Raising rent on a quality long term tenant?

Question

I have a tenant that is coming up on lease renewal. They’ve been there 2.5 years and I haven’t raised rent on them yet

They’ve been adamant in the last they can’t pay more.

Taxes have gone up of course. I don’t feel my unit is underpriced but welcome thoughts.

I would have to call their bluff to force a $25/month increase and they could leave (I doubt it but who knows)

$10 : month hardly seems worth it but it all adds up

How would you approach it?

I could say “I haven’t raised rent in 2.5 years but need a little help. What do you think is fair?”

Other suggestions?  Staying same wouldn’t be terrible and they have been good tenanats

Thanks!

Marcia Maynard · Answer

Here's our rent raise letter... works well, even for those who initially feel they can't afford a rent raise. If you raise rent by $30 that's only a $1 a day and an easy number for tenants to wrap their head around. So I suggest a $30 raise instead of $25.   :-)  Note, we invite tenants to call our office if they have special circumstances they want to discuss, rarely does anyone do this. If they do, they have a chance to express their concerns and we have a chance to listen. Since we are already under market, we've never had a tenant decide to move instead of paying the increase. If it has been more than two years, tenants expect to see a rent raise at some point. It shouldn't catch them by surprise. If we think it will, we send this notice 60-days in advance for them to be able to get used to the idea and/or check-out the market competition.  For us, they always stay and adjust to the new reality.

30-DAY NOTICE OF RENT INCREASE

RCW 59.18.140  (reference to our state's landlord-tenant law, replace this with yours)

Tenant: ____________________________________________

Address: _____________________________________________

Dear Tenant,

As I’m sure you’re aware, during this past year rental rates have increased significantly in our area.

We have personally experienced increased costs for taxes, utilities, maintenance and repairs.

Therefore, we must increase rent for the dwelling you occupy.

This notice is given on the date of:_______________________

Effective date of change in rent:____________________

New rent:____________________

We value you as a tenant.  If you feel you have special circumstances that you would like to discuss with us, please call our office.

Sincerely,

(our signatures)

Fischer Properties

(address)

(phone number)

Steve S. · Answer

Thanks for the feedback everyone!  Great thoughts and ideas

Mike S. · Answer

I raise rents every year, every property. Anywhere from $10 to $25 a month.   It's not even a discussion to have with a tenant.   How would that even come up? "Hey, I'm thinking of raising the rent, what do you think?" The get notice, sign to renew, or they vacate.  Average tenant stays 3-4 years.

Thomas S. · Answer

“I haven’t raised rent in 2.5 years but need a little help. What do you think is fair?”

Hobby landlords have a very strange idea as to how a business operates. Putting your tenant in charge of managing your business is a interesting approach. Do you let them draft the lease as well.

I never choose to supplement tenants rent at my expense and devalue my investment. That in my opinion is a very poor  practice and indicates a hobby landlord approach to business. A good tenant in my opinion must be paying full market rent. When a tenant says he can not afford a rent increase that is BS. When a landlord does not raise rents annually out of fear a tenant will leave that is BS. You do annual rent increases based on the cost of living index at a bare minimum. Maintain market rents and tenants will not move. If they do be thankful you got rid of a bad tenant that was likely going to stop paying rent anyway.

This is either a hobby or a business. Your rent indicates what type of landlord you are.

You now need to catch up for the past 3 years lost income. That is what triggers tenant moves. If they now decide to move it is your fault for having not maintained market rent.

Nathan Gesner · Answer

@Steve S. you'll find a lot of tenants claim they can't even afford $10 but they're just looking to see what they can get away with. Don't let them get below 10% of market rate. I recommend your lease include a minimum 3% annual increase so the tenant is always expecting it and you avoid falling too far behind.

Give them 3% or $25 or something to that affect and they can either accept it or move out. Odds are really good they will stay. Moving will require them to get money together for a new deposit and first month's rent, moving expenses, setting up utilities, etc. It's not financially wise to refuse a $25 increase only to incur the greater cost of moving.

Anders Rodland · Answer

Thank you @Marcia Maynard. I made a copy of that letter and will use it as well.

Kenneth Garrett · Answer

@Steve S.

I like @Marcia Maynard approach. Even at $20/$25 a month it’s less than a $1 a day.  Good approach Marcia.   I raise rents only upon renewel (state law).  I think a modest increase won’t drive tenants to leave.  Make sure you understand the market rent and where your unit sits in that market.  I have not had a tenant leave for small monthly increases.  I philosophically need to raise rents on renewel even if it’s small.  Since other cost keep rising I think it’s reasonable.

Good Luck.

Nathan G. · Answer

I only recently got my first property occupied but I plan to raise rent every year, even if it's by a tiny amount.  Have to enforce the expectation that it will increase.

What if you bluff and see how the tenant responds?

Kyle McCorkel · Answer

@Steve S.

You should raise it at least a little. Need to enforce the expectation that it can and will go up. What if they stay 10 more years, with zero rent increases? Then taxes will really eat into your profit, leaving little leftover for repairs. This happens to so many mom and pop investors.

Raising rent on a quality long term tenant?

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