Should I increase the rent?

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Should I increase the rent?

Allen Lopez
Rental Property Investor · Baton Rouge, LA · Member since 2018 · 151 posts · 13 votes
So I have had an amazing family as my tenant for the last two years. When I posted the house to rent it out, they were the first to want to get on and I was going to charge them $1700/ month but I gave them the option that if they signed for two years I would leave the rent at $1650/month. The last two years have been great. The father is extremely handy, so everything something breaks I just order the parts and he installs them. They have not demanded anything except the screen enclosure replaced (which needed). Long atory short these are the type of tenants we all dream of. Anyways, the two year contract ends in February of 2019. Current rent in that community is $2000/month. So I am loosing money. I would like to increase it if possible. I would also like to give them the option for a two year contract again. My questions: 1) should I renew with a two year contract at $1650 again? My mentality has always been, rent low enough where you don’t lose too much but have the tenants long term. 2) how do I approach offering a price increase? 3) I would like to ask $1800/month if 1 year contract or $1700-$1750 for a two year contact. Thoughts?
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y

@Allen Lopez how did you determine market rate is $2,000 a month? Use that evidence to demonstrate the value to the tenant and justify your increase.

I would not sign more than a one-year lease. I also would not do a month-to-month because I prefer some stability. Yes, they can still try to leave before the year is up but I have policies to reduce my risk and loss if that happens. If you rent month-to-month, you get 30 days notice any time of year with nothing to mitigate your risk.

There's a big difference between "charity" and offering a discount to reward good customers. I can't think of a single major, successful business that doesn't offer discounts to customers and clients.

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  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y

    I’d bring it to market rents.  You took a 1,200 lose by giving 50 dollars off. Maybe do a half bump the first year and a bump again the following year.  

    No reason to be that far below market value.  

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    First, I only recommend keeping rent low for PROVEN tenants. In your case, you have two years of history to demonstrate they are worth keeping.

    Second, I would bump the rent but maybe keep it 10% below market. You could bump them to $1,800 which saves them $2,400 a year and costs you $2,400 a year. That's worth having a high-quality tenant and it should be worth it to them to avoid moving, paying more, or potentially winding up with a nasty Landlord.

    If there's even a chance they would cry over an increase, be prepared to show them comparables, the value of staying with you, and how much you are losing by keeping them at the lower rate.

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  • Allen Lopez
    OP
    Rental Property Investor · Baton Rouge, LA · Member since 2018 · 151 posts · 13 votes
    7y
    @Nathan G. When you say be prepared to show them comparables, what exactly do you mean? Should I show them just what the Zillow estimates are for a couple of properties? Or should I show find a couple of for rent listings in the area? Also, when you say leave it at $1800/month would that be for a one year lease or are you recommending doing a two year lease at that? Would you say that if I offer them a two year lease at $1750 would be fair or should I just stick to $1800?
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Continue with them on a M2M lease. They have proven themselves and do not need a term lease. 

    Raise there rent to market if you are operating a business, give them a discount under market, if you are operating a charity.

    Whether a tenant is good or bad is irrelevant, they are all expected to be good and expected to pay market rent...that is what market rent is.  

    Business or charity it is your decision alone. They pay you to rent or you pay them. What is it to be.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    @Allen Lopez how did you determine market rate is $2,000 a month? Use that evidence to demonstrate the value to the tenant and justify your increase.

    I would not sign more than a one-year lease. I also would not do a month-to-month because I prefer some stability. Yes, they can still try to leave before the year is up but I have policies to reduce my risk and loss if that happens. If you rent month-to-month, you get 30 days notice any time of year with nothing to mitigate your risk.

    There's a big difference between "charity" and offering a discount to reward good customers. I can't think of a single major, successful business that doesn't offer discounts to customers and clients.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    1Reply
  • Allen Lopez
    OP
    Rental Property Investor · Baton Rouge, LA · Member since 2018 · 151 posts · 13 votes
    7y
    @Nathan G. I agree with you. Doing month to month can result in vacancies which would be an even bigger loss than reducing the rent. Thank you so much for the advice.
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