First time Rent Increase after 2 yrs, $100 too much on $1100 rent

Jay Mayer · 2017-01-11T11:55:31-08:00

Hello everyone, I am a new landlord with little experience and wanted to get some insight on a rent increase I am planning on my rental home. It hast been 2 yrs since the tenant moved in and assuming they want to sing up for a 3rd yr, I would like to increase rent at least by $50 in order to cover a recent interest rate increase on my mortgage. I initially rented the home $150 less than similar homes at the time because the tenant was a "known" person and they could not pay more (at the time the tenant had a lower paying job than today), plus it was convenient for me to have someone mover right away. That was that, probably a mistake, but it worked out so far in the sense of having the home rented and a good paying tenant. As for the numbers, from what I have researched online rents are up today by at least $200 more for similar homes. Rent is $1100 and a similar home would Rent for $1300 today. So I was thinking of a $100 increase to cover the $50 mtg rate increase plus $50 to get close to market price. At $1200 monthly rent after the increase, It would still be cheaper by $100 for them to stay versus finding a similar home, but they may not see it that way and I don't want to piss them off or make them leave because a $100 increase could be a shocker. So should I go for $50 or $75 or $100 or what number would you suggest?Sorry for the long post, and thank you in advance for your insight you may have. Have a great day.

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

9y

@Jay Mayer some people will tell you that a tenant will not move over a rent increase, but I can assure you that it will cause them to start shopping around. Assuming you are still well under market, then they will probably stay if they can afford it. You have to weigh the risk of potential vacancy. Look at it this way, one month of vacancy is the same as $100 less per month in rent over the next year. That doesn't include your time and expense to get he property re-rented. In other words if they move out, it would take you 1-2 years to recoup the vacancy loss with a higher rent.

I would give them the $50 increase and then do $50 again next year. For my best tenants, I don't even bother increasing rent. When they move, I just bring it up to market.

4 Reply

Sebastian Taylor

Baltimore, MD · Member since 2013 · 85 posts · 28 votes

9y

I would train the tenants to always expect a rate increase at renewal. When I rented myself, every lease renewal there was an increase, as small as $40, but consistently every year.

3 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

9y

You need to decide first what your priority is in regards to your business. Are you interested in making max return based on market rents or are you just happy having a tenant and not having to do the work of finding a new one.

If you raise the rent by $50 - $100 he may stay or go. You don't know till you try. Leave rent where it is and you do not have to worry, ever.

If you raise it $100 and he stays you win. If he leaves you find a new tenant at $1300 and you win again.

The choice depends on your business model. I know what I would do but I am only in business to make money so for me the answer is simple especially since he has only been there 2 years. The turn over should be fast and cheep.

0 Reply

Jay Mayer

OP

Nashville, TN · Member since 2017 · 14 posts · 5 votes

9y

Thank you all for your comments and suggestions.

My mortgage is also going to go up one last time next year, increasing the pymt by another $50. So if I increase $50 this year and then $50 next year, I will still be just covering the increases in interest rate and way under market, but It may be the only way to go if I don't want to risk a vacancy.

I will have to do at least the $50 and need to start thinking of how to communicate it so that it doesn't sound too bad to them. After all it may still be a lot of money to them to pay $50 more each month despite what other homes are renting for and whatever logic I explain that makes it fair.

With that in mind, what is a good strategy to communicate this and reduce the shock ? Should I first email the increase to him and then call to explain or talk to them first? At least I have a good excuse since my mtg is increasing, but this will be the same tune for the next year as well, which also makes me wonder if I should tell them about that increase for next year too in order to get them prepared and include it in the new lease.

Thanks again!!

0 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

9y

Originally posted by @Jay Mayer:

Thank you all for your comments and suggestions.

My mortgage is also going to go up one last time next year, increasing the pymt by another $50. So if I increase $50 this year and then $50 next year, I will still be just covering the increases in interest rate and way under market, but It may be the only way to go if I don't want to risk a vacancy.

I will have to do at least the $50 and need to start thinking of how to communicate it so that it doesn't sound too bad to them. After all it may still be a lot of money to them to pay $50 more each month despite what other homes are renting for and whatever logic I explain that makes it fair.

