Raising Tenant Rent: Strategy and Tactics

[Coronita]

[quote=scaredyclassic]If $100 a mo. Gets you this upset maybe it’s time to sell just because the investment is too irritating.[/quote]

That is a good point too….

But 5% return cash on cash wouldn’t be *that* bad considering a CD is what, 1%? Which brings back it back to the original point.

$100 to jeopardize a nice steady, stable tenant…. Imho not worth it.

[Coronita]

.

[bearishgurl]

[quote=flu][quote=scaredyclassic]If $100 a mo. Gets you this upset maybe it’s time to sell just because the investment is too irritating.[/quote]

That is a good point too….

But 5% return cash on cash wouldn’t be *that* bad considering a CD is what, 1%? Which brings back it back to the original point.

$100 to jeopardize a nice steady, stable tenant…. Imho not worth it.[/quote]

This is just a data point but jumbo CD’s thru online banks are paying ~2.3% for 5 years and require no maintenance or worry whatsoever. Up to $250K per named owner per bank, of course, in order to fall under the FDIC limits. You can always ladder them thru various banks.

I understand that rentals offer the possibility of higher cash flow and potential appreciation. But there are so many variables that can easily derail those best-case scenarios that, for many people, it doesn’t make sense to go thru the motions and put up with the headaches.

[spdrun]

5-6% (or even 8-9% in the NY suburbs which are riddled with foreclosures right now 😀 ) still beats 2.3%….

[paramount]

To me even .01 is a liability, this is the explanation I got from WF:

Currently, we are collecting the following monthly amounts:
Real Estate Taxes: $209.78
Property Insurance: $54.58

Beginning June 1, 2014 we will start collecting the following monthly
amounts:
Real Estate Taxes: $247.79
Property Insurance: $57.33

Your escrow account also has a minimum balance requirement equal to two
months’ base escrow. Base escrow is the amount of money collected each
month for the future payment of taxes and insurance, as indicated in the
figures above. Because the base escrow amount has increased to $304.12,
your minimum balance requirement has increased to $607.24.

At the time of the analysis, we reviewed a twelve-month forecast of
anticipated escrow activity. This forecast indicates your projected
escrow balance over the course of the upcoming year. In March 2015, the
projected escrow balance would be -$18.59, which is $624.83 short of the
minimum required balance. In order to maintain the minimum balance
requirement, a deposit must be made in the amount of $624.83. Therefore,
I have provided the details regarding the two options for repayment of
your shortage below.

The shortage may be spread over twelve months and paid in monthly
installments of $52.99 beginning June 1, 2014. With this option, your
new payment breakdown would be as follows:

Principal and Interest: $1,183.75
Real Estate Taxes: $247.79
Property Insurance: $57.33
Shortage Adjustment: $52.99
Total: $1,538.86

If you were to instead pay the shortage in full prior to June 1, 2014,
your new monthly payment would exclude the monthly shortage collection
of $52.99. With this option, your new monthly payment amount would be
$1,486.87.

****************************************************

Adding in the $100 HOA this property is now a liability.

[an]

But if you take the losses (including early depreciation), how much would you save in taxes when you apply it against your ordinary income? I would assume it’s a pretty penny at the very least. You made the mistake of buying too high, but what’s done is done. You now own the property and the tenant is paying your mortgage for you. Before any tax deduction, you’re at $0 or slightly negative, but you’re assuming that the mortgage lasts forever. Assuming you didn’t refi, you bought the property 11 years ago, so you probably have 19 years left before the property is paid off by your tenant(s). Which means in 19 years, you have a paid off house, paid by other people’s money. Sounds like a pretty good deal to me in the long term.

But, to me, based on your knee jerk reaction to an increase of $100/month in your cost, maybe being a landlord is not for your. That’s OK. It’s not for everyone.

[svelte]

[quote=flu]
$100 to jeopardize a nice steady, stable tenant…. Imho not worth it.[/quote]

Agree with this. Tenant is going to have their own perspective. If they’ve been a great tenant they are going to be fing pssed that rent is going up.

Why risk them leaving? May cause you more headache than the $100 more per month. Probably even likely cause you more headache.

Suck it up, take the hit, live life as it goes forward. You’re earning equity. Don’t worry, be happy. Every decision in life is a roll of the dice.

[CA renter]

[quote=flu][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 :)[/quote]

Good advice from flu and AN, IMO.

Paramount, if you’re running negative on this, it might be a good time for you to sell, especially if this doesn’t account for any maintenance, vacancies, tenant issues, etc. Ask the tenants if they’d be interested in buying it before you consult a realtor. You might be able to get this transaction done without having to pay any RE commissions.

