Funny "I'm raising your rent at renewal" conversation

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Funny "I'm raising your rent at renewal" conversation

CJ Ashton
Investor · Gilbert, AZ · Member since 2017 · 54 posts · 44 votes

So, I have a tenant that is finishing up their 3rd year in a rental I manage for my in-laws. Outside of one or two hiccups, they are really good about paying their rent on time. Additionally, they keep the place really clean, fix a lot of the little problems themselves, and nary a complaint from the HOA. In other words, the type of tenant I'd like to keep.

I signed them originally for a 2 year lease and wanted to raise their rent a bit ($25) for year 3.  They squawked so we negotiated to $10 increase.  Hardly anything, I know, but I wanted to let them know I look at the market rents every renewal.

So, lease is up in about 6 weeks and I start my homework.  Current rent is at $1275.  Zillow says $1475 but that has recently increased from $1400 just in the last 30 days.  Search the rest of zillow to see what nearby similar properties are listed for.  I talk it over with my better half and we decide that $1325 is more than generous as we'd like to keep them.

I send the tenant a text: "Love to keep you as tenants... Zillow says $1475... modest increase of $50 to $1325..."

It's hard to judge emotion through a text message, but the response was pretty huffy... "Well, you must not want to keep us as tenants.  We'll definitely be looking for something cheaper..."

I send another text:  "Sorry you're not happy with the small increase...  I checked the entire 10+ mile radius and there's only ONE similar property that is cheaper...  Love to have you stay, but good luck if you choose to go...  If you do leave I'll be listing it at $1450."

10 minutes later - during which time I'm assuming the tenant got online to look for other options - they reply...

"Is there anyway we can negotiate..."

Heh.

I wonder if tenants think I use a random number generator to come up with the rent amount.  I'll give good tenants a break with a below market rate but otherwise, I'm running a business.

Told them we were firm at $1325.  If I were a betting man, I guess odds are 75/25 that they'll renew.

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Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y

@CJ Ashton - I would suggest that you always incorporate annual rent increases from the very beginning in the future.  I think part of the push back is that there wasn't an increase built in after Year 1.  Always important to set expectations on the front end. 

One thing I like to do is to offer tenants an option to renew their lease at one price or remain month-to-month at a higher price.  This choice generally produces the outcome I'm looking for - a renewed lease.  This also enables me to better estimate my portfolio's vacancy risk in the coming year, and perhaps get a little softer on the increases if I see too many tenants choosing month-to-month.

It looks like you chose to play hardball with what you describe to be ideal tenants.  I would just consider that the lack of damage they cause and the stability of income they provide is worth something.  How much?  Just consider what a turnover would cost you in renovation and lost income, add it up and divide by 12.  Then consider that your next tenant might not be nearly as good.  You might find that $1275, a $2,400 annual discount, may actually be okay.

Why not go back to them and tell them you gave it some thought and that you appreciate what great tenants they've been and would like to work something out.  But maybe you offer them another two-year deal at $1,300 for Year 1 and $1,350 for Year 2.  

Last thing - I suggest calling them on the phone.  Much more sincere.  

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  • Anne Smith
    Steinhatchee, FL · Member since 2017 · 77 posts · 69 votes
    7y

    I think the whole trick is can they find something comparable for cheaper. It sounds like they cant. They will see that even with the slight raise, you are below the local rent. Im betting they stay.

    1Reply
  • Mike Roy
    Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
    7y

    @CJ Ashton - I would suggest that you always incorporate annual rent increases from the very beginning in the future.  I think part of the push back is that there wasn't an increase built in after Year 1.  Always important to set expectations on the front end. 

    One thing I like to do is to offer tenants an option to renew their lease at one price or remain month-to-month at a higher price.  This choice generally produces the outcome I'm looking for - a renewed lease.  This also enables me to better estimate my portfolio's vacancy risk in the coming year, and perhaps get a little softer on the increases if I see too many tenants choosing month-to-month.

    It looks like you chose to play hardball with what you describe to be ideal tenants.  I would just consider that the lack of damage they cause and the stability of income they provide is worth something.  How much?  Just consider what a turnover would cost you in renovation and lost income, add it up and divide by 12.  Then consider that your next tenant might not be nearly as good.  You might find that $1275, a $2,400 annual discount, may actually be okay.

