Residential Landlord · Greenfield, WI · Member since 2013 · 299 posts · 126 votes
In our 4 family, the tenant in #2 has been with us almost 4 years. Never a peep, always pays on time with a smile, pleasant, never asks for anything, no noise complaints, no plugged drains, plugged toilets, addresses me as "Sir"...a dream tenant.
We've recently had some vacancies and bumped up the rents to be more in tune with current times. Even with the higher rent, the response was very, very strong.
I'm reluctant to increase his rent to be equal to the new tenants, but sometimes feel foolish "giving" him $40 a month.
There is a cost involved with tenants moving, obviously, along with the possibility of being vacant for a few months...but with the response to our recent vacancies, even with the higher rent, I'm sure we'd rent it in a heartbeat.
Maybe I should look at the big picture, relax and not try and squeeze the last penny out of the building. It's paid for, and pretty much trouble free.
I'll never forget what my Father, God rest his soul, used to say. "People tell me to charge more rent, but my building is always full. It takes a long time to make up an empty month even at a higher rent."
Leave this guy's rent alone, it's not worth the 40 bucks, right?
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
13y
Personally, I wouldn't raise this tenant's rent. Your most costly expenses are typically going to be vacancy and turnover. Why risk it? Especially when you have a good, trouble-free tenant. I like your father's words of wisdom.
Real Estate Investor · San Clemente, CA · Member since 2011 · 209 posts · 47 votes
13y
I'd agree with David, $500 a year for no grief, he may be doing maintenance that would you cost you that much, you never know. A new tenant would be an unknown, which in this industry can be scary.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Tough question Arnie and perhaps no right or wrong answer.
Here is my suggestion: it often is better to "blame others" when dealing with situations in negotiations. In this case, since it appears yo have a good relationship, use someone else as the bad guy here, go talk to your tenant and tell them that over the last 4 years, the insurance company has raided your rates, your taxes have gone up, costs of labor and repairs, etc. in other words, it is not You raising the rent, but the mean old insurance company, government, economy, etc.
Unless you plan to sell or refi in the next 18 months or so, this is of less importance, but do keep in mind that a $40 monthly increase amounts to $480 a year in added income and at a 10 cap, that equates to a value increase to the property kin the amount of almost $5,000.
That all said, I also agree with your Father's advice that trying to get $40 more may cost you more in the end with vacancies or problem new tenants. Only you can make that call.
Wholesaler · San Francisco, CA · Member since 2012 · 259 posts · 147 votes
13y
While I've never managed a rental, I am currently renting an apartment in San Francisco. I think you should look at this less in terms of dollar value and more in terms of percentage change. For instance, my rent automatically went up at the expiration of my 12-month lease based upon the CPI which turned out to be $39.21/mo extra. However, my rent was $2,100 (I know!!) so in terms of percentage increase it was really not much - less than 2%. On the other hand, if your rent is $400/mo. an extra $40 is 10%. Just trying to look at it in a different way.
Apopka, FL · Member since 2012 · 207 posts · 120 votes
13y
I raise the rent EVERY year on EVERY tenant. No exceptions. It may be only a 1% raise but leaving the rent unchanged for years on end makes it hard to increase the rent later.
In this case I may split the difference. Go to him and say something like 'Hey, the market is $40 or more than you're paying. We're only increasing yours $20 since you're such an easy person to work with. Our way of showing our appreciation."
But don't go years without an increase again. Just my $.02.
Real Estate Investor · Philadelphia, PA · Member since 2010 · 283 posts · 81 votes
13y
If the place is paid off and your tenant is trouble free, I wouldn't raise the rent. Plus they have been a reliable source of steady income for you when you did have vacancies.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
I think you should raise it every few years, even if it's incremental. I'd start by raising his rent by $15. 4 years with no increase is a long time unless you were overcharging to begin with. And it doesn't sound like you are. IMO you do a tenant a disservice by not raising rents over time. When a tenant starts looking to move, their rents should be current market so they are prepared to pay at least that much if they need to rent something else. I can't tell you how many tenants I have inherited that are ill prepared to pay current market rents. Many times they have been good tenants for 10 years or more but have gotten addicted to low rents. Look at any rent control city and you'll see the same issue
Tenants are clients and deserve good service and good value, but it doesn't make sense for them not to share in the increased costs for landlords. No need to raise it every year, but I wouldn't let it ago another year if it were me.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
13y
If you do increase, increase it only slightly. A $40 extra per month hit can be big, especially for a good tenant.
