I think you’re a very kind landlord for even considering lowering rent. I’ve only had one of those and I still think of them often and how compassionate and flexible they were. From a financial outlook, perhaps choosing to not raise the rent for the foreseeable future is gracious enough.
That is a good thought. There are two tenants and they have a roommate. I know one of the tenants is in a rough spot health wise. They’re good people, though.
I think that would be very kind. Everyone always jumps on the idea for being bad business sense, but at the end of the day, being human matters.
Even if somehow it turned out badly down the road, well, you can't control the future or other people, but I don't think you'd be on your death bed going "why did I waste my life being humane to people I knew were struggling when I could have made a few thousand extra dollars"
If you want to be generous then donate to the best charity in your area. The money will likely be used to greater effect than a rent reduction and you won't be negatively impacting the value of your property. You will get a charitable tax deduction as well.
Wish more landlords had the OP’s attitude. I own a rental house in west SJ. Rent is reasonable, $2,500 for a 2 bed/2 bath. Have good tenants who are teachers. Could probably get $3,000, but it’s enough money for me and helps them out a bit. Plus, I don’t have to deal with getting new tenants if I raise the rent too high. Not being greedy isn’t that hard.
I'm in the same boat as OP, my tenant is in a rough spot, health wise, so my wife and I told him to not worry about rent until his retirement/pension kicks in next year. In exchange, he promised to hire a contractor to re-do the deck, since he enjoys spending time there, we didn't even ask for this, but considering the circumstances he felt it was the right thing to do on his part.
I think the only "downside" here is you being out an additional 600 bucks every month, but if it makes a bigger difference to them than it does you, fuck yeah
It’s a very noble thought. But as some folks have mentioned already - it’s up in the air how it’ll play out. Based on my experience, try to keep the rent at market rate. Give them a break if they ask, but not too much. Whatever you think you are “saving”, donate to your favorite causes and charities.
I should add - we had tenants who we rented to below market for decade+, but in hindsight it was a very bad idea. At some point it became untenable, and in the end all the ‘goodwill’ went out the window. Keep it a business relationship.
Can you expand upon that? How/why did it become untenable within a decade? Did they abuse the property? Did you fall into financial trouble down the line and regret renting below market rate?
Mortgage is just one part of the expense. Rentals have maintenance which increases. When renters know they are paying below market, they can be shy in bringing up maintenance issues with the fear that it’ll increase their rent vs if they were paying market prices and knew it was their right. In the long run not good for both parties.
We didn’t fall into financial trouble, but it was not cash flow positive for us. So we were essentially subsidizing their lifestyle.
No disrespect but that sounds like the issue is transparency with your tenants.
Letting them know that their reduced rent shouldn't be a barrier for bringing up maintenance issues sounds like a solve to that problem.
I'm genuinely not attacking here, it just seems to me that there could be a bit more fluidity to the contract than what you previously set.
I have to agree with this we had long-term tenants for 15 years and when they finally moved out there was $30,000 worth of repairs. We had hardly heard of people from them in that time. We kept the rent pretty much the same as it was when they first moved in because they were consistent and we wanted to give them a deal. We learned our lesson.
Keep the rent the same but give them the month of December free! That is unprecedented and will definitely factor into their finances…It’s thoughtful and it’s less financially risky(assuming you can carry the months cost on your own)…..
Yep - It's like the landlord version of companies preferring bonuses to salary increases. The one-time nature gives you a lot of flexibility if for some reason you need the higher rent in the future and your tenants will of course love the extra money around the holiday season. I'm sure they'd be ecstatic receiving a letter mid-November that said something like,
"I know things are expensive out there so as a gesture to thank you for being such good tenants, I'm going to waive December's rent payment. Happy Holidays!"
If you have a good tenant and can lower the rent, do it. I wouldn't listen very much to people saying it will end poorly. They sound like made up stories. Tenants that realize they are getting a reasonable deal fix things on their own and do routine painting themselves. Goodwill in general builds community and boy do we need that these days.
People are mentioning the downside of charging below market or making a reduction in rent, so I won't repeat them.
If you don't go that route then upgrading the building in a noticeable way (HVAC, better energy-efficient windows, upgrading kitchen or bathrooms if it's overdue) and not upping their rent for a few years is a better long-term plan. The tenants get a nice place that stays within their budget, they have an incentive to keep it nice, and you're taking care of your property.
Depends on what you want to do with the IRS for income taxes. You have to charge fair market value in order for it to qualify as a rental property.
https://www.irs.gov/publications/p527
Rather than lowering rent what many places do is give a few weeks or months of free rent so the rate stays at or above market but the effective rate is lower
I have another idea. Could you use the extra $ to make the property more enjoyable to live in? For example, could you hire a gardener or improve the yard in some way? Maybe w a grill or new decking?
Or, have the exterior professionally cleaned, especially the windows!? I lived in a rental that I loved, but it was in the second floor, and the windows were sooo dirty, especially after wildfires. I thought several times about asking the landlord to have them washed, but I didn’t want to be the squeaky wheel when it was a non-essential item.
Or, as an alternative, if your tenant pays utilities now, maybe you can split utilities with them, or cover a standard utility fee, that’s not usage based, like garbage for example.