    Why not go back to them and tell them you gave it some thought and that you appreciate what great tenants they've been and would like to work something out.  But maybe you offer them another two-year deal at $1,300 for Year 1 and $1,350 for Year 2.  

    Last thing - I suggest calling them on the phone.  Much more sincere.  

    3Reply
  • Quincy Lockett
    South Holland, IL · Member since 2017 · 374 posts · 432 votes
    7y

    @CJ Ashton

    I just experienced almost the EXACT same situation. 2 bedroom 1 1/2 bath townhome that I needed to rent in the winter. I dropped the rent to $700 from 800 eventually to get it rented. Got a tenant and left the rent at $700 through lease end as not to incur the scarcity of winter tenant hunting again. Spring rolls around the following year (month to month tenancy at this point) and I find out through hotpads etc that’s similar units rent for $850-$875!

    I send a lease renewal letter with a “fair” $60 monthly increase and the tenant had a fit! “This place is not with that!” & “I guess we’ll leave in 8 months!” His mother (co-tenant) even called me and left an aggressive message on my phone about how exploitative I was to raise it that much.

    I then proceeded to post a 30 day notice to Quit. The following evening I got a text message stream from the son that I could best call CONTRITION. “We’ll pat it,” “this place is not bad,” “you do make repairs quickly.” Somebody did their research. I ignored the texts for a few days (let em simmer) before I accepted their offer to pay the increase. The tenant was PLEASED!

    Why wouldn’t you (tenant) check current rates before snapping on the landlord???

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @CJ Ashton

    It isn’t just the fact that they may not find anything cheaper. What if they find something for the same price they’re paying or $25 less?

    First months rent, security deposit, utility hook-up, application fee, moving truck, day off work to move, packing, unpacking. Just the first two items may stop people. A lot of people simply don’t have the cash to move. And they aren’t getting their security deposit back the day of move!

    I live the idea of giving choices. The less desirable choice being a nice high rent and the other choice being what I actually want them to choose. Although I would not go MTM in my area. If they leave in January I’m almost guaranteed 1-2 months of vacancy.

    1Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    If the market rent is $1,475 then you should not have to discuss or negotiate with the tenant.  Let them move and raise the rent with the tenant.  Turnover isn't good but its part of the business.  They have been spoiled and if they don't move now will probably move next renewal. 

    2Reply
  • Clifford Paul
    Rental Property Investor · Member since 2018 · 483 posts · 956 votes
    7y

    We have a 3% increase on renewal in our lease but that really doesn't keep up with the tax man raising property values every year. To keep a head all my properties start out above market rate. 

    1Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y

    They’ll stay. At 600 dollars more a year it isn’t worth coming up with the cash it takes to move into a new place, the monetary cost associated with moving and the hassle of moving. Plus, they’ve been there 3 years meaning they like living there to some degree. Moving elsewhere is a roll of the dice.

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I will never understand landlords that supplement their tenants rent by charging below market. I know the old excuse of the cost of turn over being high, which when done efficiently never is, but can never understand why rent is not raised annually to market to soften the blow. Landlords increasingly lose more money by not operating a efficient business. 

    If you do not raise your rents annually you have two options lose money monthly or pay the price of a turn over. It is simply very poor business either way to mention nothing of how it devalues your property.

    I would have had their rent at full market and likely still kept them as tenants.

    2Reply
  • Clifford Paul
    Rental Property Investor · Member since 2018 · 483 posts · 956 votes
    7y
    Originally posted by @CJ Ashton:
    @Clifford Paul,

    Interesting strategy about putting the annual increase right in the text of the lease.  That certainly sets the expectation up front.  The only downside I can see is that it could lock you in.  Maybe the market is going crazy or 3% just isn't enough to cover increased costs. 

    Originally posted by @Clifford Paul:

    We have a 3% increase on renewal in our lease but that really doesn't keep up with the tax man raising property values every year. To keep a head all my properties start out above market rate. 

     In my neck of the woods 3% actually does keep up. But just in case that's why I start every new tenant above market rate. Example: house 4 doors down and across the street same square footage $1250 that's market rate. My house $1895.