I had a really good tenant for 3+ years and only raised the rent once, and only $10/month. Then it was more manageable. And even then, they thanked me.
Good tenants like that are really something to hang onto.
This is something I have to consider for a renewal coming due this summer. The tenant was in the building 2 years before we bought it, and paid $800/month. When we bought it, we kept the rent at $800/month and have for almost 2 years now. They don't cause any trouble, are really personable, take care of the place, and pay every month.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
13y
Originally posted by K. Marie Poe:
IMO you do a tenant a disservice by not raising rents over time. When a tenant starts looking to move, their rents should be current market so they are prepared to pay at least that much if they need to rent something else.
Why would you want to prepare them to move? If anything, the fact that they are paying a slightly lower rent then comparable properties should discourage them from moving. I don't want my tenants to move out.
Developer · Bentonville, AR · Member since 2013 · 45 posts · 25 votes
13y
Glad you posted. I've felt the same conflict with good long term residents. I wouldn't change the rate if there is only a $40 discount.
My mom is a lifetime renter. She was in her last house for almost 20 years. I think the rent nearly doubled over that time period. Every couple years the landlord would say "property taxes have gone up, I need to raise your rent." I guess I'm sharing that to show that increased rent won't automatically chase off your great resident. My mom liked the neighborhood, liked the landlord, and didn't want to deal with moving. She wasn't going to go anywhere.
Rental Property Investor · Lexington, KY · Member since 2012 · 115 posts · 64 votes
13y
If you are moving it up to fair market value, I don't see what's wrong with it. The tenant shouldn't either. If they do, they will soon find out that it's fair market and would hopefully stay. Now if it were me, I would keep it at what it is at. $40 to me is worth it to get a great long term tenant. That in itself is worth $$$ to me.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
13y
Originally posted by Will Barnard:
Tough question Arnie and perhaps no right or wrong answer.
Here is my suggestion: it often is better to "blame others" when dealing with situations in negotiations. In this case, since it appears yo have a good relationship, use someone else as the bad guy here, go talk to your tenant and tell them that over the last 4 years, the insurance company has raided your rates, your taxes have gone up, costs of labor and repairs, etc. in other words, it is not You raising the rent, but the mean old insurance company, government, economy, etc.
Unless you plan to sell or refi in the next 18 months or so, this is of less importance, but do keep in mind that a $40 monthly increase amounts to $480 a year in added income and at a 10 cap, that equates to a value increase to the property kin the amount of almost $5,000.
That all said, I also agree with your Father's advice that trying to get $40 more may cost you more in the end with vacancies or problem new tenants. Only you can make that call.
Well, if you want him to blame someone, he can blame you Will!
JUST KIDDING!
I understand that is a tough question. You could always explain that everyone else is paying more, and maybe split the difference and ask for $20. I have someone asking for a two year lease at this time, and my agent suggeted a potential $50 bump the second year. I am thinking over options, and I am only going to go with a possible $25 the next year. If they turn out like your model tenants, I may let it go at the current rate and be glad I have someone good and that pays on time. That remains to be seen. Ask for $20 and don't run them off. That gives you a little more income so you don't feel like you are going to have them move, and also shows them you appreciate them as a tenant.
Investor · in, MI · Member since 2013 · 226 posts · 102 votes
13y
Raise it. If your other tenants are renting the other units out at higher rent than the unit is WORTH that. Sure they may be a "model" tenant, but they could think you're the "model" landlord. And they're aren't paying above and beyond their rent as a token of appreciation to your superb landlording skills. If you're rents are obviously below market you're a fool in my opinion, and just not collecting money that is there. The tenant already has incentive not to move if they like the unit, plus the pain of moving, everyone hates packing up all their junk.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
13y
Arnie,
It appears as though there is a difference of opinion on the forum. So far the advice you've been given:
a) Raise it the full $40 per month.
b) Raise it $10-$15 per month.
c) Don't raise it at all.
Personally I think you want to keep a good tenant, because the cost of cleaning/painting and getting a unit ready for a new tenant has its costs, as well as the possibility of getting a tenant that seems good, but then flakes out on you and you have to wind up evicting.
