Is raising rent with a long term tenant a good idea?
Member since 2020 · 2 posts · 4 votes
Is raising rent with a long term tenant a good idea?
Most Popular Reply
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3yWhy don’t you just write them a check for $72,000? That’s how much rent you missed out on. You’re going to wake up one day with a 5 or 10% rent increase cap and they will never move while you continue to lose $6,000/year.
Do you really believe there are no other “good tenants” out there that would like a nice place to live at a fair rent? Raise the rent $400/mo and you’re still losing money. But either you get to keep your good tenants or you find out they weren’t really good tenants when they move out, just people who appreciate a 25% discount on rent.
Ps. This is another case where a property manager would have done all the work AND given you $50,000 more rent in your pocket. You paid $50,000+ to be the property manager.
51 Replies
- Chicago, IL · Member since 2020 · 184 posts · 182 votes3y
I raise rents every other year it seems, on average. I want to stay just below or at what the market calls for.
I think since you are waaayyy below market i would raise their rent.
Id give them $100 bucks off each month tho, or thereabouts if it was me. - 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
I raise good tenants 3-5% every year. Tenants expect that and we never wind up where you are at.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes3y
Why don’t you just write them a check for $72,000? That’s how much rent you missed out on. You’re going to wake up one day with a 5 or 10% rent increase cap and they will never move while you continue to lose $6,000/year.
Do you really believe there are no other “good tenants” out there that would like a nice place to live at a fair rent? Raise the rent $400/mo and you’re still losing money. But either you get to keep your good tenants or you find out they weren’t really good tenants when they move out, just people who appreciate a 25% discount on rent.
Ps. This is another case where a property manager would have done all the work AND given you $50,000 more rent in your pocket. You paid $50,000+ to be the property manager.
- Member since 2020 · 2 posts · 4 votes3y
@Bill Brandt
Problem is, I have a property manager…..
- Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes3y
Quote from @Eric McCusker:
@Bill Brandt
Problem is, I have a property manager…..
There is no emoji to do this emotion justice...
I'm with the others, raise the rent, but do it gradually, not 400 all at once, and explain it to the tenants however you see fit. There are tons of valid reasons you could give. If they leave, you get even more of an increase. But first, find a better PM. - Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes3y
@Eric McCusker Raise the rent. You don't have to go all the way to market, but I don't see a downside in raising the rent here. If they move out, you'll have turn over costs to get it re-rented, but then you get to increase all the way to market pricing.
Meanwhile, who is choosing to keep the rent below market? Is it you or the property manager? I've had clients tell me not to raise the rent even after I show them the math. Don't be afraid of turnovers. Try to minimize them, but not at the expense of that much rent lost.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes3y
I don’t know how you could have a property manager. Do you maybe mean a realtor that does it on the side? I suppose PM’s don’t have a fiduciary responsibility to their clients or you could sue. It’s irresponsible for a PM to let a property go even 2 years without a rent increase.
Did you stop them from raising rents? Did they not mention it? If you didn’t stop them you need to switch PM’s.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
This is completely up to you and what purpose this property serves you. Keeping rent low will keep your property 100% occupied with little money out of pocket. Raising rents increases likelihood of vacancy.
- 3yMichele FischerPro MemberRental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
If I was in this situation, I would raise rent this August to the midpoint between current rent and market ($1850) keep doing that every year. This helps us not fall TOO far below market but also tends to keep our tenants in place.
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
You should be increasing the rent regularly, even if it is $10 a month. Talk to them and tell them that they've been great tenants, but your costs have gone up and you need to increase the rent.
- Investor · Member since 2022 · 106 posts · 67 votes3y
Quote from @Bill B.:
Why don’t you just write them a check for $72,000? That’s how much rent you missed out on. You’re going to wake up one day with a 5 or 10% rent increase cap and they will never move while you continue to lose $6,000/year.
Do you really believe there are no other “good tenants” out there that would like a nice place to live at a fair rent? Raise the rent $400/mo and you’re still losing money. But either you get to keep your good tenants or you find out they weren’t really good tenants when they move out, just people who appreciate a 25% discount on rent.