    0Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    7y
    Originally posted by @Mike Roy:
    Why not go back to them and tell them you gave it some thought and that you appreciate what great tenants they've been and would like to work something out.  But maybe you offer them another two-year deal at $1,300 for Year 1 and $1,350 for Year 2. 

    Discounts for multi-year leases are meaningless when set up this way. The tenant can and will leave whenever they want. The landlord is required to mitigate damages. A tenant signs this lease at a reduced year one and in 9 months tells the landlord they are leaving after the first year. The landlord must try to re-rent the place for year two. 

    If you must give a discount for a multi-year lease, and you really shouldn't, but if you must, give the discount on the back end. Make it $1350 a month and if there have been no late payments or lease violations during the 24 months of the lease, include a $300 rebate at the end of the lease.

    2Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @CJ Ashton 

    1. Zillow estimates are a joke, I always rent above what they establish and the thing fluctuates on an almost daily basis. If you are managing the property then you should look at Zillow twice a week and evaluate the properties that are listed, find your comparables, save them and see how long they were on the market before they rented at what price.

    2. What is with the texting, coddling and fawning? Yeesh- any properly screened tenant should be a good tenant. Send them a cover letter with the new lease- “your rent is increased by” and “ we look forward to your continued tenancy.” If they weren’t good tenants you wouldn’t renew them, enough with the flirting.

    2a. Don’t make your tenant feel like they have some upper hand just because they follow the terms of the lease. Every text you send undercuts your position and allows them to feel empowered.

    The moment I hear a potential tenant say can we negotiate on the price I say bye-bye.

    If you were doing yourself a disservice that would be one thing- but you are costing your in-laws money.

    Your in-laws would make more money with a proper property manager who charged 10% and kept the rent at market every year.

    And by the way- these are crappy tenants, you have just convinced yourself they are good because they don’t bother you as long as you don’t raise the rent.

    Sorry- I am blunt.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    First mistake was a 2 year lease

    Second mistake was negotiating with price

    2Reply
  • Mike Roy
    Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
    7y

    Discounts for multi-year leases are meaningless when set up this way. The tenant can and will leave whenever they want. The landlord is required to mitigate damages. A tenant signs this lease at a reduced year one and in 9 months tells the landlord they are leaving after the first year. The landlord must try to re-rent the place for year two. 

     @greg m. - But don’t you keep the deposit?

    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    One thing many landlords forget is they are in a strong negotiating position just due to the fact it is a pain in the butt to move. No one is going to go to the trouble to pack up and move if you are slightly below market rent. 

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    You know, I've read many times from people on BP to never go more than MTM, and never ever go 2 year leases. Yes, if a tenant breaks the lease we must attempt to mitigate our losses. However, must continue the story to; and if you do not fill the vacancy for the next month, the tenant is responsible for the full rent until you do rent the unit. 

    Everybody here ever been to Iowa in January? This particular year, it was the coldest and the most snow fall since the year 1886. That wasn't a typo. 1886. One of my units (bought empty in December) went empty until late February. MTM means taking a huge risk in Iowa in the winter. Now, could a tenant leave and still not pay? Of course. That's why we have the court system. If you've screened properly, you end up with decent tenants most of the time (if that isn't true, I would change my screening system). And when those people do break their lease (I had one break their lease due to a job relocation), you follow through with suing them. On the reverse side, if you have a MTM lease and somebody gives notice in December, you're still looking for a new tenant, but you have zero chance of receiving rent if it stays vacant.  

    I've said this about a hundred times before on BP. MTM may work great for a lot of people. But where I live, I will always have 1 year leases, and sometimes a little longer. 

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    @Anthony Wick

    I am in Ontario Canada, you want to talk about winters ?

    I use M2M exclusively, have never encountered any disadvantage compared to term leases. S*it happens but advantages of being able to control tenants with a M2M far out weighs the rare situation of tenants leaving unexpectedly in the winter. It is not a issue limited to M2M. Term lease fine but try to actually collect when a tenant does leave. Majority of landlords will say they never bother trying to collect. Tenants do not like moving in winter so this is a rare situation and not something that should prevent using M2M.

    Proper screening for me means establishing a strong working relationship with tenants. Requiring adequate notice has always allow me to fill vacancies usually without a loss.  A term lease is 100% false security allowing the tennat more control than the landlord. If term lease provides physological security go for it.

