Should I raise rent on a great tenant

Question

Kevin Harrison · Answer

I am the opposite of Account Closed, I still say you need to raise the rent, but I would couch it in a different manner. I would sent them a nice letter telling them how much you have enjoyed having them as tenants and that you would love them to stay but as market prices have gone up so have your potential expenses on durables (appliances, roof, ac, Etc). Then I would let them know that the current FMV for the unit is $2500 a month, but since they have been such good tenants you are only going to raise their rent $100.

This makes you a little more money and you can raise rent again next year, but shouldn't scare them out of the home once they look around and see that you are not lying to them. The letter will also help them to understand that you are not raising the rent just to be greedy but because your cost of ownership has gone up (or at least your liability has) and should soften the blow of the rent increase.

You do need to raise the rent however or you are basically giving money away every month. Don't raise it too much at once though because 2 months of vacancy will cost you 1 year or more of the increased profit from the higher rent.

Jim Adrian · Answer

This is a business and you are losing money. Raise rent each year to avoid this issue. Put it into your lease that rent will go up x amount or % each year.  I use a max of 10% and pick the amount that makes sense at that time.

I would raise it $200 with 60 day notice. Let them know it's still under market value. Have a few comps handy to show them if needed. If they move out then up the rent to market value.

Account Closed · Answer

Your tenants may or may not be aware of the fact that they are getting a rental at $400/month cheaper than the going rent.  But, if you give them notice of a rent raise, they will definitely be hitting the Craigslist ads to see if they can get a better deal.

So, if you give them a rent raise that is still $100 below market, they will see they can't get a better deal, once they look at their options.

In CA, if you raise the rent over 10%, you have to give them 60 days notice.

You can afford to keep these guys, and you like them, so I'd suggest raising the rents to an amount that is $100/mo below market value for what they can get.

When/if they approach you to complain about the rent raise, what I did was to tell them that I did thorough research of their options, and that I know they are still getting a deal that is $100 below market rents on Craigslist.  But, if they feel they have to move, I just need 30 days notice.

They'll probably try every angle to try and convince you to not raise the rent, or not raise it so much - but they will probably stay anyway, if you just stay firm, but nice, and say, "Well, I understand that you might want to leave.  I hope you'll stay since I'm offering you rent $100 below market.  But, if you decide to leave, I will be able to rent the unit to someone for $100 more per month than I'm offering it to you."

I suggest also, that you just go month to month with your tenants, if they're still on a lease, when their lease expires.  And the reason is, that they may try and pull the habitability issue on you - saying there are problems, so if they complain, if you raise the rent - it can be seen as retaliatory.

Anyway, I'd raise the rent to $100 below market, and invite them to leave if they complain.

Christopher Smith · Answer

I have a policy to raise rents every year to every tenant. This of course assumes that what I decide to ultimately charge is generally within comparability bands for the local market. If I don't do this, then I risk the amount being paid as rent falling further and further from market each year which means I need to either raise rent dramatically after years of not raising them for a particular tenant (which never goes over well), or waiting for the old tenant to leave so I can establish a market rate for a new tenant (which can take along time). Neither are acceptable situations to me.

Now if I have a great tenant (as you say you do) I will discount the amount of rent (up to $100 on a 2,500 rental), but I still adjusted that amount each year no exceptions. So I am diligent about continuing to raise the rent paid each year so it never slips more than a $100 discount from market.

Remember, just as you have costs to acquire a new tenant, the tenant also has his or her own costs associated with moving so there is a price to be paid on both ends. I've never had tenant leave as a result of a rent increase (at least if they are being honest with my property manager why they are leaving), so this policy has worked well for me over the last 10 years.

John Thedford · Answer

I raise rents on good tenants. I DO concede some to them. If they are great, I may give them $50 per month break. It would cost that much to turn the place over..actually probably more. I want to keep them as you do. In your case, you are subsidizing them $4800 per year. If they are worth that much to you don't raise rents.

Account Closed · Answer

Raise the rent to market rate, they expect it. Their income has risen every year along with the cost of living, theirs and yours. They move out, rehab and upgrade to maintain your investment.

Christine Swaidan · Answer

I have a similar situation. These particular tenants are not my favorite people and can be PIA's but the fact that I know I never have to chase down the rent check is really appreciated. I am raising the rent 10% a year. Yes, I know I'm losing money (not really losing money, just not maximizing my income) but this job is more than just money. If they get too demanding I may just raise it more that 10% a year. I'm a patient person and eventually we will be closer to market rent--hopefully without the cost and hassle of a turnover.

David Foster · Answer

Raise the rent to market rate, and add an appreciation gift (ceiling fan, upgraded light fixture, etc.) that days thanks and stays with property. And tell them in a letter that your costs (insurance, taxes, etc.) have increased, and include that they are a valued tenant. If you're a good landlord they'll not want to pay moving costs and end up with the same deal as they currently have and lose a good landlord.

David Dachtera · Answer

@Jared Friedman,

I think the personal approach would be best, even if you're not self-managing.

Either you or your PM should contact the tenant and, as someone posted, express appreciation for the good relationship being mutually enjoyed and for being a good tenant. Always express that in the PRESENT tense... "You're a dream tenant and we wish to continue our mutually beneficial relationship, ..."

Explain that area rents are increasing and that while the steady rent they've enjoyed works well, it also limits the value of the property which impacts the surrounding community. So, you need to raise the rent to be a good neighbor and a good steward of the investment the property represents. Express that on the next renewal, the rent will be increasing by an amount you decide, and again on the following renewal - step up to the market rent rather than all in one jump.

Everyone wants to pay a fair amount for fair value. If you do it well, you can get their buy-in and agreement. If it goes not so well, then you'll need to decide your own course of action.

My $0.02...

Should I raise rent on a great tenant

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