Hi, I manage a rental house for friends. We have a stable, very good renter who adores the property, and keeps it up quite nicely, even hiring some of the outside work done on her dime. This previously slightly working class neighborhood is now hot and prices are rising rapidly, for home sales as well as rents. Property taxes are following. She is retired due to some ill health, and cannot afford to buy in this neighborhood that she loves. The landlords, my friends, are proposing a rather hefty rent increase this year. It is renting for well below current market value though we always raise the rent a bit each year. I am struggling with the ethics of their proposed increase, 2 to 2 1/2 times our usual increase.
I am curious as to how the landlords among you, or renters, handle increases. A percentage? Pass on increased costs? What the market will bear?
Not a landlord, but there is something to be said about the type of renter in place.
Are the friends (and you as manager) willing to risk a change in tenants? Are there expenses covered?
DD has a condo that she is renting at $100-200 below market; just renewed the lease with no increase for her ideal tenants–the rent does (barely) cover her expenses.
My daughter is a renter. Her rent wasn’t increased at all for the second year. Bottom line…the management company would have had to paint, clean carpets, redo the kitchen (they are doing this as units become empty), etc. it would have cost them a ton more to renovate than what a rent increase would have brough in.
So to you…if this very good tenant moves out,they will have a number of issues:
They will need to do some freshening up of the place...painting, floors, who knows what else?
Place will be vacant at least while the work is being done.
They will have to look for another reliable and conscientious tenant.
They need to really crunch the numbers. Is it really worth it to raise the rent that much…and potentially lose a great tenant?
I was a landlord for four years (which was plenty long!!). I had two different tenants during that time. I never raised the rent. They were fabulous tenants, and I knew I didn’t have to worry about them…at all. Priceless!
I usually don’t increase rent much or at all while a current good tenant is in place. The hassle and cost of fixing it up, showing it, and the dead time isn’t worth it to me. However, I don’t own in a “hot” market where there is a multitude of good renters.
The owner of the condo my S rents told them he is not going to raise their rent because they are such good tenants. He is in Boston and I’m sure owner would have no trouble renting it but having tenants you know are good and take care of the place is obviously worth it to a lot of owners.
Thank you! Most of you are affirming my feeling that good tenants are worth a lot, and having that stable person in there who takes care of your investment is worth keeping. Part of that to me, is respecting their financial limitations.
I will never find another tenant who cares about the landscaping as much as she does, and improves it rather than letting it atrophy.
Silverlady, the ethical issues in renting in SF must be enormous right now! A friend posts about the rapid changes and squeezing out of historic occupants of various SF neighborhoods.
A case could be made to the owners that your renter adds value by keeping the landscape neat and tidy. A cost your owners might bear if the landscape wasn’t kept well by new renters. I must say, what a gift you must be to both your friends and this renter. Clearly you value each party and what’s best for all.
We tend to be a bit below market and generally don’t raise more than $50 or so per year, if that. We know things are tough for tenants and some of the tenants have been there for literally generations and wouldn’t be able to find anywhere else nearby if they couldn’t afford the rent. I guess it depends on how much the owners need the money and whether they’re willing to have to find a new tenant if this tenant decides to go elsewhere. New tenants are an unknown commodity.
S’s landlord raises his rent about $25-50/year because he’s an excellent tenant–always prompt and very neat. She’s relieved not to have to hunt for any new tenants and he’s happy to have a landlord that leaves him alone.
If they are making money above the expenses and she takes care of the house, they are lucky. The wear and tear of all tenants is not the same. They could rent to a whole group who would “depreciate” the house a lot faster than one single lady. We rented our condos out when the market had tanked and were happy when we had good tenants. I had one that was under my costs, but I renewed without increase just to keep a good tenant in place. I sold when she left. If the taxes really went up so much, I would think it is not “unethical” to recoup some money, but they may lose a good tenant, and could lose more. This is the risk in rental property. We never made money on the rentals, we just lost less by holding and selling later. It is their house and they can do whatever they want, but I am not one to cut off my nose to spite my face. If they are losing money on the deal, it becomes a different analysis to me.
We usually only increase $5 - $10/month, sometimes going two years between an increase for the long term people. When an apartment turns over, the increase is often $100+, but a lot of work goes into updating an apartment where someone has lived for X years (many of our tenants die as opposed to moving out).
I would advise waiting until this tenant is no longer in place and then increase the rent to market value for the next tenant. That is, if it is affordable for them to do so. Maybe consider an increase that is a little bit more than is customary but not 2-2.5 x more.
Never underestimate the unforeseen costs associated with a bad tenant or the turnover costs of finding a new one!
Mamaedefamilia, that has always been the plan. This house has had a number of long term tenants. The rents lag, and then when it turns over, increase the rent to market rate. This tenant has been there a while, at the same time the area has taken off, so it is lagging a bit farther behind now. Regardless, covering expenses is the point with minor rent increases.
The other issue is that some of the decor is becoming dated, and younger folk are often desiring and expecting new updates. So at a point, renovation, or selling will be in the works.
We have never raised rent on tenants, though we just did it to two couples. One, we raised $25 when they asked to renew another year contract (they jumped on that). The other, we gave two months notice and raised it a lot, from $1250 to $1500. They are staying. We explained to them that our costs have gone up significantly since they moved in (3 years or so ago with no rent increases), we just got hit with a 11K assessment, and I think they understand that we could have raised it $750 and still might be below market. The rents have skyrocketed around here. I always hate the thought of raising rent on tenants, but when yours costs are going way up, and rents are going way up, is it keeping a good tenant, or is it charity? I always just considered this kind of like our charity, but my husband isn’t going for it, and it will be nice to get a little higher rent without someone having to move out.
Our S is trying to decide whether to make an offer to buy the unit he’s been renting for the past 3 years. He likes it and continues to toy with the idea. Will be interesting to see what he does. We rarely raise the rent much except when a tenant moves out, then the property manager fixes it up and tries to bring the rent closer to market rate with the new tenant.
As a LL, let me throw my 2 cents in. Since the OP also asked about ethics, let me say I have no problem ethically with a rent increase based on appreciation of rents in the neighborhood. I don’t buy a home for thousands of dollars to give charity to renters. Nothing evil about honestly trying to make a profit. Don’t we all want paid on our job? A LL provides both a product and a service. That is his/her job same as a doctor, lawyer, or factory worker. The LL is offering a product and the consumer can say yes or no. Does the tenant pay me extra rent if I happen to be in a money pinch? Heck no! The charity is expected to be a 1 way street. Maybe I’d like to drive a Cadillac, but all I can afford is a Chevy. Not evil of Cadillac to price their car according to what they believe is market value.
However, as a more practical advice, I agree with so many others here that a good quality tenant is worth more than just their rent payment. The cost of any restoration and time empty must be factored in before one prices a current tenant out of the unit. I think a moderate increase is the best course of action, and when/if the tenant chooses to leave, then go for full market value.
Lately, I have renewed with a couple tenants and they got small increases. Our community recently voted “Yes” to some tax increases, so in my letter offering to renew I mention that is the reason. Partly so they will see justification, and partly so they will realize there can be a consequence for renters to vote yes to raising other people’s property taxes.