Would you increase the rent of this tenant?

Question

Hello everyone - looking for some feedback.

I just purchased a duplex side-by-side (Each side = 3br2.5ba and are basically the exact same copies of one another). Paid cash, so no mortgage.

Tenant 1 = $3,200/month (Section 8)

Tenant 2 = $2,700/month (cash)

Tenant 1 just moved in a few months ago and is paying $3,200/month (Section 8).

Tenant 2 on the other side has supposedly been living in her unit for 20 years, and she currently has a roommate. She pays $2,700/month cash, so $500 less than the Section 8 tenant on the other side. They keep the unit in okay condition. She's $500 below what the rent is paying on the other side of the duplex. In the area where this rental is, there's no 3bedroom units for less than $3k/month, and I already know Section 8 will pay $3,200/month.

My thought is to approach her by saying that my original plan was to purchase the property and convert her unit into Section 8 so that I could get the $3,200/month rent -- but since she's a long term tenant, I would be willing to forego that plan and tell her she can pay $3k/month to stay.

What are your thoughts?

Clayton Silva · Answer

Most of my costs are incurred when I have turnover, if you have a tenant that has been there for 20 years, I would not rock the boat much. I would do 5% (ish) increases year over year until I got to the desired rate. Try to keep the tenant for 20 more years would be my advice personally.

Glen Wiley · Answer

I like the idea from @Clayton Silva - increase rent annually to get the amount up to market.

If you have a paying tenant with a long, good history, consider the cost of her moving: You lose at least 1, maybe 2 months rent. How long will it take you to make that back at the new market rate? In this case, 2 months will be $5,400 lost rent to vacancy. It will take 11 months to make back the lost rent at an extra $500 per month.

But wait, there's more! When you have turnover you will almost certainly have maintenance costs. Painting will be a huge cost unless you do it yourself (thousands of dollars).

Gregory Schwartz · Answer

A few thoughts,

1. I dont allow tenants to pay cash. It's not professional and makes it harder to show a paper trail.

2. We push rents but dont run off good tenants. I increase my current tenants but make sure to maintain a gap between market rent and their current rent. I usually explain it like this, "I'm increasing your rent from $900 to $950 but if I listed it, a new tenant would pay $1000, so you're still getting a discount"

3. @Clayton Silva is right vacancies and turn costs are generally our biggest expenses. That being said $500 per month in economic vacancy quickly adds up ($6,000 per year). My turns usually cost $2000-3000 and the vacancy is about 10-20 days. Simple math says it's worth pushing the rent on this tenant.

Matthew Morrow · Answer

Approaching the long-term tenant with a proposal to increase her rent to $3,000/month while explaining your original intention to convert the unit to Section 8 is a fair and considerate approach. It acknowledges her tenure while also aligning the rent more closely with market rates. Just ensure your communication is clear and respectful, emphasizing the value you see in her as a tenant.

Would you increase the rent of this tenant?

Would you increase the rent of this tenant?

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