Raising Tenant Rent: Strategy and Tactics

[paramount]

The other day I get an escrow adjustment/analysis letter from my bank – my mortgage payment is going up by nearly $100 overnight!!

I am really pissed about it – but what can I do?

The takers of Temecula voted for a 250 million school bond, and of course the criminal California/Riverside govt increased their taxes too. Ever notice the taxes are quick to go up, and really really slow to go down?

Overnight I’m losing money on my rental.

Can I increase the rent a $100 bucks a month? I don’t think so.

I have really good tenants – they have been there for 2 years with minimal issues.

I can’t be the only one to be in this type of position…thanks for any advice.

[spdrun]

What is the rent right now? 5% increase if it’s two grand isn’t too crazy. You can increase up to 10% legally with 30 days notice, more with 60 days of course.

[paramount]

I’m at 1550 right now, zillow puts the rent at 1643.

But the tenants handle lawn care.

[UCGal]

Are your tenants on a rental agreement that locks in the rate for a specific period of time? If so you need to wait till the period is up before you raise the rent.

If the tenant is a good tenant I would increase (at the end of the lease) 10% or $100 whichever is less. In this case that’s $100.

[paramount]

[quote=UCGal]Are your tenants on a rental agreement that locks in the rate for a specific period of time? If so you need to wait till the period is up before you raise the rent.

If the tenant is a good tenant I would increase (at the end of the lease) 10% or $100 whichever is less. In this case that’s $100.[/quote]

The lease expired, has been month-to-month for over 1 year.

[Coronita]

I’d either
1) eat the cost
or

2) raise the rent completely by $100

and nothing in between.

In all likelihood, for $100/month extra,I’d eat the cost…

If you raise the rent, the tenant is obviously not going to be happy. And once you do that, he/she is going to motivate to live somewhere else. So at that point, IF you plan on raising the rent it won’t matter if it’s $5/month or $100/month more…You’ll piss them off either way, so you might as well raise the rent one time as close to the market price as possible..

But for $100 more/month, it wouldn’t be worth my time of risking the tenant moving out and dealing with a vacancy…. Let’s put it to you this way. If the tenant leaves, you’re going to be out at least 1 month of rent. that’s $1550 right there… It will take you 1 1/2 years with your new rent price of $100 more/month just to recoup what you lost by the person moving out… And you don’t know how long that tenant will stay versus the current one.

If you like your current tenant, I’d do absolutely nothing..

Not worth it….

$100/month more isn’t bad…

One of my tenants (in bay area) I was renting to them a good $500/month below market value for 2 years. Now that was ridiculous. I did raise the rent to $450/month price, with the intention of settling for $250/month…. If I raised it first by only $250/month, he would have been pissed anyway ,and be asking for $125/month, to which I would have said no.. So I just raised it by the full amount, and then discounted it to $250/month for being a good tenant…If I didn’t like him/her, I wouldn’t have lowered it and just had him move out…

…And yes…he was pissed, but after looking around he realized he was still getting a much better deal than other places…..

[bobby]

if it’s a good tenant, I’d do nothing. Life is too short to deal with a bad tenant.
I’ve been on both sides of the coin. I have been a very good tenant. Landlord is an ass and raised rent anyway. “Good bye good luck dealing with the next person”. My next landlord liked my present and kept rent the same for 5 years. Only moved b/c I bought a place.
My family has a place for rent in Socal. Bad tenant isn’t worth the $100 extra you are going to get.

[NicMM]

In my case, I got a fee increase of $600. So I asked my tenant if it would be ok I raise monthly rent $50 after the current lease expires. She said it’s ok. But the current lease will be there until August. Is it possible my tenant change mind and move out instead?

[an]

Totally agree with bobby and flu. I wouldn’t raise the rent at all. Especially since it’s a good tenant. Why run the risk of vacancy and bad tenant for $100/month? Like flu stated, one month vacancy will take you 1.5 years to recoup with the $100/month rent increase AND you’re also running the risk of getting bad tenants that might cost you even more. Also, you might have to deal with 2 months of vacancy over that 1.5 years.

