Should I increase the rents? Tenant on fixed income/disability...

Question

This is regarding a triplex. Two tenants are great, and I never hear from them. One tenant feels that he needs a remodeled kitchen, new windows, doors, appliances, etc etc (he did receive new doors, cabinets, appliances... as they were pretty dated). The latest request was for me to baby proof his house (not happening, by the way). All three rents were below market when I purchase, and were increased $50 (from $800 to $850), at the next lease end. I am at that time for the units again, and I want to increase it another $50 to $900. Mostly to offset my costs of this one problematic tenant. One of the other tenants is on disability, and on a fixed income, and may not be able to afford the increase. This is my dilemma. NOTE: Market rents would be about $950-ish.

Scenario 1) Increase all the rents to be fair, and risk losing a good tenant, even though the rents are already below market.

Scenario 2) Increase all but hers, but risk "playing favorites" and angering the other tenants because why should they pay more...

Scenario 3) Increase only the problematic tenant, because he is the one benefiting from the updates

The tenant is pleading for me not to increase the rent, and I want to be sympathetic but I also want to be fair. Rents ARE below market, but not that far below... I don't want to be the heartless landlord that gives us all a bad name, but I also don't want to be taken advantage of.

Any insight would be awesome...

Account Closed · Answer

@Jon Huber Raise them all.  And I say this as a senior on a low fixed income.  Your low income tenant can find other housing.  They may have to move to a different town, or apply for a low income place, but so be it.  You are not low-income housing.

Just to put my opinion into perspective, I wanted to retire from my resident manager job (oh why?  It's so wonderful living with your customers! ha ha).  I could not stay in the SF Bay Area and find housing on my fixed income.  What I had to do, was move about 4 hours away to a town with subsidized senior housing at a rent low enough I could afford.

Then, I applied for Section 8 in this town far away from the SF Bay Area, because all the lists were closed in the SF Bay Area.  Several years later, I got a Section 8 voucher. Now, I can move back to the Bay Area and port my Section 8 voucher there, but I'm on waiting lists for subsidized senior places there that will accept the voucher, when they have an opening.  In other words, it will probably be another year before I can move back.

No, it wasn't the easiest thing to do.  But, my point is, that your tenant would of course love for you to just keep the rent low enough so she/he doesn't have to do anything.  However, you should know that it's not your job to keep their life nice and easy.  And it's not your job to help him/her figure out where they can afford to move.  They'll figure it out or find someone else to help them figure it out.

And by the way, I would never update a unit because a tenant asked or demanded it.  I'd give them the happy clause - "I'm sorry you're not happy here, but if you want to, I'll allow you to just give me 30 days notice if you decide you want to move."

Then, after they're gone, I might go ahead and do the upgrades for the next tenant.  But, when you jump when a tenant snaps their fingers, they will just keep telling you to jump.  Living with them will never get easier.

Account Closed · Answer

@Jon Huber makes sense.  But, I think you should still raise rent on the low income tenant.  Otherwise, you're subsidizing their income, out of your own pocket.  That's not your job.

And do you have a familiy?  Kids?  This would be money you could be spending on your own family's needs.

Imagine giving that money to some charity every month.  Would you?  $600/year?

Picture that person selling their car, for an example.  A person comes along and says they can't afford the asking price, so please sell it to me for $600 less.  Do you think they'd do it?

Really, to heck with people who like to say landlords are evil because they want to profit from their investments.  Would they have a problem getting the most they can for their car?  Regardless of whether or not some  deserving poor person wanted to buy it for $600 less?

Let them whine about evil landlords.  Then go find a tenant who can afford the rent and is happy to pay it.  I just have no patience for the "Woe is me" card.   Yep, life is hard.  They don't have to move under a bridge.  But, they will have to move.  At some point, you're going to have to raise the rent, why not now?

Jeff B. · Answer

These are Capital Improvements . . . can anyone request anything from you?  Do you need to even reply?  They took the place as-is - - they get to say there as-is too.  Now if they move out and you feel the need for upgrades, fine.  That becomes justification for rent increases.

Don't set a precedent by acquiescing to every request.  One response to such is to tell them, 'You realize I will have to raise your rents".  Watch how fast they retreat.

Nathan Miller · Answer

Small annual increases for all units, and a large increase for the problem tenant would be the way I'd go.  If their unit is nicer (since they want upgrades) they should be paying more rent for the nicer unit.  You are easily justified.  If the updates were just bringing the unit up to par with the others, then probably not.

Nobody, even fixed income seniors, should believe that rents will remain fixed forever.  A smaller increase annually is much more palatable to everyone than a big jump at once in the future.

Account Closed · Answer

These are Capital Improvements . . . can anyone request anything from you?  Do you need to even reply?  They took the place as-is - - they get to say there as-is too.  Now if they move out and you feel the need for upgrades, fine.  That becomes justification for rent increases.

Don't set a precedent by acquiescing to every request.  One response to such is to tell them, 'You realize I will have to raise your rents".  Watch how fast they retreat.

LOL!  I should have used that one!  I love it.  I can just see their eyes widen in amazement.  What?  You don't feel the need to keep me as your tenant at all cost?

And you know, the funny thing is, most people would never dream of asking for such things.  I learned to screen out applicants who asked for weird things.  I learned they would be the type to ask for all kinds of favors and whine about everything.

Jeff B. · Answer

The default response to every request is NO - - then stop to consider, why should I?

Michele Fischer · Answer

You've gotten some good advice, but wanted to put in my two cents.

If all three units went empty right now, would you relist them all for $950?  I find that the type of upgrades you describe help rent the units faster, but don't get more money.  Dishwashers, W/D, garages, storage units, extra space, etc. get more rent.

My philosophy is to split the rent increases with existing tenants.  So if they are paying $850 and market rent is $950, I would raise rent half of the $100, or to $900.  This keeps you making progress on market rather than getting stuck well below, and keeps them under market rent so it is more difficult to find another place and to show you value their long term tenancy.

My tenants are on month-to-month so I evaluate and raise rent all at the same time.  I document my thought process on how I got to market rent, including the comparable addresses/listings on Craigslist I used to make my decision.  I'm very intentional about keeping the rent changes consistent and fair.  Fair compared to market rent, not their situation.  I would raise everyone's rent to $900, unless you truly think the units have different market rents.

I also encourage you to set and think of your rents relative to market rent.  What your costs are are irrelevant.  People may want to raise rent when expenses go up, but it is more objective, explainable, and business minded to peg rent on the market rather than a set margin per door.  You wouldn't (and shouldn't) lower rent in a low expense year.

Good luck!

Jon Huber · Answer

Thanks guys...

@J Beard and @Sue Kelly... there was a lot of deferred maintenance on the property, as to why I was so intrigued to get it. The stove had one working burner, cabinet bottoms were rotted out because of a slow leak that was resolved, etc. The initial work done was completely justified, as was going to happen whether they requested or not. However, I suppose due to the improvements made, this problematic tenant feels he can now ask for anything (which they are not getting).

However, I don't want to focus on the problematic tenant as much as I'd like to on the tenant on disability. I have already increased the rents on the problematic one, and the tenant on disability caught word of it. I have another month before the lease is up.

Should I increase the rents? Tenant on fixed income/disability...

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