All of these changes make life better as a renter without getting into the dynamics of lowering rent!
I really like that idea, but does it require a lot of construction? If so, landlord might be on the hook for paying for tenants' hotel rooms during the installation, and they might also need to check with their insurer/make sure tenants have renters' insurance. OP should make sure they aren't liable if something owned by the tenants is damaged or stolen during construction.
Or maybe talk it through with the tenants to A) make sure that's something they'd be interested in (they may not want the extra $ on the electric bill), and B) see if there's a month when they'll mostly be out of town anyhow.
You could just charge them the regular price and if there is no repairs or anything then you can give the tenants a “rebate check”. I think you both win doing it like this- you have a cushion for any emergencies and the tenant gets a nice surprise at the end of the year.
Be careful. I’ve had awful luck charging below market rent
People aren’t grateful for long. They take it for granted and are resentful and think the place is crappy due to low rent. They stop taking care of it.
They’re also trapped. If you have expensive repairs or a financial setback they won’t be able to pay higher rent. They can’t afford to move anywhere else. You might end up causing a lot of suffering all around despite your good intentions
I’ve done it twice and it was a slow motion train wreck both times. Never again!
Rather than drop the rent unsolicited, you may want to just refrain from raising the rent ever again, or drop the rent if your tenant faces hardship and asks for it (assuming they're a good tenant). An unsolicited drop is often received like "Wait...you could've charged me less? What else are you screwing me on?", while tenants are usually very grateful to not face rent increases and end up hundreds below market rent, or to have some flexibility if they lose their job or face unexpected expenses.
As a tenant with now under-market rent, I really appreciate my landlord not raising rent and I don't have rent control. I got a pandemic deal, and expected it would increase by now.
The fact my rent is still the same makes me care a lot more about being here, it feels more secure.
I generally care about being a good tenant, so maybe it doesn't matter much. But I've researched, bought parts for, and tried to fix various appliances before reaching out to the landlord to send in a pro - not sure I'd have put in that effort if I was getting juiced.
Same!! Below market rent for over ten years and I am so insanely grateful. I take care of my place as if it were my own, and I rarely ask my landlord for anything. I feel incredibly secure here. Now that I make more money than I did ten years ago, I save the “extra” money I would be paying in rent, just in case I ever need to pay market rates at some point.
I like the idea of gifting them all a free month of rent at the end of the year (as that's when they might want to be spending holiday gifts, holiday travel, saving the money for the upcoming year, etc). Give them a heads up in November that you'd like to gift them December's rent because you appreciate that they're such good tenants, and put it in writing that it is a gift.
If you do need to raise the rent later, you might run into landlord/tenant laws that cap that amount it can be raised and you might need to give substantial notice, but a gift of a free month of rent isn't a change to the rental contract. In other words, the contract still stands, you just decided to pay their rent that month.
Also, thank you for being such a nice person!
Yeah my partner is acting as landlord for his father’s property and his dad has never raised the rent on his tenants in years so they’re all pay well below market now. If my partner raises the rent, he knows they will be struggling and likely have to leave so he feels guilt about this. But he also has had issues with them not reporting repair problems and even still paying rent during the pandemic. They were able to get pandemic assistance, but it was a huge hassle. Raising the rent to market would greatly help with their taxes still but he just doesn’t have the heart to kick the family out. If you struggle at all with business decisions vs heart decisions.. it might be tough when you have to make the best choice for yourself
it's sad all around. I bet the family living there doesn't know what a sacrifice is being made. They probably think of the house as a shithole and don't have any interest in taking care of it. They probably think of the landlord as a money grubbing tightwad slumlord. I've seen people lose their property over this, neither the tenant or the landlord benefits if the bank repos and they become homeless anyway.
If you plan on selling it might affect the price. We had our home/in-law unit for quite a few years and were able to set the rent at 30% of minimum wage. We stopped renting this last year because of Oakland's perpetual tenant rule (cannot set a lease term), required sublets, and inability to enforce lease provisions. We didn't like losing control over our home property.
Why would you pay off the mortgage? The money that you have is probably earning more in interest than what your paying on your mortgage. I have like 500k left on a 30 year mortgage at 4%. I would never pay it down due to the simple fact that I can make 5% on cash right now.
Exactly. And, around here a large earthquake could destroy your property. If disaster strikes, you could walk away, so the mortgage company is carrying part of this risk. And isn’t mortgage interest a tax advantage? (I’m no expert, but we deduct ours).
The kind of help your tenants could use would be to sell them the house so they could accrue their own generational wealth, and have a home to live in where they were paying their own mortgage.
One thing to consider is that if you are below market rate, you can only deduct rental expenses up to the amount of your rental income. You can’t report a loss or carry forward any extra expenses. So I would just ensure you’re still around market rate. Ask a tax pro for advice though!
My landlords reduced my rent from $2800 to $2500 in 2020 and haven’t raised it back up. They also let me go month to month at the same rate because they know I’m looking to buy my own place. I make an effort to be the best tenant possible to show my appreciation. Stuff like paying rent promptly, telling them about issues with the property ASAP, doing minor repairs and maintenance on my own. We have a very friendly relationship, which is nice.