My rental is ~$100-150/month below market. I don’t mind it, because I have a great tenant who’s on a 5 year lease. I rather take less headache and no vacancy than slightly more profit and have to deal with those two things. When the 5 year lease is up, I would keep the rent the same as well until they leave. Maybe my decision, similar to flu’s, is due to the fact that even with below rent, we’re still making a profit. So we might be less driven to squeeze every last $ from the tenant vs find a great tenant and keeping them happy so the stay for a long long time.

I would only raise to market rent in between tenant.

[paramount]

Costs go up.

The govt is deep in all of our pockets -> taxes go up.

Even with a 30 year fixed mortgage costs are not fixed, somehow these costs have to be passed along.

But rents are stable?

Sounds like I need to become a renter myself to lock in my housing expenses.

No wonder renters are all to happy to increase taxes on “the man.”

[scaredyclassic]

The next renter, no problem raising the rent. It’s psychological though for the current guy. Make him feel unappreciated. I disagree though, maybe a 2 or 3 % Inc is a good compromise. I was a good tenant same place 5 years LL raised it I think 2 perc. One year….. didn’t bother me at all. $30.00 FOR YOUR GUY. DOUBT THAT WOULD HURT OR BE QUESTIONED. Sorry for the caps.

[an]

[quote=paramount]Costs go up.

The govt is deep in all of our pockets -> taxes go up.

Even with a 30 year fixed mortgage costs are not fixed, somehow these costs have to be passed along.

But rents are stable?

Sounds like I need to become a renter myself to lock in my housing expenses.

No wonder renters are all to happy to increase taxes on “the man.”[/quote]
Of course costs goes up. It’s the same in all business. That doesn’t mean as a business owner, you should make knee jerk based on your cost changes. As a business owner, you also should make other calculation we stated as well. It’s not as simple as raising rent to cover your new cost. If you do so, you might end up costing yourself a lot more than your new revenue.

[Gunslinger]

Your costs went up but that is only one aspect of your gain. How much did your property appreciate this year? You are making money 3 ways – cash flow, paying down a loan and appreciation. Don’t let a change in one blind you to the other two where most of your money is being made.

[Coronita]

[quote=NicMM]In my case, I got a fee increase of $600. So I asked my tenant if it would be ok I raise monthly rent $50 after the current lease expires. She said it’s ok. But the current lease will be there until August. Is it possible my tenant change mind and move out instead?[/quote]

1. Did you sign a lease renewal?

2. Depends on comparables….

[Coronita]

[quote=paramount]Costs go up.

The govt is deep in all of our pockets -> taxes go up.

Even with a 30 year fixed mortgage costs are not fixed, somehow these costs have to be passed along.

But rents are stable?

Sounds like I need to become a renter myself to lock in my housing expenses.

No wonder renters are all to happy to increase taxes on “the man.”[/quote]

Paramount. Look at this way..

The property either cash flows positive every month (before all the tax deduction benefits)

or

Your property has appreciated since the time of purchase, and your tenant is basically paying for your mortgage and maybe some more…

In either or (hopefully both) cases, you still come out ahead…

And if neither is the case, you probably should reconsider if that property really should be a rental property…

FWIW: rent prices have increased, and property prices have increased too… Whether you want to try to squeeze every last dollar out of your tenant is completely up to you..BUT, you also have to practically think about the opportunity cost of ticking off the tenant.

Remember your previous tenant? You mentioned at move out time, that tenant trashed your place, his/her pet peed all over your carpet,and you had to put in new carpet, repairs,etc…

Do you really want to go through that all over again, if this tenant moves out… over $100/month? Especially since your property is a SFH, which will need considerable cleaning up/repair each time a tenant moves out… (No, you’re not going to be able to deduct every possible expense out of your tenant’s deposit…)….

Your old tenant is probably not going to complain about a stained carpet, or a worn carpet, paint etc as much, since he/she is already use to it (and he/she was probably responsible for part of the wear and tear)..But someone moving in is completely different story…

Just suck up the extra $100..

If you want to look at it this way, that’s $1200/month you’re not going to have to pay income taxes on 🙂

[Author]

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