With that in mind, what is a good strategy to communicate this and reduce the shock ? Should I first email the increase to him and then call to explain or talk to them first? At least I have a good excuse since my mtg is increasing, but this will be the same tune for the next year as well, which also makes me wonder if I should tell them about that increase for next year too in order to get them prepared and include it in the new lease.

Thanks again!!

I would not be apologetic about the increase in any way. I would just communicate that you strive to maintain a high quality property and charge under market prices. Explain that your expenses have increase this year and you need to pass along some of that increase to your tenant, which is $50. You could give them the option to re-up the lease with the $50 increase and lock the rate in for a year or go month-to-month at market value which would be a $200 increase. Given these two options, the $50 will look very painless. I would send a letter and request a time to meet with them to discuss.

I do have a question on your local market. I listen to a variety of podcasts and read the forums. I see your city mentioned frequently as a great place to invest. Has this caused increased rental saturation and is it affecting rents yet? I always wonder because the more people say an area is great to invest in, it seems it will drive up supply of houses. I guess as long as population growth keeps ahead of it, you are fine. Just curious more than anything.

0 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

9y

You do not need to justify your increase and using the excuse that your mortgage is going up is a big mistake. It is irrelevant to a tenant and your tough luck, tenants could care less. Holding a tenants hand and talking them through a rent increase is not necessary and not professional . This is the primary weakness of a hobby landlord and amounts to asking your tenants forgiveness for operating your business. Tenants understand the what and why of rent increases and again could care less about your situation. This is the reason the best policy is to give regular/annual rent increase which would avoid your present landlord fears.

Just send the notice in the email with the amount and date effective.

You would be farther ahead if you did not fear the responsibilities of being a landlord and simply raise the rent to market or get a new tenant. It's not logical to lose money and now would be a perfect time to get engaged in your business.

1 Reply

William Walker

Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes

9y

Your rent shouldn't be based on your mortgage payment. Those are numbers that should have been calculated before purchasing the property as a rental. Compare your rental to others in the area and that will determine the appropriate rental rate.

I don't say this to sound mean, but you need to decide if you're running this as a business to make profit or as a cheap housing alternative for those in financial hardship. You rented to a "known" person (I don't even know what that means), for a monthly loss of $150 (you're losing 2k a year because this person is "known"????).

If you want to keep renting to this person because they are "known" and don't have enough money, keep the rent the same and feel good about yourself. If you want to improve your profit, increase the rent based on the market and let the tenant figure out their financial ability to stay or go leech off someone else.

1 Reply

Jay Mayer

OP

Nashville, TN · Member since 2017 · 14 posts · 5 votes

9y

Originally posted by @Joe Splitrock:

Originally posted by @Jay Mayer:

Thank you all for your comments and suggestions.

My mortgage is also going to go up one last time next year, increasing the pymt by another $50. So if I increase $50 this year and then $50 next year, I will still be just covering the increases in interest rate and way under market, but It may be the only way to go if I don't want to risk a vacancy.

I will have to do at least the $50 and need to start thinking of how to communicate it so that it doesn't sound too bad to them. After all it may still be a lot of money to them to pay $50 more each month despite what other homes are renting for and whatever logic I explain that makes it fair.

With that in mind, what is a good strategy to communicate this and reduce the shock ? Should I first email the increase to him and then call to explain or talk to them first? At least I have a good excuse since my mtg is increasing, but this will be the same tune for the next year as well, which also makes me wonder if I should tell them about that increase for next year too in order to get them prepared and include it in the new lease.

Thanks again!!

I would not be apologetic about the increase in any way. I would just communicate that you strive to maintain a high quality property and charge under market prices. Explain that your expenses have increase this year and you need to pass along some of that increase to your tenant, which is $50. You could give them the option to re-up the lease with the $50 increase and lock the rate in for a year or go month-to-month at market value which would be a $200 increase. Given these two options, the $50 will look very painless. I would send a letter and request a time to meet with them to discuss.