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Thomas S.

    I’m just here to give a different perspective. I’m in the belief that what works perfectly in one area isn’t simply a copy and paste to another area. Everybody will have to decide on their own what works for them. Looking at things more than one way is never a bad idea.

    I’m going to relocate to Florida in four years. Should I acquire more units down there I may change my mind.

    0Reply
  • CJ Ashton
    OP
    Investor · Gilbert, AZ · Member since 2017 · 54 posts · 44 votes
    7y

    Interesting dichotomy in some of the responses above:

    "To hell with turnover.  Raise the rent immediately to market.  Never negotiate."

    vs

    "Why lose a tenant over a measly $50 a month.  Turnover is the grim reaper to your profits.  Keep good tenants at all costs."

    0Reply
  • Rich S.
    Central, MN · Member since 2015 · 148 posts · 184 votes
    7y

    @CJ Ashton Isn't it funny how you just posted your story and now everyone knows how you should run your business?  I don't think any part of the post asked ANYONE on the forum a question or for advice... it was just sharing a story.

    The bottom line is everyone needs to make their business work for them.  There are some who will never treat it like people are involved, but rather just on rules and numbers.  Others will work with people and focus on that relationship over numbers.  The bottom line is you aren't running someone else's business, you are running your own.  You need to make it work for you.  

    Like has been mentioned, every market is different.. Losing say $75 per month, to stay under market at your rate of $1325 vs. $1400 is $900 in lost rent... if you were vacant for a month, while replacing the tenant you lose more than that, plus turnover and in my opinion the most important factor, is it seems like they are great tenants.  Each and every day the tenant pool gets worse.  Sure, you can be @Thomas S. and train your tenants(and there is no doubt his operation works well for him), but some folks just aren't good at that, nor have the time for it or want to deal with it.

    This business has its differences for everybody... thanks for sharing your story. 

    2Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    When a landlord is unable to recognize a crappy tenant there is a problem. These tenants stink to high heaven. Again, if it was his money he was throwing away that would be one thing- but it isn’t.

    0Reply
  • CJ Ashton
    OP
    Investor · Gilbert, AZ · Member since 2017 · 54 posts · 44 votes
    7y
    It's all relative.  When my father-in-law was managing his properties, he never raised the rent on tenants that stayed and never did any research to find the market rent when tenants turned over.  And, the amount he saves by having me manage his properties vs being nickel-and-dimed to death by a property management company far outweighs any "lost" rent due to keeping good tenants at slightly below market.

    Originally posted by @Patrick M.:

    When a landlord is unable to recognize a crappy tenant there is a problem. These tenants stink to high heaven. Again, if it was his money he was throwing away that would be one thing- but it isn’t.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    When a tenant wants to leave... they will leave regardless of any lease or agreements or weather patterns . The shorter the lease the better , not for the tenant but the landlord . It means you can kick out a bum much faster without sitting around losing money or going into long expensive evictions

    2Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    "He did a crappy job, I do a less crappy job" is no way to manage a property.

    I am really at a loss with this "better than being vacant" excuse. I give proper notice, if I do not get a signed lease back within 60 days of old lease termination- it gets listed. Where is the vacancy? "But I am so frightened!!!"

    @Dennis M. in NJ it is the opposite- a lease is our only form of "protection." A month to month gives all the power to the tenant as they can give 30 days notice... I cannot give them 30 days notice (anti-eviction statute), so rather then being left holding the bag I can tap the deposit and go after more until rented.

    I dream NJ passes a law like Oregon's!

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    @Patrick M. I can tap the deposit and go after more until rented.

    Keeping a bad tenant is a sure sign of a lasy landlord.

    You are lucky it works for you. Most landlords are so dam lazy and have such a defeatist attitude that they never bother trying to collect. The common belief is they can't collect so they don't try. If they only knew but no point in trying to convince them. They have made up their minds and simply let the tenants win. Little wonder so may give up and sell after one bad tenant.

    Good for you for operating your business the right way.

    0Reply
  • Sam Hopkins
    OH (ohio) · Member since 2016 · 63 posts · 43 votes
    7y
    @CJ Ashton if they move, it’ll take you 26 months to recover the $50 increase. Maybe more if you don’t rent in one month.
    0Reply
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