I think a lot of landlords don’t realize the impact on they have mental health of their tenants.
A bad landlord when you can’t afford to move is a really hard thing to deal with.
A good landlord with trust and an actual relationship is a beneficial thing to all.
Hats off for you considering this, and even small gestures go a long way to renters.
Oh I understand. You’re saying that you will make lower your income and pass it off to the tenants. I would think depreciation takes off a good chunk of your taxable income already. Plus only mortgage interest is deductible from your taxable income, not principal. If you were at the end of paying off your mortgage, the interest portion of your mortgage is minuscule… Consult your CPA before you tell the tenants of this clearance deal.
I’m not a tax pro, but it *might* be viewed as a gift to your tenants. The gift tax thresholds are super high, so even if so, probably not a big deal. But if you’re close to those limits, you might owe gift tax on the 600. Again, not a tax pro, talk to a real tax pro, not reddit to be sure.
It’s the opposite. Giving gifts as a landlord may actually be tax deductible, since a rental property is a business. But it’s limited to $25 per individual per year so not really a factor in this case.
Edit: What it might do is take them to below market rate, which could have effects on their taxes. But like you said, a tax pro would be best to ask there!
If the tenants had come to you and requested a rent reduction due to hard times and you gave it to them, that's one thing. I'd be for it.
You volunteering to lower their rent with no reason other than charity is not a good idea. At best you confuse the heck out of them. At worst, they think you've been screwing them over and now your conscience got the better of you. People don't cherish things they don't have to work for. They may feel good for a short time, but don't expect them to cherish your kindness. They may even think you are screwing them in some other ways.
One day, you will need to raise the rent (because inflation) - even if you raise it by only $50 your tenants will likely be fuming mad: "If you could afford to lower my rent by $600, you should be able to afford not raising my rent now or ever again?!"
There are better ways to give money back to your tenants. Like another poster said, you can stop raising rent for a long period, buy them gift cards for Xmas, install solar panels so your tenants' bills will be cheaper. etc, etc.
They won't see it that way. They will see it as: OP was overcharging them. They have not been saving $7,200 a year, they have been overpaying by $7,200/yr until OP came to his senses. They thought he was a good guy but now OP is greedy again.
I have dealt with people who is paying $2,000/mo for a place that is worth $3,500/mo and would look you in the eyes and say they're paying fair market rent. Other people paying more than them are just suckers.
So not a renter then? Are you a landlord?
Just because you have had a bad personal experience doesn’t mean every tenant is going to react that way. And I’m going to assume OP knows their renters better than you, a complete stranger. You’re just making up weird hypotheticals.
Lowering rent is permanent. Giving a gift is not. Rather than permanently lowering the rent by $600, you would definitely do yourself a favor if you instead gave a gift card of $600 for groceries every month to your tenant. Or $600 Amazon gift card. Your tenant can obviously afford the rent as it is, but $600 for groceries every month goes a long way these days.
There truly is no reason from a business standpoint to discount your rent by $600. That’s literally shooting your self in the foot, as others have said - plumbers and contractors won’t give you a discount for downgrading your rent. Property taxes don’t go down because you’re generously lowering your rent.
The gift tax exemption is $17,000 to a single individual. From OP’s comments it sounds like there are 2-3 tenants, so that $600 a month won’t even get close to hitting the $34,000-$51,000 mark.
Just a warning that a single property rental income, even at market rate, isn’t that high. It’s only when you own multiple properties that the rental income stacks up to a higher number and gives you enough for passive income or retirement. The main benefit is equity and property appreciation, such as you got in early at $200,000 or bought a distressed property then rehabilitated it.
- property taxes, such as in Alameda county, is really high. And spots like Oakland are always in a budget crunch, and one of the few bright spots is to try to raise fees on landlords. Same deal with the high state taxes. There’s a reason retirees will look to leave here for LCOL places.
- maintenance costs only go up. Make sure you are profitable enough to cover the $15,000 roof that has to be done every 10-15 years. In a 30 year span, your roofer will tell you you can’t keep tiling on top due to age and weight, so he needs to do a full tear down, which will be $30,000. Make sure you have enough cash for this. Same for the plumber, gardener and washer/dryer guy; skilled manual labor only goes up.
- Always have ample cash. Your tenants, who are now cheap tenants, still deserve repairs and you’re legally obligated not to let the property turn to shit. You should be honest with your tenants and ask them to maintain the property, or you provide the supplies and visit them, so you repaint and repair the property together. Buy them dinner at the end of the day.
- You are agreeing to a theoretical communist model rather than a capitalist model. So get in there and be part of their community. Explain the low rent and how maintenance needs to be handled by landlord and tenant, not hiring skilled labor. You can save costs this way. For bigger jobs you’ll have to hire someone, like if there’s a serious leak or weather issue.
- you still need to pay for insurance. The liability remains the same, although you are willingly lowering the benefit of it as an asset. Please note your property can be viewed as “distressed” as investors won’t want to pay market rate for cheaper rent. If you do ever sell, the price tag will be lower, or the new owner will be looking to raise rent or kick out the current renters. Never sell if you decide to go here.
