Tenant wants to get room mate due to rent increase

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Tenant wants to get room mate due to rent increase

Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

I am raising the rent by $200 a month while still renting $200 a month below market. Basically right now I'm GIVING away $400 a month. I split the difference with the tenant since she's been there a couple years and is now a single mom though she originally was with someone when moving in and now the lease is all on her only.

Anyways, she's a good enough tenant in that she doesn't bother me for trivial stuff. There were a few small stains on the carpet in one of the girls rooms and the living room last visit, but that's it. Otherwise they keep the place up. 

She realizes I'm still giving her one heck of a deal and wants to stay, however; she can only afford it if a room mate, someone she knows from work, moves in (with screening and all). I'm torn. On the one hand, it would be the least hassle solution. On the other, I could make ANOTHER $200 a month more by turning the place for full price, for a total of $400 increase. I've had a few bites at $500 more even....

The only reason I can think of to say no is the above, and the fact that it's not clear who's deposit to ding (assuming I charge the roomie a small deposit) if there is damage. While I have a ton of grad school stuff going on and stuff going on at work as well as 3 other rentals to manage and am short on time and would prefer she stay, I kind of assumed she would move on account of affordability and that I'd end up renting it at market price anyways, but either way, I'm still "winning".  Both give me more money, one gives me even more money but with some effort involved. I don't see too many issues with the roomie situation, but I figured I'd ask those who have horror stories about this...

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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
10y

What I would do is offer to allow her a room mate but the rent will go up the full $400. With a room mate she will still be paying less than before the rent increase if they split the rent. If she does not agree you find a new tenant at market rent. This is how a win/win situation works for you and your tenant.

I would have the tenant pay the additional LMR and deposit to bring the amounts to the new rent. She can collect what ever she choses from her roommate. Figuring out who pays what is not your responsibility as you will hold her responsible in the end.

Re write the lease (M2M) with both tenants on it. Chances are they will not last long as room mates so M2M allows you and them more flexibility. This is likely not going to work but it will allow you some time before having to find a new tenant.

If the friend does not pass screening you will be looking for a new tenant. Do not compromise on the screening to make it work or you will end up getting stiffed by both of them in the end.

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    10y

    Don't see it being a major difference either way. It's up to you how much time you want to spend and if the extra $200/mo is worth it to do a turnover and find a new tenant who may not work out as well.

    As for the deposit I would not do any additional deposit. You collected one deposit which I assume is one months rent. Whatever damage is done to the unit when they both move out you can take from that deposit. It is on the two tenants to decide who broke what. You as the landlord should not be burdened by playing detective.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    What I would do is offer to allow her a room mate but the rent will go up the full $400. With a room mate she will still be paying less than before the rent increase if they split the rent. If she does not agree you find a new tenant at market rent. This is how a win/win situation works for you and your tenant.

    I would have the tenant pay the additional LMR and deposit to bring the amounts to the new rent. She can collect what ever she choses from her roommate. Figuring out who pays what is not your responsibility as you will hold her responsible in the end.

    Re write the lease (M2M) with both tenants on it. Chances are they will not last long as room mates so M2M allows you and them more flexibility. This is likely not going to work but it will allow you some time before having to find a new tenant.

    If the friend does not pass screening you will be looking for a new tenant. Do not compromise on the screening to make it work or you will end up getting stiffed by both of them in the end.

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  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Thomas S.:

    What I would do is offer to allow her a room mate but the rent will go up the full $400. With a room mate she will still be paying less than before the rent increase if they split the rent. If she does not agree you find a new tenant at market rent. This is how a win/win situation works for you and your tenant.

    I would have the tenant pay the additional LMR and deposit to bring the amounts to the new rent. She can collect what ever she choses from her roommate. Figuring out who pays what is not your responsibility as you will hold her responsible in the end.

    Re write the lease (M2M) with both tenants on it. Chances are they will not last long as room mates so M2M allows you and them more flexibility. This is likely not going to work but it will allow you some time before having to find a new tenant.

