Rental Increase Dilemma

5 Replies

I bought a property last October in a small town in Northern MI. The property itself has 3 units on it. The owner/landlord that I bought the property from was renting them out way below market value with no security  deposits or written contracts. I inherited two of the renters. One I had to double the rent and he also gives me so much monthly toward a security deposit , done deal. However my other tenant who is on "fixed income", I  initially raised the rent $50/month and she also had to cut all the grass all summer. I told her next year, now, I will be raising her unit to market value. She was paying $450 when I bought it, I raised it to $500. With some paint and new flooring I could easily get $750.00.

So here we are a year later. Her son moved in with her along with his dog. I sent her a letter stating that her rent will be going up (like I told her it would last year) to $625 month. She has always paid on time. 

She sent me a response letter stating that she cant afford the $625 living on SS and that her son has moved out and to please work with her while she tries to find a new place.

 I watch the market and know that she will never find another place to rent less the $625/month that allows animals in the area.

I am looking for thoughts/advice on what others would do in this situation.

You will get varying opinions on this but I'll offer mine with a couple things to think about.  Do you have her original application?  If so, can you verify that she really is on a fixed income and can't afford it?  If so, it might be to your benefit to work with her and raise it to an amount that you determine she can afford while she looks for a new place.  If she's on a month-to-month agreement, raise it to that amount and let her know that in X number of months it will be going up to X amount (whatever the market rate is) to encourage her to find another place in that time.  If you immediately raise it to an amount she really can't afford you run the risk that she stops paying because she can't afford it and then you're stuck with a non-paying tenant and a potentially a costly eviction, which wouldn't be good for either of you.  At least this way she leaves (hopefully) on good terms and you continue to collect rent the entire time she's occupying the property. 

The other thing to consider is how long she's been a tenant and how much deferred maintenance and remodeling you'll have to do to rent it at that higher market rate once she moves out.  You don't say how long she's lived there but there's always a cost with any tenant turnover, and the longer she's been in there the more costly it's likely to be.

Just some things to consider. 

Assuming she is M2M or at the end of her lease I would give her notice you will not renew her lease at the end of October. She has told you she can not afford $625 so you will need to get rid of her. It will be a mistake trying to keep a tenant that you know can not afford the rent. There is no point in trying to make it work for her as you will end up losing.   

Once she is out do the lipstick reno and find a good tenant that can afford market rent.

Tell her you are a new owner and can't afford to run a charity. She's not only below market, she moved in an unauthorized tenant and a pet.

Give her 30 days notice (or whatever your state requires) and get her out. Clean it up, rent it for market, and pat yourself on the back for running your investment like a business.