Tenant Refuse Rent Increase

OP

Rental Property Investor · Woodbridge, VA · Member since 2018 · 87 posts · 26 votes

6y

So Summer then. I am in no rush. The analysis that I did definitely supports a higher rent however if I get a family in there that calls for every little thing that will definitely wipe out that increase especially in light of the fact that the family that lives in the house currently the husband is a contractor.

Rajib Garu

Property Manager · Cincinnati, OH · Member since 2017 · 63 posts · 19 votes

6y

One way to calculate this to make a decision is as follows [Rent loss due to vacancy time/turnover time + turnover costs ( money to make it rent ready ) should be less than or equal to the [Rent increase X 6]

Basically what it means is you are able to get your money recovered for putting a new tenant in less than 6 months or not .

5 Reply

Account Closed

Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes

6y

@Marcus House

(Additional rent per year from increase) - (repairs to get it rent-ready again + holding costs + any fees re-renting + PITI, etc) = hopefully a positive number.

Make sure it doesn't cost you more to re-rent it than what you'd make from keeping it as-is. For example, if your PITI is $500 and it takes you 2 months to re-rent, you're down $1,000 already just from that alone. Then there's the whole seperate issue of the risk of getting a bad tenant.

If I had a great 2 year tenant who always paid on time, I damn sure would be 100% certain I was raising rent before even talking to the tenant. Why even talk to him if you weren't sure... now he's probably shopping around for a new place anyway.

7 Reply

Bob B.

Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes

6y

@Marcus House If your insurance company sends you a rate increase you have the option of paying the increase or finding a new insurance company. Your tenant has switched places with you. They now have control your property and you're using the excuse "Given that it is still cold outside (don't want to take on the cost to winterize the property)". Spring is almost here, you don't need to winterize anything. It sounds like they have been a good tenant and I bet you can find another one. I'd allow this tenant the opportunity to pay the increase or find another place to live. We've all been where you are, not wanting to "rock the boat" and have to make tough decisions.

5 Reply

Colleen F.Pro Member

Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes

6y

Don't ask them. Tell them rent will be increased to x on x date. Please sign here to agree or here to make this your 30 day notice. Your mistake was making it a discussion. If you don't want a high maintenence tenant you can increase less then market as an enticement to them.

12 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

6y

As Colleen said, you don't ask them, you tell them the rent is going up. Also how much of an increase are you talking about and what is their rent? An increase of $20 a month on $1000 isn't going to make someone move. A $50 increase may and then you've lost a month's rent plus turnover costs. Could you then rent it for more than $1050 (using the numbers I made up)? It will take you over a year to recover from the lost rent and turnover costs.

Corby GoadeBusiness Member

Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes

6y

Rent increases should NEVER be a negotiation- regardless of what the market will bear. If your tenant refuses a rent increase and you are taking time to think it over, no offense, but you are doing it wrong. The rent is what it is, you either pay it or find another place to live.

We send a renewal letter to our tenants that we choose to renew. They get two options- a one year lease or a two year lease, each includes some sort of rent increase. They pick one and sign a lease addendum. If they don't reply by the required date, they get a 30 day notice.

Trust me- I am not judging you, I used to do the exact same thing and it sucked. It was stressful and I felt beat up all of the time. As soon as I started treating things like a business, life became so much easier- I have not had a discussion about a rent increase with a tenant in 10 years, they either sign the addendum or they send me their 30 day notice, easy peasy. Keep things professional and in writing- tenants aren't your friends, they are customers who are buying a product from you.

17 Reply

OP

Rental Property Investor · Woodbridge, VA · Member since 2018 · 87 posts · 26 votes

6y

To all those that provided their input, thank you. After reviewing everyone's input I have decided to go with the mathematical approach identified by @Rajib Garu and @Account Closed

At the end of the day, money pays the bills not people and math does not lie.

Anthony Wick

Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes

6y

@Marcus House

Kind of simple. If you believe rent should be raised, you raise the rent. They can sign a new lease or move out. Just make sure the rent should be raised. I believe in charging market rate rents, but that might not be an automatic increase (I never decrease rent).