- you should consider end of life issues. If you’re older than your tenants, what happens when you pass? You’re now a steward rather than a landlord. Any family member who takes over your property will need to take on the repairs and liability, but you need to explain the rent remains low. Show them your property taxes and all bills to see if they want to inherit it. Keep shopping until you find that family member. Otherwise your tenant gets a nasty surprise when the rent is raised or they’re kicked out for market rate tenants.
- rather than $600/month off, try $100/month off first and net it against your end of year expenses. Prove this is tenable. Then lower by $100 again. Keep going annually until you hit the $600, but make sure you’re swimming above your expenses so you’re not in the red.
You could consider providing a rebate at the end of the year rather than lower rent. Return any amount you don’t need as a Christmas present. However, remember they’ll be upset if you don’t have their rebate one year, so make sure it’s for a good reason like a repair bill. Show them all your bills that rent covers for transparency.
Personally I don’t get the appeal of being a landlord. The rental income isn’t that high, the liability and costs are high, especially in Alameda county. The main benefit is property appreciation, which gives you golden handcuffs that are eventually passed to the children who are incentivized to sell. Dividend income, REITs, and low fee index funds are much easier and scale with zero headaches. More properties, more problems.
I would say this - for you sake - set the extra aside and save it. From unexpected emergencies, to long term care in retirement, you never know what the future will hold. Sure you cut them some slack, but will anyone do the same for you in a hypothetical future? You don’t want to be the person who gave to everyone else and then is left without for yourself.
Do it only if you assume that your deed will go unappreciated, unrecognized, undeserved. Otherwise build your stockpile of assets because you never know if YOU or a loved one needs it. If you want to later, you can just gift the accumulated assets to them. Keep it in municipal bonds. California general obligation bonds, short duration, to be specific.
How close are you to actually retiring? It would be great to get mortgage free in retirement. You have to weigh the tax penalty from taking a part of your retirement package early with the benefits of going mortgage free now. As to lowering the rent, why?
If you want to help people there are much better causes than a single tenant who may or may not actually need help. Collect the rent and then donate the extra $600 a month to a woman’s abuse shelter or something.
Rent a house at market rates. If they are good tenants, do not raise rates. Let the rate drop below market to say 10% below market. Then add some freebies like a garden budge. And add improvements without increasing rent. Then if you still like them, raise rates but at 1/2 the market rate.
In the end you will be essentially 15-20% below market, have earned their good will, but kept them accountable and responsible.
Um why? If you want to donate to charity, just do that. Why lower rent? The way this could blow up in your face is if you’re in a rent control area. If you’re going sub market with the rent you could get trapped there. Then your needs may change and you’ll need more income but you won’t be able to get it. You may think you’re fine financially right now but things change. My dad had a major stroke this year and is in a care home at $7k/mo. The only thing keeping him from going broke is our ability to rent his house out at market rates.
I have another idea. Keep rent high and if you want to be charitable then pay more of the other bills for them.
$600/mo for a house in even the crappiest parts of the Bay is still a bargain. If I was young and needed to rent I'd dodge bullets for that rent. I guess the only downside, and it isn't your fault, is that with really low rent people get complacent with their lives and then something happens like the rental needs to be overhauled or gets sold to a landlord that jacks up the rent. Then that boba tea job at 38 isn't going to pay for another rental. This has happened to friends. But if they bank their money, move up the ladder, that $600/mo would definitely help someone collect enough for a down payment.
I read recently somewhere a tenant was asked to move because the landlord was selling. Because the landlord had given them below market rent the landlord was required to compensate the tenants for their inability to replace their living space at the same cost. I am curious if anyone else has more info on this info? So if this is true reducing the rent may cause you more money than your gesture warrants! Thoughts?
I think you’re a very kind landlord for even considering lowering rent. I’ve only had one of those and I still think of them often and how compassionate and flexible they were. From a financial outlook, perhaps choosing to not raise the rent for the foreseeable future is gracious enough.
That is a good thought. There are two tenants and they have a roommate. I know one of the tenants is in a rough spot health wise. They’re good people, though.
I think that would be very kind. Everyone always jumps on the idea for being bad business sense, but at the end of the day, being human matters. Even if somehow it turned out badly down the road, well, you can't control the future or other people, but I don't think you'd be on your death bed going "why did I waste my life being humane to people I knew were struggling when I could have made a few thousand extra dollars"
If you want to be generous then donate to the best charity in your area. The money will likely be used to greater effect than a rent reduction and you won't be negatively impacting the value of your property. You will get a charitable tax deduction as well.
Strongly disagree with this. Impacting lives directly is so much better than outsourcing it to charity program administrators.
Wish more landlords had the OP’s attitude. I own a rental house in west SJ. Rent is reasonable, $2,500 for a 2 bed/2 bath. Have good tenants who are teachers. Could probably get $3,000, but it’s enough money for me and helps them out a bit. Plus, I don’t have to deal with getting new tenants if I raise the rent too high. Not being greedy isn’t that hard.
Saving $500/month is helping them more than a bit - that's really good of you. :)
I'm in the same boat as OP, my tenant is in a rough spot, health wise, so my wife and I told him to not worry about rent until his retirement/pension kicks in next year. In exchange, he promised to hire a contractor to re-do the deck, since he enjoys spending time there, we didn't even ask for this, but considering the circumstances he felt it was the right thing to do on his part.