Ps. This is another case where a property manager would have done all the work AND given you $50,000 more rent in your pocket. You paid $50,000+ to be the property manager.
Yep, there’s one way to put it!
- Member since 2020 · 239 posts · 104 votes3y
Raise the rent. It seems like if they wanted to move and stay in that same area, they are well aware what it's going to cost them. Raise the rent by $100 and tell them that gradually you will be increasing 3% or so a year.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes3y
@Eric McCusker Yes they will understand!
- Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes3y
@Eric McCusker what you have is mailbox money. What I suggest doing is go back to your tax return 12 years ago and compare things like utilities and insurance, property taxes and whatever things in particular that you have with that unit. You may be surprised how much per month your expenses have gone up. Raise rent that much for starters year one. There is no guarantee rents will keep rising. The biggest problem you will face is the cost of a new roof, furnaces, sewer lines, painting, landscaping on and on going forward.
I don't know about your area but where I live 10k between tenants is a drop in the bucket.
BTW in 12 years you may have a good size remodel on your hands but on the other side super long-term tenants will cause the property to deteriorate because it is hard to keep them up with tenants inside. Surprised your manager isn't pushing rents up. It is their job.
- Member since 2022 · 1k+ posts · 1k+ votes3y
You should raise regularly. If you really like this tenant and don't want to lose him meet him 1/2 way at 1900. Send a nice letter and point out that there's no increase for x years, now its time. Trust me, your tenant still thinks youre greedy. There's no winning. But stop taking it in the shorts.
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3yAloha,
We always inspect more or less annually (at least, pre covid, now we are starting to catch up) and provide photos, recommended improvements/upgrades and repairs as well as current market stats with recommendation on what to offer for renewal. Some Owners will follow the recommendation; some will want to hold the rent where it is, to "help" the tenants they do not even know; and a few are greedy and want to push higher regardless of recommendation, market reality, or timing.
Typically, when we take on a new property with a long term, "good", existing tenants, we find the unit in dire need of upgrades or complete renovation. - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
I agree with the other comments. You should raise the rent, not to market rate all of a sudden, maybe somewhere midpoint. And you're breaking even...omg.
I have a few investor friends in the San Francisco Bay Area that haven't raised the rent or it's been very small increases on their tenants in 15 to 20 years to be nice. They could be getting market rate rent. I'm talking $1600 to $2000 rent when they could be charging $3500 to $4500, maybe $5000 if the house has been updated and looks modern. It's one thing with rent control with multi-units but most SFHs here aren't under rent control here (yet).
We didn't go into real estate to be a charity. The more I hear about severely under market rate rents I just cringe. Good luck.
- 3yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Eric McCusker:
@Bill Brandt
Problem is, I have a property manager…..
The PM works for you. you are the asset manager. The PM is to work for his money including rent surveys, raising rent, property inspections, collecting rent, handling constractors.
The asset manager (you) are responsible for overseeing the PM and providing direction to the PM.
The PM not raising rent is unacceptable. You have been delinquent in your role as an asset manager and have lost a lot of money.
My rent policy is I let my good tenants' rents fall a little below market. The average tenants I try to keep their rent at market rent. The bad tenants pay more than market rent to encourage them to find housing elsewhere and to compensate me for having to deal with them.
Good luck
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3yNo, you don't. What you have is a rent collector. They are not managing your property or watching out for your best interests. If they were, they wouldn't have let you fall so far behind.
Quote from @Eric McCusker:
@Bill Brandt
Problem is, I have a property manager…..
Cost of living has increased at least 2% every year. In most areas, the rent rate would be at least 50% higher than it was 12 years ago and some areas have more than doubled.
Your Tenant knows they're getting a good deal which is why they sat there for 12 years. I highly recommend you spend the next few months looking for a new property manager that understands their role in protecting your investment, then fire your current one that has screwed you for over a decade and lost you tens of thousands of dollars.
I would not try to increase this tenant to market rate. They probably can't afford it, they will resent it, and you may end up dealing with unpaid rent or an eviction down the road. It's best to get them out, turn the place around (fresh paint, flooring, etc.), and then rent it to someone that is willing/able to pay market rate.
Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.
1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.
2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.
3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.