I do have a question on your local market. I listen to a variety of podcasts and read the forums. I see your city mentioned frequently as a great place to invest. Has this caused increased rental saturation and is it affecting rents yet? I always wonder because the more people say an area is great to invest in, it seems it will drive up supply of houses. I guess as long as population growth keeps ahead of it, you are fine. Just curious more than anything.

Thanks for the suggestion. I am thinking I will just do a $100 increase since from what I have been reading and even talking to other people, a $100 dollar increase is not that uncommon. If I increase it any more than that it may look like I want them out.

With respect to your question about the market in Nashville for rentals, I don't know really since this home was my primary home that I rented only because I needed to move out of state on short notice. I didn't buy it to rent it out and at the time of lease signing, the "known" person was a ready to move in tenant who was ok with taking the place without requiring new paint or this and that as many renters want when they look for a home to move into. It worked out at that moment for both of us. I needed a tenant right away without having to put the house on the market and deal with applications, tenant screenings, etc while also dealing with having to move on short notice out of state.

If this tenant can't afford the $100 increase, I will have to travel back and spend the time and money getting the house ready for a new tenant (paint, carpets, etc) , not to mention decide whether I will hire a company to deal with the rental and the new tenant, which could mean 10% of monthly rent or I will have to deal with it long distance myself and hope for the best.

1 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

9y

Originally posted by @Jay Mayer:

Originally posted by @Joe Splitrock:

Originally posted by @Jay Mayer:

Thank you all for your comments and suggestions.

My mortgage is also going to go up one last time next year, increasing the pymt by another $50. So if I increase $50 this year and then $50 next year, I will still be just covering the increases in interest rate and way under market, but It may be the only way to go if I don't want to risk a vacancy.

I will have to do at least the $50 and need to start thinking of how to communicate it so that it doesn't sound too bad to them. After all it may still be a lot of money to them to pay $50 more each month despite what other homes are renting for and whatever logic I explain that makes it fair.

With that in mind, what is a good strategy to communicate this and reduce the shock ? Should I first email the increase to him and then call to explain or talk to them first? At least I have a good excuse since my mtg is increasing, but this will be the same tune for the next year as well, which also makes me wonder if I should tell them about that increase for next year too in order to get them prepared and include it in the new lease.

Thanks again!!

I would not be apologetic about the increase in any way. I would just communicate that you strive to maintain a high quality property and charge under market prices. Explain that your expenses have increase this year and you need to pass along some of that increase to your tenant, which is $50. You could give them the option to re-up the lease with the $50 increase and lock the rate in for a year or go month-to-month at market value which would be a $200 increase. Given these two options, the $50 will look very painless. I would send a letter and request a time to meet with them to discuss.

I do have a question on your local market. I listen to a variety of podcasts and read the forums. I see your city mentioned frequently as a great place to invest. Has this caused increased rental saturation and is it affecting rents yet? I always wonder because the more people say an area is great to invest in, it seems it will drive up supply of houses. I guess as long as population growth keeps ahead of it, you are fine. Just curious more than anything.

Thanks for the suggestion. I am thinking I will just do a $100 increase since from what I have been reading and even talking to other people, a $100 dollar increase is not that uncommon. If I increase it any more than that it may look like I want them out.

With respect to your question about the market in Nashville for rentals, I don't know really since this home was my primary home that I rented only because I needed to move out of state on short notice. I didn't buy it to rent it out and at the time of lease signing, the "known" person was a ready to move in tenant who was ok with taking the place without requiring new paint or this and that as many renters want when they look for a home to move into. It worked out at that moment for both of us. I needed a tenant right away without having to put the house on the market and deal with applications, tenant screenings, etc while also dealing with having to move on short notice out of state.

If this tenant can't afford the $100 increase, I will have to travel back and spend the time and money getting the house ready for a new tenant (paint, carpets, etc) , not to mention decide whether I will hire a company to deal with the rental and the new tenant, which could mean 10% of monthly rent or I will have to deal with it long distance myself and hope for the best.

Hopefully they accept the increase because it sounds like it will cost you thousands to turn it over for a new tenant. Even if you then raise the rent $200, it will take years to recoup the loss. Rentals are all about calculated risk. Please update us on how it turns out.