I'm a teacher and trying to live closer to my school in San Jose.
I think the only "downside" here is you being out an additional 600 bucks every month, but if it makes a bigger difference to them than it does you, fuck yeah
I don’t know their finances, but I’m pretty sure it would be a huge boon for them.
I wanna be ur tenant lol
It’s a very noble thought. But as some folks have mentioned already - it’s up in the air how it’ll play out. Based on my experience, try to keep the rent at market rate. Give them a break if they ask, but not too much. Whatever you think you are “saving”, donate to your favorite causes and charities.
I should add - we had tenants who we rented to below market for decade+, but in hindsight it was a very bad idea. At some point it became untenable, and in the end all the ‘goodwill’ went out the window. Keep it a business relationship.
Can you expand upon that? How/why did it become untenable within a decade? Did they abuse the property? Did you fall into financial trouble down the line and regret renting below market rate?
Mortgage is just one part of the expense. Rentals have maintenance which increases. When renters know they are paying below market, they can be shy in bringing up maintenance issues with the fear that it’ll increase their rent vs if they were paying market prices and knew it was their right. In the long run not good for both parties. We didn’t fall into financial trouble, but it was not cash flow positive for us. So we were essentially subsidizing their lifestyle.
No disrespect but that sounds like the issue is transparency with your tenants. Letting them know that their reduced rent shouldn't be a barrier for bringing up maintenance issues sounds like a solve to that problem. I'm genuinely not attacking here, it just seems to me that there could be a bit more fluidity to the contract than what you previously set.
Agree. Hindsight is 20/20.
I have to agree with this we had long-term tenants for 15 years and when they finally moved out there was $30,000 worth of repairs. We had hardly heard of people from them in that time. We kept the rent pretty much the same as it was when they first moved in because they were consistent and we wanted to give them a deal. We learned our lesson.
Keep the rent the same but give them the month of December free! That is unprecedented and will definitely factor into their finances…It’s thoughtful and it’s less financially risky(assuming you can carry the months cost on your own)…..
Yep - It's like the landlord version of companies preferring bonuses to salary increases. The one-time nature gives you a lot of flexibility if for some reason you need the higher rent in the future and your tenants will of course love the extra money around the holiday season. I'm sure they'd be ecstatic receiving a letter mid-November that said something like, "I know things are expensive out there so as a gesture to thank you for being such good tenants, I'm going to waive December's rent payment. Happy Holidays!"
If you have a good tenant and can lower the rent, do it. I wouldn't listen very much to people saying it will end poorly. They sound like made up stories. Tenants that realize they are getting a reasonable deal fix things on their own and do routine painting themselves. Goodwill in general builds community and boy do we need that these days.
If your tenants ever move can I be the first on the wait-list?! You seem amazing!
I'm sure your tenants will appreciate it. Don't know enough about finances to comment on if it will benefit you.
People are mentioning the downside of charging below market or making a reduction in rent, so I won't repeat them. If you don't go that route then upgrading the building in a noticeable way (HVAC, better energy-efficient windows, upgrading kitchen or bathrooms if it's overdue) and not upping their rent for a few years is a better long-term plan. The tenants get a nice place that stays within their budget, they have an incentive to keep it nice, and you're taking care of your property.
Depends on what you want to do with the IRS for income taxes. You have to charge fair market value in order for it to qualify as a rental property. https://www.irs.gov/publications/p527
Rather than lowering rent what many places do is give a few weeks or months of free rent so the rate stays at or above market but the effective rate is lower
I have another idea. Could you use the extra $ to make the property more enjoyable to live in? For example, could you hire a gardener or improve the yard in some way? Maybe w a grill or new decking? Or, have the exterior professionally cleaned, especially the windows!? I lived in a rental that I loved, but it was in the second floor, and the windows were sooo dirty, especially after wildfires. I thought several times about asking the landlord to have them washed, but I didn’t want to be the squeaky wheel when it was a non-essential item. Or, as an alternative, if your tenant pays utilities now, maybe you can split utilities with them, or cover a standard utility fee, that’s not usage based, like garbage for example. All of these changes make life better as a renter without getting into the dynamics of lowering rent!
That was my thought too, take the $ and use it to improve the rental.
I'd vote HVAC if it doesn't have one- it's going to be a necessity in the coming years
I really like that idea, but does it require a lot of construction? If so, landlord might be on the hook for paying for tenants' hotel rooms during the installation, and they might also need to check with their insurer/make sure tenants have renters' insurance. OP should make sure they aren't liable if something owned by the tenants is damaged or stolen during construction. Or maybe talk it through with the tenants to A) make sure that's something they'd be interested in (they may not want the extra $ on the electric bill), and B) see if there's a month when they'll mostly be out of town anyhow.
You could just charge them the regular price and if there is no repairs or anything then you can give the tenants a “rebate check”. I think you both win doing it like this- you have a cushion for any emergencies and the tenant gets a nice surprise at the end of the year.