4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.
5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.
6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.
7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?
This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!
The DIY Landlord Book4.7248 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Troy P.:
I disagree. Incremental increases are more likely to create confusion, result in late/unpaid rent, create animosity, and in the end the tenant may not be able to afford it and will stop paying rent, break the lease, or cause other problems.
The best practice is to move them out, clean the place up, and rent it at market rate to a Tenant that is well qualified on day one.
I'm also betting dollars to bagels that it can rent for more than $2,100. $1,595 was an expensive market 12 years ago so it's probably closer to $3,000 a month after 12 years of increasing rents.
The DIY Landlord Book4.7248 Reviews - Rental Property Investor · Worcester, MA · Member since 2018 · 131 posts · 135 votes3y
@Eric McCusker Raise it. You're doing yourself a disservice. I had a 3 family with a similar issue. Bought it with tenants who had been there 10 and 25 years and rents were about 40% below market. I waited until I did some work that improved the property (major rewiring of old electeical). To demonstrate that I'm adding value for them. Raised the rent 20% at first and let them know I'd be raising another 10% in 6 months and that after that I would only do small raises yearly. They resisted at first, but I encouraged them to look around the area at other available units and they quickly realized that even with the raise they were still getting a good deal
They also really appreciated me letting them know my schedule for upcoming raises. The uncertainty is what really affects alot of people especially having lived there for so long.
You really need to get ahead of this if you plan on holding the property. You will eventually get so far behind its impossible to get back to market rent without removing them.
- Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes3y
Quote from @Nathan Gesner:
Quote from @Troy P.:
I disagree. Incremental increases are more likely to create confusion, result in late/unpaid rent, create animosity, and in the end the tenant may not be able to afford it and will stop paying rent, break the lease, or cause other problems.
The best practice is to move them out, clean the place up, and rent it at market rate to a Tenant that is well qualified on day one.
I understand your point and it's not a bad idea, but it almost guarantees vacancy. They shouldn't be removed from their home due to the landlord and PM's mismanagement. I think it depends on how well you know the tenants. Increasing halfway to market rate next year, then full or just below market the following year could potentially leave them in place, you keep your good tenants, and they get away with thousands of free dollars. If not, it gives them a year to figure out if they can actually afford it. If they leave sooner, great. You get to raise rent sooner. At least give them an option. Give them a chance to keep their home they've known for 12 years, but at least be fair about it.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Troy P.:
...or you could look at it from the Landlord's perspective. He's lost tens of thousands of rent income over the years. The Tenants have benefited from this lack of raises for over a decade, thereby saving tens of thousands in rent payments. When you consider lost rent income and turnover costs, his losses will be around $80,000. And you recommend small, incremental increases to avoid hurting the Tenant's feelings?
You mention keeping the "good tenants" but we don't know they are good. In my experience, there's a very good chance that the Tenants were problematic over the years, the PM hasn't inspected in a long time (if at all), and there's damages beyond ordinary wear-and-tear to deal with.
There are many ways to skin a cat, but I'm sharing my experience on what the best option is. There's no need to feel sorry for a Tenant that's been heavily subsidized for 12 years.The DIY Landlord Book4.7248 Reviews - Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Eric McCusker:
I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).
What are the thoughts on increasing rent? The lease renews this August.
Another data point is, I’m breaking even each month as is but building equity.
Yes, but go in the middle. They are fully aware they are paying less than they should. I would raise it to 1800. I am sure they will not complain,
- Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes3y
Quote from @Eric McCusker:
I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).
What are the thoughts on increasing rent? The lease renews this August.
Another data point is, I’m breaking even each month as is but building equity.
While I think it’s admirable that you have been running a charity, if you want to be a real estate “investor” you will need to make some changes. Not raising rents due to fear of losing tenants is a common mistake. If you buy properties in areas where people actually want to live then there will always be demand for your rentals and people will be happy to pay market rent. I have great tenants and take very good care of my properties and I raise rents every year to maintain maximum profits and to keep up with my rising costs. I never have vacancy. As others have said, if you go long periods with no rent increases it becomes difficult to catch up to market rent. You’re losing a lot of money now but you can turn this around.
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