0 Reply

Joe Knox

Member since 2020 · 1 post · 0 votes

6y

You sound greedy and desperate for money; and illogical as well. I’d bet your also not quick to take care of any of the tenants needs without bitching about it. I’m Also certain you’re the type of landlord who will find every reason to eat up their deposit when they leave. Your renter may stay with the $100 increase but when you try to raise it again next year (which you will) they will definitely walk. And then it will cost you a lot of time and effort to compensate the loss of income. Remember, house you own is making you money in itself by increasing in value. Be careful not to piss off your tenants too much. I assure you there’s a limit. One called the city inspection and they can find plenty of surprise code violations that you’ll be losing thousands to fix. Better think again if that $100 is worth it.

0 Reply

Kirk R.

Peoria, IL · Member since 2013 · 967 posts · 383 votes

6y

Originally posted by @Jay Mayer:

Thank you all for your comments and suggestions.

My mortgage is also going to go up one last time next year, increasing the pymt by another $50. So if I increase $50 this year and then $50 next year, I will still be just covering the increases in interest rate and way under market, but It may be the only way to go if I don't want to risk a vacancy.

I will have to do at least the $50 and need to start thinking of how to communicate it so that it doesn't sound too bad to them. After all it may still be a lot of money to them to pay $50 more each month despite what other homes are renting for and whatever logic I explain that makes it fair.

With that in mind, what is a good strategy to communicate this and reduce the shock ? Should I first email the increase to him and then call to explain or talk to them first? At least I have a good excuse since my mtg is increasing, but this will be the same tune for the next year as well, which also makes me wonder if I should tell them about that increase for next year too in order to get them prepared and include it in the new lease.

Thanks again!!

Why are your mortgage rates going up? Why not get your rates down? vs increase on tenant?

0 Reply

Michael Kevorkian

Realtor · Chicago, IL · Member since 2013 · 103 posts · 44 votes

6y

@Jay Mayer I had a similar situation and struggled to approach my longtime tenant about a rent increase. Despite the property taxes going up, the cost of maintenance and area rent prices going up... I sat on it too long figuring "they pay on time and have been good tenants so why rock the boat"? I think the points to remember and try to balance are:

1. Why did you get into rental real estate investing?

2. Are you willing to risk the unknown (tenant moves, time your property will be vacant, repairs or clean up to get the place marketed again, you get a new tenant who isn't as good etc.)

Obviously you can't nor shouldn't be held hostage by the fear of your tenant leaving and having to face the inevitable. You are in business to make money and year over year costs and expenses go up. As @Sebastian Taylor said... get their expectations in line that there will be an increase every year, 3% - 5% or whatever is reasonable. Have that conversation with them and any new tenants at the signing of the lease. This will at the very least make the future conversation and announcement of the increase less uncomfortable for everyone.

Good luck and I'd love to hear how it goes once you cross that bridge.

1 Reply

Jennifer J.

Pleasant Hill, CA · Member since 2017 · 43 posts · 17 votes

6y

0 Reply

Thomas DellaValle

Member since 2024 · 2 posts · 0 votes

2y

at a minimum 150 this year now asap and 150 next. You do nobody any favors with low rent. Tenants will be a ok . In fact not being subsidized will encourage them to some day buy a home. Your kindness will spoil them and hurt them . You are hurting other investors and values in your area being soft on them. Be Fair not Friends is best for all.

0 Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

2y

If you want to be a successful investor, you need to learn to charge what you are worth.

$200 below market is $2,400 lost per year. That could replace your appliances. In three years it could pay for a new furnace.

Landlords that charge market rate, or close to it, have money to maintain their property, which attracts better tenants that pay more and stay longer, which produces more money to maintain the property...and so on.

You can't afford a vacancy? You will lose $1,100 for one month of vacancy, but you will gain $2,400 after a year of market rate rent, for a total gain of $1,300 more than you make right now.

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First time Rent Increase after 2 yrs, $100 too much on $1100 rent

First time Rent Increase after 2 yrs, $100 too much on $1100 rent

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