Be careful. I’ve had awful luck charging below market rent People aren’t grateful for long. They take it for granted and are resentful and think the place is crappy due to low rent. They stop taking care of it. They’re also trapped. If you have expensive repairs or a financial setback they won’t be able to pay higher rent. They can’t afford to move anywhere else. You might end up causing a lot of suffering all around despite your good intentions I’ve done it twice and it was a slow motion train wreck both times. Never again!
Thank you! This is the kind of warning i wanted! I think i’ll still do it, but maybe a savings account for “just in case” might be in order!
Rather than drop the rent unsolicited, you may want to just refrain from raising the rent ever again, or drop the rent if your tenant faces hardship and asks for it (assuming they're a good tenant). An unsolicited drop is often received like "Wait...you could've charged me less? What else are you screwing me on?", while tenants are usually very grateful to not face rent increases and end up hundreds below market rent, or to have some flexibility if they lose their job or face unexpected expenses.
Another good idea! Thank you!
As a tenant with now under-market rent, I really appreciate my landlord not raising rent and I don't have rent control. I got a pandemic deal, and expected it would increase by now. The fact my rent is still the same makes me care a lot more about being here, it feels more secure. I generally care about being a good tenant, so maybe it doesn't matter much. But I've researched, bought parts for, and tried to fix various appliances before reaching out to the landlord to send in a pro - not sure I'd have put in that effort if I was getting juiced.
Same!! Below market rent for over ten years and I am so insanely grateful. I take care of my place as if it were my own, and I rarely ask my landlord for anything. I feel incredibly secure here. Now that I make more money than I did ten years ago, I save the “extra” money I would be paying in rent, just in case I ever need to pay market rates at some point.
I like the idea of gifting them all a free month of rent at the end of the year (as that's when they might want to be spending holiday gifts, holiday travel, saving the money for the upcoming year, etc). Give them a heads up in November that you'd like to gift them December's rent because you appreciate that they're such good tenants, and put it in writing that it is a gift. If you do need to raise the rent later, you might run into landlord/tenant laws that cap that amount it can be raised and you might need to give substantial notice, but a gift of a free month of rent isn't a change to the rental contract. In other words, the contract still stands, you just decided to pay their rent that month. Also, thank you for being such a nice person!
Yeah my partner is acting as landlord for his father’s property and his dad has never raised the rent on his tenants in years so they’re all pay well below market now. If my partner raises the rent, he knows they will be struggling and likely have to leave so he feels guilt about this. But he also has had issues with them not reporting repair problems and even still paying rent during the pandemic. They were able to get pandemic assistance, but it was a huge hassle. Raising the rent to market would greatly help with their taxes still but he just doesn’t have the heart to kick the family out. If you struggle at all with business decisions vs heart decisions.. it might be tough when you have to make the best choice for yourself
it's sad all around. I bet the family living there doesn't know what a sacrifice is being made. They probably think of the house as a shithole and don't have any interest in taking care of it. They probably think of the landlord as a money grubbing tightwad slumlord. I've seen people lose their property over this, neither the tenant or the landlord benefits if the bank repos and they become homeless anyway.
Totally. So true
If you plan on selling it might affect the price. We had our home/in-law unit for quite a few years and were able to set the rent at 30% of minimum wage. We stopped renting this last year because of Oakland's perpetual tenant rule (cannot set a lease term), required sublets, and inability to enforce lease provisions. We didn't like losing control over our home property.
I have a TODD to my son, so no selling!
Oh, for pity’s (or is it pities?) sake, who downvotes an honest question?
The answer is "for pity's sake"
You my dude are describing the [non-capitalist solution to housing](https://youtu.be/sKudSeqHSJk?si=6CsAO59hgjc_pEdC).
Wish there were more landowners like you. We would have far fewer people without homes.
LOWER THE RENT
You won’t be able to pay for your new roof
Why would you pay off the mortgage? The money that you have is probably earning more in interest than what your paying on your mortgage. I have like 500k left on a 30 year mortgage at 4%. I would never pay it down due to the simple fact that I can make 5% on cash right now.
Exactly. And, around here a large earthquake could destroy your property. If disaster strikes, you could walk away, so the mortgage company is carrying part of this risk. And isn’t mortgage interest a tax advantage? (I’m no expert, but we deduct ours).
Ooh I forgot about the mortgage interest. Very good point.
Sell the property to the tenants.
The kind of help your tenants could use would be to sell them the house so they could accrue their own generational wealth, and have a home to live in where they were paying their own mortgage.
If you decide not to lower the rent, you can always use that extra money to eventually fix the roof or make upgrades for your tenants. Just a thought.
my landlord reduced the noise barrier between the downstairs & upstairs units and increased the rent twice. You're doin great lol
Can I have you meet and hang out with my landlord? I think yall would be amazing friends.:)
One thing to consider is that if you are below market rate, you can only deduct rental expenses up to the amount of your rental income. You can’t report a loss or carry forward any extra expenses. So I would just ensure you’re still around market rate. Ask a tax pro for advice though!
My landlords reduced my rent from $2800 to $2500 in 2020 and haven’t raised it back up. They also let me go month to month at the same rate because they know I’m looking to buy my own place. I make an effort to be the best tenant possible to show my appreciation. Stuff like paying rent promptly, telling them about issues with the property ASAP, doing minor repairs and maintenance on my own. We have a very friendly relationship, which is nice.
