Help with good tenant who complains about rent increase.

[Winn Merwin]

Hello BP,

My wife and I bought a duplex in Augusta in March 2017. One of the tenants was inherited. He was paying $600/ month at the time. As we took over, we increased his rent to $635 (market at the time was $750. We thought we would give him a break as we were friends with the previous landlord and by all accounts he was a good tenant. We assumed our current property manager would get him to sign our lease (we have other properties), but she did not. This was due to a failure in communication on our part. 

He remained month to month on the old lease which had lawn care included. At a cost of about $60/mo. We never intended to include lawn care but as it was our mistake, we ate the cost for the past year.

In March we gave him 60 days notice (per GA state law) that we would be raising rent to $685 to cover cost of lawn maintenance. He said "no problem" and remained month to month. 

Later in March, our property taxes went up about $60/half of the duplex.

Our current monthly expenses for his half of the duplex are $682.5 after reserving a combined 20% for future Cap. Ex, Vacancy and Maintenance 

And current market rent is closer to $850 (without yard maintenance). 

We asked our PM to notify him that rent would be increasing to $750 and he signs our lease and takes care of the yard or we he could pay $795 and we would continue to maintain the yard.

He stated his rent just went up to $685 and now we are jumping it up even higher. He states he is unable to afford such drastic increase as he is a medical school resident. But believes he would be able to afford more next year. He will be in the area for the next 3 years.

Other Facts: 

The other half of the duplex rented in 3 days at $800, 2 months ago and he is maintaining his own yard.

The previous owner of the property was a mentor of mine who died suddenly of an aneurysm. He was very well liked by his tenants.

What should we do?

Thanks in advance,

Winn and Kaitlin Merwin

[Nathan Gesner]

I would normally say this is a business, not a charity. However, the tenant shouldn't have to suffer because of your lack of planning.

You said the other half of the duplex rented for $800 "two months ago". So why did you raise the tenant's rent to $685 two months ago? You knowingly increased his rent but held it $100 below market value. What's the rush to increase it now?

You should run your investments like a business, but it should be an honest, fair business. It's not fair to hit the tenant with a $65 increase and then two months later demand another $100 increase. Give him 90 days to adjust to the higher rate or find a new home and then move it up to market with the new tenant.