Would you show a tenant your expenses to justify a rent increase?

Question

Posting this for the BiggerPockets Investor Brief, and the best replies might run in Thursday's edition.

On last week's BiggerPockets Podcast (episode 1347), Amelia McGee said her plan for raising the rent on one of her rentals is to "take them all of my expenses and say, look, I have to raise your rent." Henry Washington said he's shown tenants his numbers before: "I've literally never had a tenant be upset about it, not once."

Some landlords would rather eat a month of vacancy than open their books to a tenant.

Which camp are you in: show the numbers, or keep your books to yourself? And if you've tried it, how did the tenant take it?

JD Martin · Answer

Not in a million years. I run my rentals as an absolute dictator. I dictate the terms, you agree or you find alternative housing.

Chris Seveney · Answer

I don’t show tenants my books. None of their business

Joe Villeneuve · Answer

I can't believe anyone would answer yes to this. First, it's none of their business. Second, if your tenant can do basic math, by default, you are also telling them how much cashflow (profit) you are making on them. Why in the world would you do that?

Just have in your original lease agreement a potential minimum rent increase of 5% (you fill in your number here) per month upon their annual renewal. Notice the two most important words here are "potential" and "minimum". This sets them up for that increase before the fact.

Eric Gerakos · Answer

Never felt the need to defend rent increases. I buy where demand in high, not where it's cheap.

Richard F. · Answer

Any "LL" that feels the need to share their books, or any specific costs to an existing tenant is just weak, and should get out of the business. Does the grocer show you his costs? The Big Box stores? The local car dealership? No, No, and No. When their costs go up, they jack the prices as needed. And they almost never lower them later. And they certainly do not have a whole conversation about their decisions. Take it or Leave it, there are no negotiations (well, ok, maybe at the dealership, but they have a special racket).

(Most) Tenants are not dumb. They can go online and see what choices are available. They talk with friends and family about the costs they see. Maybe not to the level of detail that you use to establish a fair market rate, but they know what's out there. They do not care if your insurance costs are up, or taxes, that's a big part of the reason they rent in the first place, so they do NOT have to worry about them. For whatever reason their resources are limited, whether by choice or circumstance. That is not, and should not, be your problem. There are charities and resources available. Perhaps create a list of resources they can contact for assistance.

Feeling a need to justify your actions, whether that is rent increase, paint color choice, pet policy, or anything else is a failure. Your relationship with any tenant is contractual, based on the written agreement, local and other laws. Not "feelings". There are so many posts on these forums about "having a conversation" over some clear, common issue that is already addressed in the documents...and so much time spent, and lost, worrying about it. Fair housing demands that you are fair and consistent in all aspects of housing that relate to tenants. Exceptions can get you into serious trouble.

If you have properly prepared the unit; properly evaluated the current local market rents of actual comparables; properly marketed; properly and thoroughly screened all of the parties involved; you simply need to offer a quality product to acquire quality, long term tenants that recognize the value provided. There are far more Good tenants out there, than Bad. Don't waste your time on the Bad or marginal, regardless of the pricing tier/property class.

Matthew Morrow · Answer

@Simon W. that's a cleaner way to say what I was getting at. Pull the one or two lines that actually moved and leave the rest alone. Your point about having those numbers easy to find is a good one too. If it takes an hour to dig them up, you probably won't bother, and then the conversation turns into a guess.

Henry Lazerow · Answer

You should never tell a tenant your buildings financials lol that is none of their business. It is OK to tell them though that their renewal increase still puts them below the market price, you can tell them the price of another unit in a building recently leased or quote Zumper rent averages. This helps them know even with an increase they are getting a good deal and that you appreciate them being good long term tenants. I always increase rents annually but still keep renewals slightly below market rate.

Jaron Walling · Answer

The only reason I'd share information like that is if you're renting to family. My brother's family rented for 5 years and raised his first child in our property so I felt obligated to share. We kept rent low which really helped my brother establish his career. It slowly killed our CF but no regrets.

Also, I wouldn't recommend renting to family. It's tricky and hurts relationships if managed wrong.

Ayush Rustagi · Answer

I never had the experience to defend rent increases.

In my experience, one of my tenants(in Indiana) has lived for almost 5 years now and I have only increased rent once

There shouldn't be any need to increase the rent if the tenant stays and wants to keep renewing.

Long answer for a short question

V.G Jason · Answer

If you have to defend yourself, you lost.

Would you show a tenant your expenses to justify a rent increase?

Would you show a tenant your expenses to justify a rent increase?

Most Popular Reply

19 Replies