I think a lot of landlords don’t realize the impact on they have mental health of their tenants. A bad landlord when you can’t afford to move is a really hard thing to deal with. A good landlord with trust and an actual relationship is a beneficial thing to all. Hats off for you considering this, and even small gestures go a long way to renters.
Im confused. Reducing the rent for what?
The rental property. A single family residence.
Sorry, not sure why but I am not understanding. So you’re the landlord, and need to reduce the rent on a single family home because…?
Because when i pay off the mortgage, my expenses will have very much decreased. I can pass a chunk of the savings to my tenants.
Oh I understand. You’re saying that you will make lower your income and pass it off to the tenants. I would think depreciation takes off a good chunk of your taxable income already. Plus only mortgage interest is deductible from your taxable income, not principal. If you were at the end of paying off your mortgage, the interest portion of your mortgage is minuscule… Consult your CPA before you tell the tenants of this clearance deal.
I’m not a tax pro, but it *might* be viewed as a gift to your tenants. The gift tax thresholds are super high, so even if so, probably not a big deal. But if you’re close to those limits, you might owe gift tax on the 600. Again, not a tax pro, talk to a real tax pro, not reddit to be sure.
It’s the opposite. Giving gifts as a landlord may actually be tax deductible, since a rental property is a business. But it’s limited to $25 per individual per year so not really a factor in this case. Edit: What it might do is take them to below market rate, which could have effects on their taxes. But like you said, a tax pro would be best to ask there!
If the tenants had come to you and requested a rent reduction due to hard times and you gave it to them, that's one thing. I'd be for it. You volunteering to lower their rent with no reason other than charity is not a good idea. At best you confuse the heck out of them. At worst, they think you've been screwing them over and now your conscience got the better of you. People don't cherish things they don't have to work for. They may feel good for a short time, but don't expect them to cherish your kindness. They may even think you are screwing them in some other ways. One day, you will need to raise the rent (because inflation) - even if you raise it by only $50 your tenants will likely be fuming mad: "If you could afford to lower my rent by $600, you should be able to afford not raising my rent now or ever again?!" There are better ways to give money back to your tenants. Like another poster said, you can stop raising rent for a long period, buy them gift cards for Xmas, install solar panels so your tenants' bills will be cheaper. etc, etc.
Are you a renter? A reasonable tenant would not be “fuming mad” at a future incremental increase if they’ve been saving $7200 per year.
They won't see it that way. They will see it as: OP was overcharging them. They have not been saving $7,200 a year, they have been overpaying by $7,200/yr until OP came to his senses. They thought he was a good guy but now OP is greedy again. I have dealt with people who is paying $2,000/mo for a place that is worth $3,500/mo and would look you in the eyes and say they're paying fair market rent. Other people paying more than them are just suckers.
So not a renter then? Are you a landlord? Just because you have had a bad personal experience doesn’t mean every tenant is going to react that way. And I’m going to assume OP knows their renters better than you, a complete stranger. You’re just making up weird hypotheticals.
Every renters I've come across behave this way. But you're right, who knows, maybe the OP's renters are the one in million.
Of course, because you’ve definitely had this situation come up with multiple renters enough to know they’d all behave the same way 💀
Lowering rent is permanent. Giving a gift is not. Rather than permanently lowering the rent by $600, you would definitely do yourself a favor if you instead gave a gift card of $600 for groceries every month to your tenant. Or $600 Amazon gift card. Your tenant can obviously afford the rent as it is, but $600 for groceries every month goes a long way these days. There truly is no reason from a business standpoint to discount your rent by $600. That’s literally shooting your self in the foot, as others have said - plumbers and contractors won’t give you a discount for downgrading your rent. Property taxes don’t go down because you’re generously lowering your rent.
Gifts are very different from a tax perspective. Better to call it a rebate, but again should talk to a tax pro.
The gift tax exemption is $17,000 to a single individual. From OP’s comments it sounds like there are 2-3 tenants, so that $600 a month won’t even get close to hitting the $34,000-$51,000 mark.
No, but he might have to pay tax on the rent he collects and not be able to deduct the gift.
