Rental Increase Advice (NYC)

8 Replies

Hey BP,

I'm looking for guidance/advice on how to raise the rent on an existing tenant.  Some history...

I have a long time tenant renting for almost 10 years for my coop rental property (first rental) in the Bronx.  The property has no mortgage so it has decent cash flow.  I've had virtually no maintenance issues and the tenant has been a very good tenant and has been timely other than a period of time years ago when the tenant was ill.  The tenant caught up on payments once we negotiated a plan, and then continued to be on time with future payments.

The market rate for this apartment is $1550-1700. Currently my tenant is paying $1375. I need to renew the lease later this summer. Given the lower than market rent, the pandemic, and a recent increase of monthly HOA by $18 , I'm not sure how to handle it. The tenant was always concerned about rental hike so they would enter 3 year leases. Here is the lease history.

2011: $1150

2012-2015: $1190

2015-2018 :  $1275

2018-2021: $1375

Bumping up the rent to $1550 is a 13% increase on a really good tenant.  Do I sign the tenant  to a similar long term lease (3 years) with anual increases? And if so what should that look like. Do I risk losing a good tenant?  I prefer to keep the tenant bc they have been a great tenant.

Make the decision  as a business.  Not emotions.  They will be a good tenant anywhere they go.

I do believe that helping someone has it sense of "doing the right thing".

But this is a business and I would go to $1375. as planned with the tenant understanding 

your position and  why your doing it.  Let them know that you want them to stay and that

if they leave you will provide a very nice reference letter for them,  make them feel like 

"they will get first chance ".   Make them feel that you do appreciated them being a great

tenant for almost 10 years.

After they sign another lease then get them a nice gift!

Keep the emotions out of the business end.

Trust me I know its hard but it is your future and retirement!

Good luck

Don't do a three-year lease. That's costing you thousands.

One-year lease with an annual increase of X%. I increase at a rate of 3% which keeps me pretty close to market rates. IF the market slows or drops, I can always waive the increase and the tenant will appreciate it.

Thanks David.  Do you think it makes sense to start the conversation at the lower end of the market rent (i.e. 1550)?  Or work in aggressive increases to get there?  For example (current rent=1375) Year 1=$1475, Year 2=$15750, and then subsequent increases are ~3% for year 3+.

I really appreciate the messaging and it helps manage the relationship side of things.  

Originally posted by @David Avery :

Make the decision  as a business.  Not emotions.  They will be a good tenant anywhere they go.

I do believe that helping someone has it sense of "doing the right thing".

But this is a business and I would go to $1375. as planned with the tenant understanding 

your position and  why your doing it.  Let them know that you want them to stay and that

if they leave you will provide a very nice reference letter for them,  make them feel like 

"they will get first chance ".   Make them feel that you do appreciated them being a great

tenant for almost 10 years.

After they sign another lease then get them a nice gift!

Keep the emotions out of the business end.

Trust me I know its hard but it is your future and retirement!

Good luck

 

I agree on the 3 year leases.  I've seen some landlords, or property managers issue a 2 year lease where is each year in the lease has the 3% increase written into it.  So they guarantee the tenant for 2 years while also having the commitment to the rent increase.  Do you think I should pursue this option or just move to a annual lease?

Thank you for your feedback.

Originally posted by @Nathan G. :

Don't do a three-year lease. That's costing you thousands.

One-year lease with an annual increase of X%. I increase at a rate of 3% which keeps me pretty close to market rates. IF the market slows or drops, I can always waive the increase and the tenant will appreciate it.

 

Originally posted by @Steve Velez :
I agree on the 3 year leases.  I've seen some landlords, or property managers issue a 2 year lease where is each year in the lease has the 3% increase written into it.  So they guarantee the tenant for 2 years while also having the commitment to the rent increase.  Do you think I should pursue this option or just move to a annual lease?

I prefer sticking with a one-year lease. Why? Because the vast majority of renters have no idea where they'll be in 1-2 years and break the lease early. Also, I don't want to be stuck in a commitment if the tenant turns bad or market rates take a big jump.

You know this tenant well so it may not be bad to stick with three-year terms.

@Steve Velez - With the current eviction moratorium and the fact that your rental is in a tenant friendly city (the Bronx), I would just caution you around making any large, hasty rent increases that may cause what you describe as a good, long term tenant to leave. You may end up replacing this occupant with a nightmare, non-paying tenant (the “blame Covid” types). 

With that said, there’s nothing wrong with switching to a 1 year lease and making incremental increases. However a 13% increase is a hard pill to swallow for many right now.

Just my $0.02. Good luck!

Hi Steve, we are in the midst of a COVID-19 crisis and as a result, a financial crisis. Additionally, NY State has restricted landlords options when it comes to tenants. In this environment, I would be very cautious in dealing with a good tenant with years of paying their rent. This said, this is a business for you and considering all options is the right thing to do. I would suggest you consider offering a one year lease and an increase that balances a reasonable increase with the current market. From what you have said, maybe 6% this year would be a good compromise.