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JD MartinBusiness Member

Moderator

Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

6y

Thoughts:

1. Any good lease should have a month-to-month provision in it so you don't have to revisit when it expires, unless you just want to. We let our good tenants sign another 1-year lease when it expires if they want, but if they don't want/don't ask/don't care we just let them go M2M. Better for us - we can respond with an increase if/when necessary, and gives them some flexibility if they decide they want to move, which is our reward to them for being a good tenant.

2. I would be concerned about the "no-maintenance" because one of them is a contractor. I've seen some real contractor hack jobs. In general you shouldn't have tenants doing repairs on your property. That doesn't mean it's always a train wreck; I've had tenants build nice brick patios and do other stuff like that, and hey great if it increases the property value or decreases your cost, but I would be real careful with that. No one will value your house like you do - and if they do, you should probably not be in this business.

3. Be sure you're using good comps before moving forward. As others have said you never ask the tenant if they'd like a rent increase 🤣 . But you should be sure you're significantly underpriced before you move forward. A good tenant is worthwhile, and one month of vacancy can wipe out 2 years of $50 increase depending on how much your place costs. What we usually do is reset to market when we have a vacancy - but for tenants that are tending to be long-term, we will have some smaller increases in there to cover increased property tax, insurance, and maintenance costs. These increases are usually smaller than the reset if a property comes vacant.

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Terrell Hill

Rental Property Investor · Glen Mills, PA · Member since 2012 · 87 posts · 56 votes

6y

How much higher do you plan on increasing the rent? Will it be worth the risk of losing a self sufficient tenant over a couple of bucks especially with this virus causing havoc across the country? Cash flow is good, use the cash flow to purchase another property. To me a $50 per/mo increase ($600 per/yr). Is not worth the price of a great self sufficient tenant. You will probably make that money in appreciation while the tenant pays down your debt service if you have a mortgage.

OP

Rental Property Investor · Woodbridge, VA · Member since 2018 · 87 posts · 26 votes

6y

Exactly @Terrell Hill and that is exactly what the math told me. We are looking at a measly $50/mo increase at best on a house that is all cash flow (no debt). Plus market rent in this area has been essentially flat for years. I am in a good place.

Colleen F.Pro Member

Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes

6y

@Marcus House your calculation may be fine for now but will you be okay with it in 5 years or so if he keeps telling you the rent?. A word of caution your current tenant is running the rental. The rent he is paying minus expenses is the return for the money you have in that house. If you have 100-200 k in the house calculate what % are you making on that money and consider that too.

For me, if the market supports it I try to make small increases each year so they don't get surprised, if someone moves when I raise the rent $20 they were moving anyway. I wouldn't get into a power struggle but If the market supports it I would try to get something from him now or in a couple months, just to tip the scales back.

Also don't assume as a contractor he is taking care of the house, look for yourself.

OP

Rental Property Investor · Woodbridge, VA · Member since 2018 · 87 posts · 26 votes

6y

@Colleen F. yes I will. I am in it for $16.5K and that it. There are also other activities that gives me a better ROI on my time that I am taking into account as well. Thank you for your input. Everyone I am good now. Thank you all. Have a great rest of your week.

Matt M.

Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes

6y

@Marcus House

How much of an increase are you looking for? If you are looking at a month of vacancy rather than eating a small increase to a sounds like a good tenant, you are silly.

Jamison Svo

Member since 2018 · 4 posts · 1 vote

6y

Exactly what Colleen, Marcus, Corby and countless others said. It's not a negotiation. If you let the tenant make the rules you're already on the losing side. I know because I'm in the exact situation...just a few weeks ahead of you...and long story short..I'm handing some cash over ti a lawyer and filing eviction tomorrow.

Lesson learned.

Don't let your tenant tell you what the rent is. I'd file that 30 day right lease termination right now. In 30 days if they don't have a signed lease EVICT!!!.