I also don't think you should leave your rent as-is, because it's perfectly understandable that in life, costs go up. Gas prices go up, food prices go up, and the tenant has already had 4 years of no cost increases.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
13y
Tenants talk to each other, so if word gets out that you have a lower rent in one unit, the others might not be as happy.
But you don't have to raise any rent amount in large chunks. And you always have to provide a nice letter explaining that your expenses have gone up (property tax, insurance, sewer, trash, etc.), and although you try to keep prices reasonable, at some point those added expenses have to be covered. And for a good tenant that will renew a lease for what I consider long term (12 months), I offer them two options: a month-to-month renewal at some bigger increase, and the 12 month renewal with a smaller increase. Except for the ones planning to move, they take the smaller increase and renew for 12 months. And the ones about to move were going to cause you a vacancy anyway ...
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Originally posted by Kyle J.:
Originally posted by K. Marie Poe:
IMO you do a tenant a disservice by not raising rents over time. When a tenant starts looking to move, their rents should be current market so they are prepared to pay at least that much if they need to rent something else.
Why would you want to prepare them to move? If anything, the fact that they are paying a slightly lower rent then comparable properties should discourage them from moving. I don't want my tenants to move out.
Slightly lower rents for the same or better space, amenities and service is good business. Not raising rents out of fear that a tenant will move is bad business. The challenge with the LL business model is that a lot of LLs have product that isn't that desirable and isn't in a great location and they know it. So their fear is justified!
Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
13y
0 increase initially.. It will cost more than $480 to get it ready for another tenant. Maybe after 1 year $10 increase which won't send tenant packing..
Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
13y
It seems like a $1020 rent increase per month seems very reasonable. I can't imagine $20 will cause him to get up and move. Firstly, he will incur moving costs and secondly it sounds like your rent is still below market net of the raise. Raising $20 also rewards him for being a good tenant that you don't want to leave, since it below market. I see no harm in saying "your rent is going up $10-20. this is below the other apartments. thank you for being a long tenant". If he is going to leave over a $10-20 raise.. was he gong to leave anyway?
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
13y
Once I bought a multi-unit filled with existing tenants and no vacancy. One of the units, shortly after I purchased came up for lease renewal. It was a 3br. unit renting for $550. The rent was woefully low for the size, condition and location of the unit. I told the tenant that the rent would be going up $200 per month. Obviously a sizable increase. The tenant was section 8 and even at $750 the rent was still below the section 8 maximum thresholds. The tenant b*tched, p*ssed and moaned asking me to reconsider. She complained to the housing authority, implying that i was doing something wrong, as if raising rent to LESS than market rent was a crime. The head of the county housing authority called me and asked me to lower the proposed increase.
I said that the rent is still considerably less than your maximum section 8 allowance and the fact that the former owner didn't charge enough rent was irrelevent. I would not budge, since I knew that section 8 would pay up to $950 and that was market rent for this unit. the former owner had owned the place for about 5 years and never raised rent.
I prevaled, section 8 paid the rent, the tenant paid their share, I raised the rent every year there after and the tenant stayed for 5 more years.
The moral of the story is that you can only charge what rent the market will bear, and even though these rents were way too low, that's no reason to keep them there.
On the other hand:
I, myself have been guilty of not raising rents as aggressively as I should, the above story not with standing. I have a tenant that has rented the same place from me for almost 30 years. I think I raised the rent twice in 30 years. The rent is way too low. I'm good at raising rents between tenants, but the longer a tenant stays, particularly after decades, their rents get behind.
I've seen other LL lease with automatic rent escalators of as much as 7 or 10% per year. If I were a tenant with that kind of escalator, I'd probably move.
Real Estate Investor · Dallas, TX · Member since 2010 · 449 posts · 173 votes
13y
I would say go with the $15-20 increase. That seems right to me. Some recognition is given to the fact that he's a great tenant and has been there a long time. The worry I would have with not raising it all, is not the $40 per se, but what the shortfall would look like if you went another few years without raising it. After 4 years, I'd imagine he'll have been expecting it. I like Will's suggestion of pointing out some of the expenses that have gone up. I'd stick to mentioning things that you pay that he doesn't such as insurance, property tax, etc. I wouldn't mention things like gas prices having gone up, since he pays more in gas prices too.