Thoughts on rent increases, should i raise immediately or....?

Question

For a little context;

I took ownership of a Triplex in the greater Montreal area about 7 months ago, the property at the time of acquisition was fully rented with leases set to end in June of 2017. The market rent in the area is at 755$, 2/3 units are well above market rent, with both renting above 780$ however the 3rd unit is far below the rate, renting at 700$. Now the tenants in this unit had arranged to do the lawn around the property to compensate for the lower rent, the property is 11,000Sq ft and as such has a decent amount of lawn to be cut during the summer and spring.

My question is: Should i leave the lower rented unit at the below market rate rent and continue with the tenants providing lawn care or should i raise them to benefit my overall cashflow? The property as a whole is renting at the market rate rent ( Unit 1: 700 + Unit 2: 780 + Unit 3: 785 Average = 755 )

Sidenote: the tenants are good tenants, never had issues with them and they even preform their own repairs as they are quite handy.

Would love to hear your opinions and similar experience!

Rich Weese · Answer

Account Closed

I was unable to determine what the total net gain would be from your information. If you are happy with the job the landscaper is doing and the amount you are paying him, I don't think I would rock the boat for $50-$60 per month. If you need that extra $50-$60 per month for personal expenses, then you may want to take that chance. You may lose your tenant and end up looking for a new tenant and a new landscaper!

Account Closed · Answer

@Andrew Martin thanks for the input! I have similar opinions with regard to the hassle free tenant, its difficult to put a price on that sort of thing!

Andrew Martin · Answer

Hey Elias I just wanted to chime in my opinion on this one real quick. To me it seems that you are ahead of the game, what would you increase it by if you did? You say they are good tenants and not only do they save you from the hassle of constantly bugging you with problems and minor issues but they also tend to 1100sq ft of property which I'm not sure but seems it might more to hire somebody to tend to the lawn then you would gain from the rent increase. Also you have look at the chance that they decide to move somewhere else and bless another landlord with their hassle free money. You might end up with a tenant that might pay a little more but I'd calling you at 2 in the morning because of whatever comes up. These are just my opinions and assumptions. Run the numbers, get a quote from lawn maintenance and compare it to potential gains. Also factor in the hassle free tenant which I believe can be sort of rare. Well good luck on everything you have going on!

Philippe Laurin · Answer

Hi Account Closed,

We have units which are a bit above market average (because the units are high quality for this market), and we have good tenants for the most part. Our strategy for the past few years have been to increase just enough to cover the inflation for that year. For long time tenants, sometimes we might even not increase rent at all if inflation is super low. We figure that an extra few dollars are not worth the risk of having good tenants leave.

Bart H. · Answer

Account Closed I don't know the actual rules of Canada.  But our rule is we raise rents every year for every tenant.  If they are great tenants, we might make it a very small amount and we might even let it go a little below market.  But we will raise the rent.

Your costs are almost certainly going up every year.  Property taxes, supplies costs etc.  All go up every year.  Why not increase your rent?

From your post it sounds as though you are asking about the lawn care.  IF they are great tenants and do a decent job with the yard, then maybe you keep them.  But at the same time, you have to think about would you make more money outsourcing the lawn to landscapers and raise the rent to market.

It seems to me the question is which costs less:  Loss of rent each month or cost of a landscaper

Chris Walters · Answer

Account Closed Hi Elias, in my opinion, if you have positive cashflow it might be preferable to leave it as is or simple raise it by a very smal amount every year. Think about the fact that they are probably saving you money due to the fact that they are doing most of the repairs themselves. You might want to ask yourself whether the raise is greater than how much it would coat you if you had to hire a professional to fix things. As for the lawn, get some estimates as to how much a company would charge you for their services and how often they would cut the grass. If the company charges less, you would have to wonder how much you are saving and if it is really worth it. In a case like yours, it seems the tenants are caring for you property as if it was their's which is a very good thing because you know your property is in good hands.

On the flip side you have to consider your exit strategy. Do you plan on holding the property for long, because nowadays, most properties are negative cashflowing. So, when comes time to sell, the higher your cashflow, the easier the sale.

Anyways, whenever or if ever you decide to sell, please contact me :) You seem to have an interesting property!

Cheers

Edmund Ricker · Answer

Account Closed

If the you are happy with the tenant and with the job they do cutting the grass, I think I would leave things as is.  Another point to consider would be the cost of having someone maintain the lawn or doing it yourself.  I am sure adding more to your "to do" list is not an ideal situation.

It sounds like you could raise the rent on the below market unit $55 which would be great, but it would most likely cost much more than that to have the lawn maintained.

Ed

Thomas S. · Answer

Are you allowed under your provincial landlord tenant regulations to raise a tenants rent by any amount you choose. Based on the Quebec regulations your tenant could force you to apply to modify the lease if he does not agree to your rent increase amount.

The question is what would it cost for you to hire someone to do the lawn. You are looking at a difference of $85 per month, can you find someone to do the work for that amount. Does the tenant also have winter responsibilities around the property.

In total you are looking at $1020 per year if you increase the rent to $785.

Thoughts on rent increases, should i raise immediately or....?

Most Popular Reply