Long term tenants

[Christine Swaidan]

I appreciate the fact that these tenants have stayed for 14 years. In recent years we have painted, replaced flooring, remodeled bathrooms (tile, granite, cast-iron tubs) , new appliances, new granite in kitchen.  They always pay on time and I always react in a timely way to any repair issues.  It's not their fault that we have not raised the rent closer to market values. If they were to move I understand that I would need to do some work (replace windows and scrape ceilings mostly).

I just raised the rent $200 to $2200. I believe the market rent as is, is $2600 and if the upgrades are done it would be $2800-2900. (Southern California, end of cul de sac, ocean view, open space behind house, 4+2, single story, even though this is a 1970's tract house.)

My plans are to raise the rent by $200 a month next year but I am still uncomfortable that this is a slow process to get them closer to market rate.  I'd like to hurry this process along but I feel like a jerk if I raise the rent too fast and a shmuck if I let it go another year.

Do I owe them something for being long term tenants? Do I owe myself a raise for being an attentive landlord?

[Sue K.]

Would you be interested in selling it to them?  You could ask the current market value, but with perhaps just closing costs down?  They get to buy their home, you get your money out of it?  Maybe with a pre-payment penalty, so if they try to refinance on you, you benefit from it?

Otherwise, I understand your dilemma.  But, would the loyalty go both ways?  If they could have found a better deal, would they stay with you anyway out of loyalty?  They've been renting to you for 14 years, in large part, because it's a good deal.

It is your investment.  You have the right to profit from it.  Not your fault they never bought their own, even when the market crashed.

But, maybe a FSBO would work out nicely.

[Nicole A.]

Just to be sure I understand, you already have raised the rent by $200, and you would like to raise it another $200 next year, right?

How did the tenants react to the first rent raise? How is your relationship with them? By now, you probably know them at least a bit and have a good feeling if they'd move or not over another $200...especially when it'd still be a great deal. I think you could run you plans by them now, well before the rent raise. Explain to them (and even show them) comparable rentals and how much more they cost even after your rent raise. They can see the numbers for themselves. If they move, wish them well. It sounds like a nice place that you won't have trouble renting out. And don't go too crazy on fixing it up if it does become vacant because it sounds like it's already in pretty great shape. Sometimes landlords put too much money into their rentals.

[Brian Simmons]

Originally posted by @Nicole A.:

Just to be sure I understand, you already have raised the rent by $200, and you would like to raise it another $200 next year, right?

How did the tenants react to the first rent raise? How is your relationship with them? By now, you probably know them at least a bit and have a good feeling if they'd move or not over another $200...especially when it'd still be a great deal. I think you could run you plans by them now, well before the rent raise. Explain to them (and even show them) comparable rentals and how much more they cost even after your rent raise. They can see the numbers for themselves. If they move, wish them well. It sounds like a nice place that you won't have trouble renting out. And don't go too crazy on fixing it up if it does become vacant because it sounds like it's already in pretty great shape. Sometimes landlords put too much money into their rentals.

 I agree with Nicole..  But there is something to be said about keeping really good long term tenants, even if the rent is a tad under market..  An extra $200 per month doesn't go very far if you end up with turnover every year or two.

[Joe Splitrock]

@Christine Swaidan after 14 years of no vacancy, you have saved lots of money in avoided turn-over vacancy. I like rewarding long-term tenants with under-market rent. Your last increase was 10% so if you increased it another $220 next year, that would be another 10%. That seems reasonable and your rents next year will be with 10% of market so if you did another 5-10% increase in 2018 you would be in line with market. This assumes the market stays healthy.

Do you owe them something for being long term tenants? Most people would say no, but I say yes because it is no different than any business having a long-term customer. I let them have a discount to market, which keeps them from moving if they go shopping.

Do I owe myself a raise for being an attentive landlord? Yes, fair rent increases to keep in pace with market.

[Christine Swaidan]

Thanks for the input. Selling is not an option for this particular home even thought they would jump at the chance. We want to keep it. 

I really like what Nicole had to say. Honesty may be the beat policy. These are smart people so they know they are getting a deal and there was no problem at all with the last rent increase. 

Both can be difficult personalities--very controlling. I would not miss them but I do appreciate that by them staying my life is easier. 

Brian, yes, the rent increase went into effect in May 2016. Full disclosure, in August 2015 we asked them to start paying their own water bill which was worth $125-150 each month. So essentially their rate has increased by about $350 per moth in the last year. They flipped out over the request to pay that utility but never a word when I gave them the rent increase. 

I would like them to be closer to market rate, especially since we have done so many improvements for them but maybe I am asking too much too fast. This land lording does not come natural for me!

[Sydney Hall]

hey christine, long term renter here. i partly agree with sue, but... sometimes due to individual situations and timing, purchasing just is not an option (yet). under the right circumstances, those sue listed, perhaps it could be feasible, thus creating a win-win situation. moving is a huge expense in itself and sometimes it simply pays to stay put. moving is incredibly stressful as well. there are so many reasons people stay. i too have a great landlord. i try to always be considerate, treat my space as my own etc. if a pipe leaks over the weekend and a bucket can be utilized so said landlord does not pay weekend plumber prices i do just that; ergo she is getting something even more than just consistent rent. (who knows what your next tenant/s might be like.) now onto nicole's advice- also solid. as a tenant that would be a great way to go. assess the previous mentioned and then keep them abreast of what you are experiencing in regard to all... just another perspective and all food for thought...

[Marcia Maynard]

Depends on your market and your clientele. Yours sounds higher end than ours, so they may be able to manage a 10% annual increase in rent.  But, perhaps it won't be sustainable.

We have long term tenants, paying under market rates. We still have good cash flow and aren't hurting. We're "leaving money on the table", but we sleep well at night and our assets are appreciating. We enjoy the long-term stability of good tenants who pay rent on time and take pride in their homes. We raise rents by modest amounts when our costs go up.

Our niche is in providing safe, clean, affordable, comfortable and quiet housing for responsible renters, specifically low-income and fixed income folks. Although the market is rising at unprecedented rates, our tenants' incomes are not rising. Seniors did not even get a cost-of-living-adjustment from social security this year. Most people with lower and middle income jobs have not had their wage adjusted for even inflation, let alone received a raise in recent years. It used to be that budgeting 30% of household income was enough. Now we see that most renters in our town need to spend 50-70% of their household income on housing costs just to have a place to live. These are tough times for the lower classes and high times for landlords.

[Thomas S.]

Good long term tenants are rewarded by their landlord maintaining the property and leaving them alone. Every tenant should be paying market rent.

A typical conversation between tenants usually goes like:  My dumb a** landlord is afraid to raise my rent because I am a good tenant and he is afraid to upset me.

NO way, geese he is a dumb a**.  Doesn't he know there are thousands more just like you out there looking and willing to pay top rent to a good landlord. 

I guess not but he is a great landlord, in fact I would pay him full market rent,..... but don't tell the dumb a**. 

[Christine Swaidan]

I was hoping to hear from you, Greg S.!  And you didn't disappoint. LOL I need someone like you to whip me into shape. We do have other long term tenants that are below market value but for whatever reason these particular tenants end up getting so much more out of me. I haven't decided what I will do but I certainly appreciate the different points of view here. Thank you all!