    If the friend does not pass screening you will be looking for a new tenant. Do not compromise on the screening to make it work or you will end up getting stiffed by both of them in the end.

     Greg, awesome post. I wondered about the whole room mate situation and the discount. It's like, why give away the other $200 a month if she is just going to get a room mate and live even cheaper? I'm taking on more risk and she's coming out better ahead. Plus as you say, the risk that they don't get along.

    Still, I wonder if it's legal for me to just raise it again like that considering my offer. I suppose this is a counter offer and I can still counter her counter. But yeah, I would agree that with a room mate, I would prefer the full market rate. At the end of the day, I could get the full $400 a month extra pretty easily. Heck after this I have a rental 275 below market that I plan on raising the rent on.

    Been crunching the numbers lately and realized that instead of buying another house I could put the effort into charging market rates at two of my rentals and make the same cash flow as if I had bought another house. Right now I'm giving away more than 8K a year on two rentals that under market. The others are at or over (due to credit).

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    If you do not have a signed lease you are only in discussions with your tenant. You can do as you please.

    Once you get your rents to market, even if you do have to replace tenants it will be well worth the efforts. Far too many landlords ignore the reason they are investing, to make money, once they have so called :good tenants" in place. All landlords should be raising rents annually on every unit.

    When rent is not at market investors are simply being lazy with their money.

    Once you raise your rents the value of your properties will also automatically increase as well.  

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  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Thomas S.:

    If you do not have a signed lease you are only in discussions with your tenant. You can do as you please.

    Once you get your rents to market, even if you do have to replace tenants it will be well worth the efforts. Far too many landlords ignore the reason they are investing, to make money, once they have so called :good tenants" in place. All landlords should be raising rents annually on every unit.

    When rent is not at market investors are simply being lazy with their money.

    Once you raise your rents the value of your properties will also automatically increase as well.  

    I have a signed lease with the tenant, I keep all my tenants on MTM leases. I still gave her 60+ days notice, far more than I'm required. But yeah, agreed on the rent increases. I plan on reinvesting the money in sprucing the places up a bit, two new roofs, new paint, etc. I've had some work done but leaving so much money on the table is ridiculous while they pocket the savings because it's "convenient" for me to keep the same tenants. My other under market rental will be getting a closer to market increase this year as well.

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  • Yvette M.
    Reno, NV · Member since 2016 · 328 posts · 97 votes
    10y

    Tenant needs to move on.  No way would I be losing that much money. A co-worker as a roomie could get ugly too.

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  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y

    If there is going to be another person living there, it's pretty simple, it's no different than renting it fresh to two new people. 

    Get an application from the new person, sign a new lease with the new person, up the rent to market, they are both responsible for paying the rent, both responsible for maintaining the place and both are responsible for any damages upon move out. 

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  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y

    I agree with the others.  And, regarding getting a new agreement - if both parties to a contract agree to void it, that's all you need.  You both agree to void the old contract, and sign a new one.  

    You have to do the math regarding what it's worth to keep a known hassle-free tenant vs gambling on a new one.  But, in your market, you should have a lot of great tenants to choose from.  And if the rents are that much below market, even a turnover that may take a month, would pay for itself in no time.

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  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    Update: Tenant was told by me that the room mate situation would not get the same discount, etc. She has been very responsive and is now trying to see if she can work it out with the room mate at the full rent price. In reality, she can get easily $500 a month, still bringing her rent $150 a month lower, while also giving the room mate a leg up on cheap living via the room rental.  Since I'm not the government, they tax me to death already to subsidize people already, I'm not giving away free money anymore. Once this rental is resolved, rent at the other well below market rental is going up to near full price and rents will be raised every year even if just by $20 so long as the market is strong. If I wasn't in grad school it would be done at the same time but between other rentals, school, work, etc..

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  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    Tenant elected to move with 30 days notice by end of July. Earlier than I expected but at least I get to charge market rent. Even if it sits empty for a month I will still come out ahead. I do already have 2 tours scheduled for tomorrow though, so doubt it will be available long or sit vacant at all, even at market rent. 

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