Should I raise the rent on current tenant?

Question

I’m buying a duplex. One side is currently rented to a couple that’s lived there for the past seven years. They’re ideal tenants who look after the place like it’s their own. However in the time that they’ve lived there their rent has never been raised. They’re currently renting it for $750 and they pay their own utilities. The unit could easily rent for 1,000-1,100. I don’t want to lose them but I also don’t want to miss out on that much potential rent. What should I do?

Alan Grobmeier · Answer

@Zackary Martin., wow 7 years!  That's a LOT of lost income.

A general theory is a 10% or greater increase is basically a 'get out' signal.  So, I obviously would not do that.

What I PROBABLY would do is give them a 1 year lease @ $810.  This would get you back some of the money without a 'get out' signal.

The following year I'd go to $860.

3rd year is $920

4th year gets you to a $1000.

You need to consider if/when your tenant CAN pay that kind of money.

If you don't think they are willing or able to pay $1000 in the future AND you can truly get that NOW, cut them loose.

Joe Funari · Answer

Run it like a business. Take the emotions out of it If property is in good condition. Then up their rents. Taxes and insurances go up each year and you have to stay ahead of it. But not to raise rents too much or you will lose a tenant.

Zackary Martin · Answer

Thank y’all for the responses. I know I’m going to have to raise their rent I just want to make sure I go about it the right way. This is my first investment property and I definitely don’t want to the reputation of the landlord who drove out a retired couple from their home of seven years. I’ll definitely try raising it by 10% per year and see how that works out. Thanks again.

Nathan Gesner · Answer

@Zackary Martin you are currently losing $3,000 - $4,200 a year. If you have extra money to give away, I guarantee I can find charities that are in greater need than your tenants.

I also disagree with small increases over multiple years or even over a one-year period. You're still giving away thousands of dollars.

Either they can afford your rental or not. Give them the rent increase to market value. If you really feel like rewarding them or trying to keep them, leave the rent 10% below market but not more than that.

Theresa Harris · Answer

@Zackary Martin  Some tenants will make up stories no matter what.  Raise the rent and explain to them that the current market is $1000 and show them sample listings.  Then raise it part way.

Zackary Martin · Answer

@Jason N. I’ll definitely keep that in mind when I approach them about it. Thank you.

Jason Nelson · Answer

@Zackary Martin I recent went through a similar issue last year with my newly acquired dupelx and long term tenants. Both were on month 2 month terms as their leases had expired. I waited 6 months then gave both options of 12m/6m/m2m. The 12 m was $50 more than current rents 6 m was $75 more and M2M was $90 more. One went with the M2M for a few months then locked into a 12 mo while there other went with 12 m.

I think its somewhat physiological but giving them options helps keep them around. Your tenants know they are paying cheap rent...

Good luck

Zackary Martin · Answer

@Alan Grobmeier I agree that’s why I really don’t want to lose the current tenants. Having them around will help me transition into being a landlord with as few headaches as possible.

Dennis M. · Answer

I have a similar situation . My people in this case are maybe10% low on rent value however they  do snow removal they mow  they weed eat and in general replace stuff if it’s minor . It isn’t worth losing good people over 50 bucks however if the rent was drastically different than market I would have to weigh the cost to benefit

Alan Grobmeier · Answer

@Dennis M., I have ONE tenant that is a little bit more below market rent than 'normal'.

Part of it is my own fault for letting him negotiate a 2 year deal instead of 1.  I try to keep my places under market so I can choose my tenants.  I dont want to be in a situation where my tenant chooses me, if you know what I mean.

Despite the fact this ONE tenant is a little under market rate, they actually pay on the first every month.  There is also rarely an issue.  They take care of the place well.

SOMETIMES there is more to the situation than just dollar$ and cent$.  ;-)

Should I raise the rent on current tenant?

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