——–

BTW, it’s not the govt that is raising your taxes, but your fellow taxpayers.

[no_such_reality]

[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]

It’s like any other business. Tenant acquisition,just like customer acquisition can be expensive.

A good renter has much lower than expected maintenace costs, particularly on the hassle/landlord time front.

[EconProf]

Decisions of whether to hold or sell an investment should not depend upon past events but on future expectations. If you expect values to go up and rents to increase in excess of cost increases, then hold on. Whether you paid too much or not in the past does not matter, except psychologically. Even whether or not it is making money now or not, does not matter. Investing is all about future expectations.
Investors who were courageous enough to buy pretty much anywhere in San Diego at the bottom–about 2009-10–have profited handsomely. They looked at the losses everyone in real estate had just suffered and decided that it was a good time to buy. They based their decision on their future expectations, not the past. So the question now is what will happen to San Diego rents and costs, and market prices. I wish I knew.

[Coronita]

[quote=paramount]To me even .01 is a liability, this is the explanation I got from WF:

Currently, we are collecting the following monthly amounts:
Real Estate Taxes: $209.78
Property Insurance: $54.58

Beginning June 1, 2014 we will start collecting the following monthly
amounts:
Real Estate Taxes: $247.79
Property Insurance: $57.33

Your escrow account also has a minimum balance requirement equal to two
months’ base escrow. Base escrow is the amount of money collected each
month for the future payment of taxes and insurance, as indicated in the
figures above. Because the base escrow amount has increased to $304.12,
your minimum balance requirement has increased to $607.24.

At the time of the analysis, we reviewed a twelve-month forecast of
anticipated escrow activity. This forecast indicates your projected
escrow balance over the course of the upcoming year. In March 2015, the
projected escrow balance would be -$18.59, which is $624.83 short of the
minimum required balance. In order to maintain the minimum balance
requirement, a deposit must be made in the amount of $624.83. Therefore,
I have provided the details regarding the two options for repayment of
your shortage below.

The shortage may be spread over twelve months and paid in monthly
installments of $52.99 beginning June 1, 2014. With this option, your
new payment breakdown would be as follows:

Principal and Interest: $1,183.75
Real Estate Taxes: $247.79
Property Insurance: $57.33
Shortage Adjustment: $52.99
Total: $1,538.86

If you were to instead pay the shortage in full prior to June 1, 2014,
your new monthly payment would exclude the monthly shortage collection
of $52.99. With this option, your new monthly payment amount would be
$1,486.87.

****************************************************

Adding in the $100 HOA this property is now a liability.[/quote]

Parmount your cost went up $53 . where did you get $100?

If it makes you feel better one of my properties HOA is $400/month with a special assessment. But it then again was bought dirt cheap and its still cash flow positive. That and I am waiting for the nice appreciation that will happen

FWIW:

You can choose not to do impound I think… Call up your lender. BUT

You do realize in the state of CA, impound accounts pay a 2% interest rate on the funds impounded, which is more than that 1% CD rate…….

That’s why I impound as much as I can now….. lol…

BTW. I don’t see real estate in your area or San diego coming crashing down. It might slow down or might trickle down. But there’s plenty of sideline money looking for property. I think people continue to underestimate that. I sure do.

[Hobie]

$100 is a tank of gas in your bimmer. You must be a w-2 guy. Employers eat $100 by the fistful for all the reasons mentioned just to keep moving forward. It will avg out in the long term. Keep current tenants happy and be glad their checks keep clearing. Raise it when they leave. +1 svelt moving out comment.

[NotCranky]

Nice irony, the “takers” are after your money so innocent parties rent goes up on that basis. A chain of takers.

Mom and pops should do things differently.Raising rent as a “mom and pop” is different, more personal, wether we like it or not. I have been paid every single cent of rent due and have had my places taken decent to great care of. I have always returned most or all of the deposit money. This is true even though I have had to kick a few people out.

No evictions or loss or rent or damage. “Kids ” see raising rent as punishment. I treat tenants as if I understand that paying rent hurts. Not raising rents, acting like fair minded “mom and pops” is directly related to why problem children were not disaster children and always paid what was due. It takes two to tangle.

I give notice or give the tenant option to give notice upon any response to an issue is unsuitable in anyway. I may have taken some vacancies that way faster than some people would….so far it’s worked.

[paramount]

[quote=Blogstar]Nice irony, the “takers” are after your money so innocent parties rent goes up on that basis. A chain of takers.

[/quote]

At least I’m pulling for kashkari.

[CA renter]

Great post, Russ.

[Author]

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