Tenant requesting long-term lease - how to bring up rent increase

Realtor · Erie · Member since 2022 · 194 posts · 88 votes

Hey Marc!

Lots to unpack here but I'll do my best to keep it light and brief. Sounds like you have a land lording friend in the industry or property manager. I'd refer back to them to see what a good approach is to bringing up this convo since your market tends to be hyper localized and what works here in CO may not be an appropriate way to bring up a rent increase/ month-to-month lease agreement in WA.

Also, here in CO, month-to-month typically comes with a much higher rent anyhow. Not sure what its like there in WA but great question to ask your PM friend. I bet the tenets want a longer lease to avoid the higher monthly rent increase and if they wanted to stay long term this may just be another way for them to be sticking with their plan.

Lastly, as long as you have a safe reserve for vacancy bringing up a rent increase shouldn't scare ya or be a hard topic. They know just like everyone else, inflation rose, rents rose, everything is more expensive. They are due for an increase and they're pry expecting one. If they aren't and they leave. You fix the home and get it ready for a new fam that'll pay a higher rent!

That is one of the greatest things about real estate. The rents increase but the fixed expenses rarely go up. More cashflow! :-)

2 Reply

Heather Schoeman

Rental Property Investor · Seattle · Member since 2020 · 5 posts · 10 votes

3y

Hi Marc, It's standard for leases to revert to a month-to-month after year but many renters prefer the security of a longer term lease so they can budget and know that they don't have to move unexpectedly. If they decided to move you would simply be signing a new annual lease with new tenants. The length of the lease is up to you, as the property owner, but keep in mind new lease end date, for example an 18 month lease, may end at a time that makes your property more vulnerable to vacancy (i.e. student renters, etc.). Conduct your own research of rent comparables to determine current market rate. It's part of your landlord responsibilities :) Tenants who care for your property and communicate are exactly who you want to maintain a good relationship with and keep as renters. I would recommend joining the Rental Housing Association, www (dot) rhawa (dot) com, for forms and for access to current laws and requirements. At this time, but please verify, the landlord must give tenants 60 days notice of any rent increase. Again, verify as I seem to remember reading proposed legislation discussing 90 days notice. Also, everything is county dependent.

And you would notify them of a rent increase in writing.

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Matt Devincenzo

Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes

3y

My lease language is similar to yours and converts to MTM. Typically I let it go MTM and my tenants have been ok with that when we've discussed, especially as I reassure them that I have every intention of allowing them to stay another full year. My latest tenants wanted to buy a home eventually and ended up doing so right at the end of their 2nd 'year' but I think ended up being glad they were MTM and could close without worrying about their lease.

As far as rent increases; my perspective is I want to be ~3-5% below market after the initial lease up. That is just enough to keep tenants in place, but not enough that it hurts my financials significantly. The best way I've found to implement this is lease as close to FMV initially which is typically not an issue since I have a nice, newly updated place with lots of creature comforts unusual for my area (A/C, Fiber internet, private fenced yard with lawncare, pets allowed with no fees or pet rent, completely remodeled interior (1950s original construction). I typically get slightly over what I would consider FMV if I were a renter. The second year I don't raise rents and am now at the 3-5% below FMV rate. Each year after I raise rent by the amount to stay 3-5% below.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes

3y

Do some market research on Zillow & Refin to find out what the current rent for your property is. Then email that to the tenant asking them what they think a fair increase would be.

Often times, we're surprised tenants go with the market.

The most common response is to "split the difference".

Of course, if they respond with effectively $0, then they may not be worth keeping

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Albert Blair

Member since 2022 · 33 posts · 15 votes

3y

Marc, if your tenants aren't causing you any issues maybe you should consider renewing a long a long-term lease with them. Sometimes it is difficult to find good tenants. One consideration is to do a long-term lease no more than two years. Explain to them the rent rates in the area after due diligence. Maybe offer a small discount of the market rate for the locked in long-term lease.

1 Reply

Sherief Elbassuoni

Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes

3y

@Marc Sudd, if you have low maintenance tenant, do not raise rent every single year since when they leave, the property will be vacant for some time, and you may end up netting the same after a year after factoring the touch-ups you do after the tenant leaves, and the vacancy while these touch ups are done, and the vacancy to get it filled up again

3 Reply

Tony Mencome

Member since 2022 · 4 posts · 2 votes

3y

Ask them what they believe a fair rent is for the area, property etc.

1-If they tell you they are paying a fair price, let them know taxes, insurance and comps have gone up and ask again.

2-If they come up just a little, tell them that might make an OK(?) month to month rental.

3-If they give you a good value, the $150 additional or more, which does happen, agree to the longer term and tell them you appreciate having them as your guest.

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Henry T.

Member since 2022 · 1k+ posts · 1k+ votes

3y

Join either Rhawa or Washington Landlord Association, get the proper formas, and send them a proper notice of rent increase. I prefer WLA because they have an attorney that you email a question to and he actually answers. Rhawa is very overpriced for what they offer. With all the recent anti-landlord Seattle legislation, the attorneys are pulling their hair out. Some is very poorly written and confusing. Notice must be done properly, or your increase is void. Also, your rent increase cannot take effect for 6 months. If the increase is too high and they leave, you owe them three months rent, and their moving expenses. Be careful, know what you're doing, read the increase law. But you're the boss, act like one and be firm, and look like you know what you're doing. The paperwork required for doing a lease sucks, you have to contact them 2 months before renewal, and offer them AGAIN, if they want to renew, then do signatures again. Go with month-month. There's no benefit at all with a lease in Seattle, none, unless you have a very overpriced place and you've hooked a live one. Lease renewal is mandatory, the landlord cannot quit.