Otherwise you're just kicking that can down the road and you'll have to deal with it in the future, Guaranteed!!

Account Closed

San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes

6y

Originally posted by @Marcus House:

I have a tenant that has been renting from me for 32 months (was a 2 year lease) without ever contacting me for maintenance the entire time and on time with rent every month. After realizing their lease was expired for a while now, I recently reached out to them to have a civil discussion on the next steps. Bottom line is they reject the idea of signing a new lease at a higher rent in any amount. Given that it is still cold outside (don't want to take on the cost to winterize the property) and I want to take some time to think this over (while enjoying great positive cash flow), I told them we will just leave it as a month to month as is and either party will provide 30 day notice at any time to vacate the property. I am likely going to give them 30 days notice to vacant the property in the Spring of 2020 but would like to get input from others. How do others in the community think I should handle this.

Handle what? I think you're in a great position . When you're ready to kick them out, you give them the legally required amount of time and end of story.

John Teachout

Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes

6y

Don't know about your area but here in Georgia, we can require a month to month tenant to vacate with a 30 day notice. But, a rent increase requires a 60 day notice. So if they are on a month to month, make sure you comply with whatever your laws are regarding a rent increase.

Nawzad Babiry

Rental Property Investor · Nashville, TN · Member since 2019 · 15 posts · 8 votes

6y

@Marcus House just a few questions.

1.how much is the rent increase per month?

2. Hopefully they are fixing maintenance problems by themself or going 2 years without a maintenance call sounds like a concern to me.

3. Why go up on rent on someone who has been there for 2+ years and is always on time and seems to give you no problems. Sometimes charging the extra money is not worth it.

Mary M.

Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes

6y

Fwiw, i always do the math, then i give tenants two options : and those options will differ depending , but for example option A is a $50/mo increase and a one year lease or a $100/mo increase and a month to month agreement. These are just examples, but I always offer two options. This lets the tenant feel like they can win.

Also, i dont buy this whole “dont let the tenant feel like they are in charge” nonsense ....who cares if the tenant thinks they are in charge? I dont care what they think as long as they pay rent ontime and follow the lease :) my ego can take them thinking anyway they want

Michael Noto

Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes

6y

Originally posted by @Marcus House:

So Summer then. I am in no rush. The analysis that I did definitely supports a higher rent however if I get a family in there that calls for every little thing that will definitely wipe out that increase especially in light of the fact that the family that lives in the house currently the husband is a contractor.

I think you answered your own question with this post. There is value in having drama free tenants that don't bother you. They are a known quantity, your future tenants will not be. Unless it is a substantial increase in rent we are talking about it almost never makes sense to kick out a tenant like you are describing when you account for the turnover and vacancy costs you will incur on top of the unknowns with the new tenant.

Daniel SmythPro Member

Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes

6y

@Marcus House

Have with you at your next meeting, a notice of eviction.

Include options for temporary lodging in the area, but evict ASAP!

Upon the successful eviction, begin the renovation. After the renovation, even if it's just paint, advertise the property for lease above market value.

If your tenant likes the area and your place, he may bite.

I would write out a plan to do so much, and give this with the eviction papers.

Your tenant will then understand that writing on the wall.

You need a lease. It matters not if there has been a cry for maintenance. This is a business proposition. Dont make this seem negotiable.

It seems like the negotiation ended when you were told how much you would rent your property for.

If I was the manager of your property, you would expect no less from me, so the diligence is all yours!

The eviction notice starts the process. You can always rescind the process, but the longer you wait, the longer you lose!

[email protected]

OP

Rental Property Investor · Woodbridge, VA · Member since 2018 · 87 posts · 26 votes

6y

You are absolutely correct @Michael Noto

The longer I loose what @Daniel Smyth, I am getting automatic deposits every month.

I dare anyone on this site to tell me it makes sense to take an action that will take me 24 months (based on actual math at a $50/mo increase) to recoup the cost of such action. Anyone...

Again @Michael Noto and a few others on this site has talked sense into me and I thank you.