you stand up clearly for your own interest and separate the two types of relationships.

Yes, you have two relationships here, friendly neighbors and landlord :tenant. You can pursue both at the same time and then they have the choice to make based on your actions.

For the circumstance you describe:

I would gather some comps, and set aside a time to talk with them personally. Let them know it’s about the rental in advance. No one likes surprises and you want to define this as a business conversation.

Show them market, let them know you have an obligation to your business to bring rents to market and tell them when u are doing it.

DONT apologize! Tell them they have been great tenants and as you have gotten to know them as neighbors you have really appreciated how much they contribute to the neighborhood you both live in.

As long as you don’t present them as concessions you could do things like 1) say you are planning to do it in 60 days but as a courtesy could extend that to 90 if that makes a difference (holidays etc) and 2) if YOU think an upgrade of something is warranted say you will be spending the first X of the increase on a new whatever.

Again, for anything you do here don’t ask them, tell them. It’s not a trade off it is a courtesy you are presenting.

Follow up the meeting with a friendly and clear letter restating the above.

People respect strength and clarity, and that’s a better path to neighborly friendship than an apologetic approach.

If they object (and remember they have a right to be upset and process a bit, let them ) they may Try to bargain, explain why they shouldn’t pay more or say they need to move.

You can be completely understanding and sympathetic without changing your position. This is the landlord tenant part and don’t take it personally.

In your position I would either do nothing until you can move out yourself and then give immediate notice to raise their rent to full market or give notice to raise rent to full market now and let the chips fall where they may. It is a very serious mistake to allow personal feelings to dictate your business practices however in your present situation you are clearly preferring to operating as a hobby investor. It places you in a very unprofessional position that will never turn out well.  

You either invest as a hobby and allow emotions to dictate your decisions or operate as a business. Any attempt at walking a line between the two is destined to fail. You can be a friendly neighbour but you can not expect that to not interfere with your business if you can not make business decisions without emotion.

Your uncertainty in making a decision due to the dynamic of the community is nothing more than a excuse to not make a business decision. Probably best that you do nothing if that is your primary business concern.

@Shane H. This is a good lesson for landlords because it shows what happens when the landlord/ tenant relationship becomes a friendship . Sadly this doesn’t work and is going to cause you frustration and a loss of money . I heard It saId lIke this : You can be friendly but don’t ever become “ friends” . In a perfect world this would work out but you know the minute the tenant has a grievance/gripe and wants you to buy something or repair something that’s unreasonable In cost there is going to be strain and resentment. It’s best to not mix business and personal in any way .

@thomas s loves to put a bible like fury in his posts, it makes him feel good. I like to use a touchy freely mediator perspective, it makes me feel good. :)

What I’d pay close attention to is the similarity of advice, if not of style. You have to draw boundaries and can’t succeed if you aren’t crystal clear on your priorities.

And I believe conflict averse people tend to have more conflicts in real estate because they let other people draw those boundaries.

Do what you have to do and don’t be a d—— about it. That’s all. At the end of the day the people you want to have a relationship with will respect that.

I rather incrementally raised the rent than quantum jumped to the point they all walked away. You already raised over 10%. I interpret the neighborhood rent is actually $900-1050 not the other way around. If you raise the rent appreciably they will just move next door.


We run into this all the time with different properties we manage.   Unfortunately I found you are simply doing yourself or owners you manage for a disservice if you do not raise rents to market.  

They likely will move, but your new income will be $2400.00 a year($200 a month).   If you love them take a hit, but understand the cost of doing so.   

Since we are third party managers we have to maximize value for our owners...try raising 200 units by 20% to get close to market...that’s when the pitchforks, tenant groups and lawyers come out!  Your situation is an easy one.   

So if market rent for the apartment in its current state is $1200, raise it to that amount. They may move and you get new blood on the street. Now the other lamdlord may get your tenant in one of thier units as a result but if it is truely the market you will be able to get someone at that price or you can renovate and command the higher rent but i imagine that is a costly renovation.
@Shane H. I always regret telling the tenants that I am the owner. Things are much easier when I am the property manager. Being conflict-averse is not necessarily bad as long as you find a way to stand your ground. Having a “bad guy” to blame really comes in handy. To focus on where you are now: if tenants move out, you would like to do improvements. Is it possible to do some of those improvements now? That way you aren’t eating the vacancy. Then you can point to improvements when asking for rent increase. If they don’t go for it, then your unit is better positioned for next lease.

First off, thank you EVERYONE for all of your suggestions and backing on this. There is an update to be had at the end here, but i wanted to address a few responses first.

@Jonathan R McLaughlin Thank you for such a detailed response, and very good point about the not apologizing aspect. It's hard stometimes to not "knee-jerk" react to giving bad news and throw an apology out with it.

@Thomas S. Thank you Thomas, I always look forward to your responses as you are one of the most "Give-it-to-me-straight" responders on here. That being said, i was pleasantly surprised at how easy you went on this post =p. You are absolutely right as usual though, I have definitely entered back into the "hobby investor" with this situation and I didn't evenrealize that until reading your post.

@Dennis M. You are correct, I find it very difficult to balance the tenant/neighbor relationship. It isn't a problem I didn't anticipate with living next to tenants, but i definitely did not anticipate the difficulty of the balance.

@Sam Shueh Another good point, I have been using active listings, market demand, and rentometer to determine rents. I didn't think about the aspect of the other tenants on the block likely STILL having their original low rents.

@Colleen F. That would be awkward... I hoping the unlikely combination of if they do actually move out and that coincidng with another unit on the block being available that those two things don't happen at the same time.

@Josh Jenkins I took that approach on my first rental and agree how much headache that has saved me. I didn't think i could successfully pull off the "non-owner" ruse with having to remodel the unit and updating the tenants on a regular basis. 

Okay, so for the update from the weekend. Their carpet hasn't been replaced since before they moved in and along with a few other needed updates it was on my list of repairs to make for them. 

Well they asked me to come over and take a look at a new tear spot on the stairs and asked if they put $1000 towards the carpet if they could get it replaced. I explained that the carpet wearing out is normal wear and tear and that while i appreciated the offer, I would replace it at my cost. However, the carpet that i'd be putting in would be standard carpet that i do in my rentals but if they wanted to use that $1000 to upgrade the carpet they could do so. 

I then went on to explain to them though that I did not want to throw a curve ball at them as come April their rent would be increasing again and I didn't want them putting $ into anything there if they were going to have to move with that increase. They were happy that i gave them the heads up now, and said the only reason they'd move would be if he were to buy a home. The conversation was a bit more detailed than that as i talked about market rent range etc and they had additional questions. But overrall it went smoothly so it remains to be seen whether they'll stay come April or if there is any fallout from the neighborhood.

But thanks to everyone here i was prepared to have that conversation when the opportunity arose.