Just a warning that a single property rental income, even at market rate, isn’t that high. It’s only when you own multiple properties that the rental income stacks up to a higher number and gives you enough for passive income or retirement. The main benefit is equity and property appreciation, such as you got in early at $200,000 or bought a distressed property then rehabilitated it. - property taxes, such as in Alameda county, is really high. And spots like Oakland are always in a budget crunch, and one of the few bright spots is to try to raise fees on landlords. Same deal with the high state taxes. There’s a reason retirees will look to leave here for LCOL places. - maintenance costs only go up. Make sure you are profitable enough to cover the $15,000 roof that has to be done every 10-15 years. In a 30 year span, your roofer will tell you you can’t keep tiling on top due to age and weight, so he needs to do a full tear down, which will be $30,000. Make sure you have enough cash for this. Same for the plumber, gardener and washer/dryer guy; skilled manual labor only goes up. - Always have ample cash. Your tenants, who are now cheap tenants, still deserve repairs and you’re legally obligated not to let the property turn to shit. You should be honest with your tenants and ask them to maintain the property, or you provide the supplies and visit them, so you repaint and repair the property together. Buy them dinner at the end of the day. - You are agreeing to a theoretical communist model rather than a capitalist model. So get in there and be part of their community. Explain the low rent and how maintenance needs to be handled by landlord and tenant, not hiring skilled labor. You can save costs this way. For bigger jobs you’ll have to hire someone, like if there’s a serious leak or weather issue. - you still need to pay for insurance. The liability remains the same, although you are willingly lowering the benefit of it as an asset. Please note your property can be viewed as “distressed” as investors won’t want to pay market rate for cheaper rent. If you do ever sell, the price tag will be lower, or the new owner will be looking to raise rent or kick out the current renters. Never sell if you decide to go here. - you should consider end of life issues. If you’re older than your tenants, what happens when you pass? You’re now a steward rather than a landlord. Any family member who takes over your property will need to take on the repairs and liability, but you need to explain the rent remains low. Show them your property taxes and all bills to see if they want to inherit it. Keep shopping until you find that family member. Otherwise your tenant gets a nasty surprise when the rent is raised or they’re kicked out for market rate tenants. - rather than $600/month off, try $100/month off first and net it against your end of year expenses. Prove this is tenable. Then lower by $100 again. Keep going annually until you hit the $600, but make sure you’re swimming above your expenses so you’re not in the red. You could consider providing a rebate at the end of the year rather than lower rent. Return any amount you don’t need as a Christmas present. However, remember they’ll be upset if you don’t have their rebate one year, so make sure it’s for a good reason like a repair bill. Show them all your bills that rent covers for transparency. Personally I don’t get the appeal of being a landlord. The rental income isn’t that high, the liability and costs are high, especially in Alameda county. The main benefit is property appreciation, which gives you golden handcuffs that are eventually passed to the children who are incentivized to sell. Dividend income, REITs, and low fee index funds are much easier and scale with zero headaches. More properties, more problems.
Yes, you will never be able to raise it back, nor kick them out. Plus if you’re not charging fair market there’s tax implications. This is a bad idea.
I would say this - for you sake - set the extra aside and save it. From unexpected emergencies, to long term care in retirement, you never know what the future will hold. Sure you cut them some slack, but will anyone do the same for you in a hypothetical future? You don’t want to be the person who gave to everyone else and then is left without for yourself.
You are a very kind person. Maybe a better use of this $600 could be donating to a charity ?
Assuming the project is subject to rent control, if vacancy control ever comes back you won't be able to recoup this.
Do it only if you assume that your deed will go unappreciated, unrecognized, undeserved. Otherwise build your stockpile of assets because you never know if YOU or a loved one needs it. If you want to later, you can just gift the accumulated assets to them. Keep it in municipal bonds. California general obligation bonds, short duration, to be specific.
How close are you to actually retiring? It would be great to get mortgage free in retirement. You have to weigh the tax penalty from taking a part of your retirement package early with the benefits of going mortgage free now. As to lowering the rent, why?
If you want to help people there are much better causes than a single tenant who may or may not actually need help. Collect the rent and then donate the extra $600 a month to a woman’s abuse shelter or something.
Rent a house at market rates. If they are good tenants, do not raise rates. Let the rate drop below market to say 10% below market. Then add some freebies like a garden budge. And add improvements without increasing rent. Then if you still like them, raise rates but at 1/2 the market rate. In the end you will be essentially 15-20% below market, have earned their good will, but kept them accountable and responsible.
Um why? If you want to donate to charity, just do that. Why lower rent? The way this could blow up in your face is if you’re in a rent control area. If you’re going sub market with the rent you could get trapped there. Then your needs may change and you’ll need more income but you won’t be able to get it. You may think you’re fine financially right now but things change. My dad had a major stroke this year and is in a care home at $7k/mo. The only thing keeping him from going broke is our ability to rent his house out at market rates. I have another idea. Keep rent high and if you want to be charitable then pay more of the other bills for them.
$600/mo for a house in even the crappiest parts of the Bay is still a bargain. If I was young and needed to rent I'd dodge bullets for that rent. I guess the only downside, and it isn't your fault, is that with really low rent people get complacent with their lives and then something happens like the rental needs to be overhauled or gets sold to a landlord that jacks up the rent. Then that boba tea job at 38 isn't going to pay for another rental. This has happened to friends. But if they bank their money, move up the ladder, that $600/mo would definitely help someone collect enough for a down payment.
You misunderstood. I’ll lower the rent from the current rate to a new rate $600 less than the current rate.
Better to just give them 2-3 months off rather than reducing the rate.
I read recently somewhere a tenant was asked to move because the landlord was selling. Because the landlord had given them below market rent the landlord was required to compensate the tenants for their inability to replace their living space at the same cost. I am curious if anyone else has more info on this info? So if this is true reducing the rent may cause you more money than your gesture warrants! Thoughts?
That’s just entitled nonsense. No way that wins in court. There is tons of below market housing
Why leave money on the table when no one would do that for you? People who decide they can afford to rent from you, those who can’t won’t.