Funny "I'm raising your rent at renewal" conversation

[CJ Ashton]

So, I have a tenant that is finishing up their 3rd year in a rental I manage for my in-laws. Outside of one or two hiccups, they are really good about paying their rent on time. Additionally, they keep the place really clean, fix a lot of the little problems themselves, and nary a complaint from the HOA. In other words, the type of tenant I'd like to keep.

I signed them originally for a 2 year lease and wanted to raise their rent a bit ($25) for year 3.  They squawked so we negotiated to $10 increase.  Hardly anything, I know, but I wanted to let them know I look at the market rents every renewal.

So, lease is up in about 6 weeks and I start my homework.  Current rent is at $1275.  Zillow says $1475 but that has recently increased from $1400 just in the last 30 days.  Search the rest of zillow to see what nearby similar properties are listed for.  I talk it over with my better half and we decide that $1325 is more than generous as we'd like to keep them.

I send the tenant a text: "Love to keep you as tenants... Zillow says $1475... modest increase of $50 to $1325..."

It's hard to judge emotion through a text message, but the response was pretty huffy... "Well, you must not want to keep us as tenants.  We'll definitely be looking for something cheaper..."

I send another text:  "Sorry you're not happy with the small increase...  I checked the entire 10+ mile radius and there's only ONE similar property that is cheaper...  Love to have you stay, but good luck if you choose to go...  If you do leave I'll be listing it at $1450."

10 minutes later - during which time I'm assuming the tenant got online to look for other options - they reply...

"Is there anyway we can negotiate..."

Heh.

I wonder if tenants think I use a random number generator to come up with the rent amount.  I'll give good tenants a break with a below market rate but otherwise, I'm running a business.

Told them we were firm at $1325.  If I were a betting man, I guess odds are 75/25 that they'll renew.

[Mike Roy]

@CJ Ashton - I would suggest that you always incorporate annual rent increases from the very beginning in the future.  I think part of the push back is that there wasn't an increase built in after Year 1.  Always important to set expectations on the front end. 

One thing I like to do is to offer tenants an option to renew their lease at one price or remain month-to-month at a higher price.  This choice generally produces the outcome I'm looking for - a renewed lease.  This also enables me to better estimate my portfolio's vacancy risk in the coming year, and perhaps get a little softer on the increases if I see too many tenants choosing month-to-month.

It looks like you chose to play hardball with what you describe to be ideal tenants.  I would just consider that the lack of damage they cause and the stability of income they provide is worth something.  How much?  Just consider what a turnover would cost you in renovation and lost income, add it up and divide by 12.  Then consider that your next tenant might not be nearly as good.  You might find that $1275, a $2,400 annual discount, may actually be okay.

Why not go back to them and tell them you gave it some thought and that you appreciate what great tenants they've been and would like to work something out.  But maybe you offer them another two-year deal at $1,300 for Year 1 and $1,350 for Year 2.  

Last thing - I suggest calling them on the phone.  Much more sincere.