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Michele FischerPro Member

Rental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes

3y

The annual lease process is a perfect opportunity to slip in a rent increase.

Agree with information from others; the tenants wants more security than M2M. Offer them a one year renewal.

If the market rate is $150 higher, we would raise rent $75, the midpoint. This keeps you making progress towards market rent and keeps them less willing to go find a new home.

But in Seattle you must give 6 months notice to raise rent, so you may want to offer a one year renewal with the bump happening halfway through the term, and give notice of intent to increase again at that 6 month mark.

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Tim J.

Investor · Vermont and New York · Member since 2023 · 308 posts · 309 votes

3y

When I raise rents I mention explain taxes and insurance hikes. But that's not something most tenants care about or consider. What works for me is that I offer to match or be below any comparable rental listing they show me. Never once has a tenant been able to bring me a comparable. I like to be a bit below current market rents so I can keep good tenants.

If the tenant spends the time to research the current market they usually find that they are BELOW market even with the new proposed rent, or, many times, there is just nothing even out there.

Communicate. When discussing rent increases it can be an adversarial thing, but don't dwell on it. Just explain that you have done research, and want them to stay, but the rent is going up.

Also, it's a lot easier telling other landlords what to do - for years I let one of my rentals remain low when I should have been raising rents.

If you keep a healthy reserve you won't fear a turn/vacancy - and in the long run you are better off with keeping market rates. This is especially true with multi-family or a large SFH portfolio... consider the net effect of raising the rent $50 across a portfolio of 20 houses or units.

3 Reply

Ryan Greeley

Member since 2021 · 2 posts · 1 vote

3y

Marc,

Rent increases in Seattle proper require a 6 month "Rent increase notice". This document needs to be personally served to the tenant or posted on the front door of the property and sent through certified mail.

If your property is in Shoreline, Bellevue, Renton, etc, the rules change.

I'd be happy to provide you a copy of the "rent increase notice" document. Just lmk.

1 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

3y

Having a lease also gives the tenants security of knowing they won't have to move. Tell them you will do another 1 year lease, but don't want to pay the expense and time to get a notary to do a longer term lease. In the 1 year lease, you can always right that it will be renewed after 1 year should both parties agree.

For the rent increase, simply tell them what the new rent will be. If rents have gone up, then you need to raise it. $150 could be a lot or a little depending on the current rent. If they are good tenants, do you want a vacancy? Good tenants are worth keeping. That doesn't mean not increasing the rent, but increase it a set percentage.

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Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

3y

What tenant wouldn't want to lock-in a 2 year lease at $150 per month less than market?... (nobody).

I'd listen to your PM friends advice and raise rents a little. Doesn't need to be full market but time goes by quick. Next thing you know it's 2025 and you're $250 below market.

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Justin Moy

Investor · Kansas City, MO · Member since 2020 · 400 posts · 278 votes

3y

The tenant realizes rents are going up and wants to lock in a rate now to shield them from future increases, which is smart for them to do. I've locked in 15 month leases in the past because the rate was good and I knew rates would increase.

Overall it's up to you, its very likely this could limit your maximum earning potential but it will also minimize your vacancy and turnover expenses which can be the largest expenses a landlord faces.

Discussing rent increases is as simple as having your research done. "Comparable rentals are going for $XXX - $XXX, we're priced at $XXX which is a very competitive rate. I like you as tenants so I'm not looking to push you up to $XXX but I think $XXX for this next year with a X% increase in the second year would be fair".

If they're great tenants, its worth taking a smaller gain on the monthly basis in my opinion

1 Reply

Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

3y

Quote from @Marc Sudd:

New landlord here, coming up on the end of a 1-year lease for a home in Seattle suburb. The lease agreement has, written in that upon expiration of the 1 year lease that a month to month agreement would begin. The tenants contacted me regarding this and would like to set up a lease longer than one year. I don't mind the tenants and they are pretty good in my estimation, but I'm not sure why they wouldn't just continue with the month to month. Also, having a lease greater than a year requires a notary in Washington state, so quite the headache. I really don't want to bother with writing another lease, would it be dismissive to suggest that we just stay on a month-to-month basis?

The other thing is that rentals in our area have gone up in price significantly, with a friend who does property management telling me that we should raise rent by a minimum of $150, since all rentals nearby are going up correspondingly. I really don't want to antagonize the tenants, who have been pretty good so far, although realistically, they would not be able to find something like they have now for the same price point with the way the rental market is in Seattle.

How should I bring up the topic of a rent increase (or should we avoid doing so for the sake of keeping low maintenance tenants), and is there any reason I should create a new lease with them besides the security of keeping tenants in the unit? They have previously let me know that they plan to stay for several years, but who knows.

Thank you!

In my opinion- If a good tenant has requested a lease that is more than one year I may give the tenant a lease that may be just below market rate (Not much) for no more than 2 years. Why? Certainty of income. The challenge with month-to-month is the uncertainty. At any time the tenant can announce they are leaving and you'll have a vacancy to fill. A good tenant on a 2-year lease removes that uncertainty.

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Jay ThomasPro Member

Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes

3y

If you're a landlord, it's important to do your due diligence when considering raising the rent for a property. A good way to start is by doing some market research on Real Estate websites such as Zillow and Redfin to find out what the current rent is in that area. Then email that information to your tenant and ask them what they think would be a fair increase. Surprisingly, tenants often go with the market rate. The most common response is usually to "split the difference", so if they come back with an offer of effectively $0 then perhaps you may want to consider finding another tenant who will provide more value for your property.

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Tenant requesting long-term lease - how to bring up rent increase

Tenant requesting long-term lease - how to bring up rent increase

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