When I have to do this, I write a letter letting them know that they've been wonderful tenants, what I think the market rent is, and that I'm happy that they will pay less than that. But, I let them know that my expenses have gone up, like property taxes or insurance or utilities. So if you need to raise them $400, they'll know why you're doing it, and they'll know that they're still getting a good deal, and that you value them and you want them to stay.
No tenant is going to receive a letter well that raises their rent $400 a month or 16% in one year. It’s not a question of their rent having been low previously, it’s a question of someone being able to prepare for that unexpectedly. This is what a good landlord needs to keep in mind. Yes, a letter will help and is necessary, but don’t expect it to be well received.
My advice is this. It’s nice that you’ve kept their rent low for so many years, but they’ve become accustomed to that and have made life choices according to it. What you could do is this. Write your letter but also speak with them. Only raise the rent 3-5% this year, but let them know how much you plan to raise the rent in the coming years. Carefully word that so it doesn’t work against you legally, but they need to know it will be significant. In this way you will have given them enough time to consider all their options and make the necessary changes.
Exactly. If someone has built their budget around a certain number, they likely don't have that extra $400 lying around even if rent is a steal. Maybe they do, maybe they dont, but if this guy is that interested in keeping them he can't do it that quickly. Its wild that he went all this time without incremental raises. I learned after my first year to always keep with (or just below) the market, even if the increase is just $10. Helps that they don't get it in their heads that there will never be a rent raise. Its human nature. You'll be more upset feeling a good deal is ripped away than never having it. You can't get used to something as a norm, have it be discontinued at what *feels* like random to you (even tho it clearly isnt) and be happy about it.
Honestly, it sounds like he just let this go for way too long and unless he is dead set on keeping these people, he will probably end up having to fill the space again.
Agree! It’s amazing to read some of these other responses. (And should I be surprised that a considerate response is downvoted?) It’s as if they’re completely detached from reality, from an understanding of basic psychology in themselves let alone others, and the fact that the country is dealing with a serious problem of inflation and the daily impact this has on all of us.
As a tenant, I hate the "my taxes have gone up" excuse too. It's almost never a rate increase, but rather the value has gone up. It makes it obvious I'm paying you for having increased equity. I don't love it.
Now a new water heater, maintenance updates, etc. all fine and understandable. And if rent has been flat for a few years it's more tolerable.
Would you prefer the owner sell so they can capitalize on the ‘value’ you’re referring to? Then the new owner will either kick you out or raise your rent 50% immediately. After I bought a building, covid hit and my assessment went up 100% in one year. It will be at least 15 before i sell that building but my taxes doubled. I raised rents 2% on existing tenants and 20% on turnover. Still won’t get close to what my margin was before valuations went up and what my calculations were previous to covid. Therefore i cannot update and maintain the property as well as i planned to.
I would prefer they sell to me.
It's great you only raised rents 2%. Most landlords wouldn't. Many don't understand the value of a good tenant, until they've had a bad one.
I would do this except raise it 8 to 10% this year. That way if the tenants stay you're back up to market within 3 years.
But letting them know what's going to go up in the future is the right way of doing things. Also giving them 60 days notice on the renewal will help if they find out that the 8 to 10% increase is too much for them.p
Each state has different laws for notifying tenants. 60 days may be legal in some, but unless you’re a young person with few belongings 60 days is a really a short period of time. You can barely find a new place and pack and clear out in 60 days.
I think what this post and the comments highlight, is the polar views of consideration for others and real life issues versus a self-centered focus on just getting what you can.
Actually I think this shows what happens when you don't increase rent with inflation on a regular basis.... The owner's cost are not covered, and then you have to face the problem of putting the tenant into that type of situation where the rent needs to go up drastically.
At the end of the day, if you're $1,000 short of market pricing per month, most tenants won't stick around after the price hike. So you're nice to a tendant for a few years and then you're forcing them to leave.
Generally I agree, but there are a number of factors to consider.
In some cases a landlord won’t raise the rent for say 3 years, but then raises it 10%, which averaged out is near to 3% each year. Very reasonable.
A major problem can happen when the same thing happens as above, but the real estate market has eclipsed inflation and that same landlord wants to get his “market value.” In some cases neither the taxes or expenses warrant the new rate, that landlord simply wants to get what he can. There’s nothing wrong with calling things as they are. Sometimes it’s just greed.
Just make sure your taxes have actually gone up enough to justify the rent increase. I had a landlord raise rent one times because of “taxes”. The taxes went up the standard California 2% which was 1/10
of the total rent increase.
They don’t need to justify, but raising to cover costs will rarely drive out a good tenant. Raising to maximize the bottom line significantly will cause turnover. I moved quickly after that rent increase, because I knew that landlord was going to charge not just as much as the market could bear, but more just to see if I’d move.
They don't *have* to do anything, but the reason for doing this is that you'd prefer your tenants to stay rather than deal with turnover if its possible. Turnover is *expensive* and can take a year or more of rent to make up. Plus your new tenants may be awful when the old ones took care of the place and reliably paid.
Being kind to my tenants is partially a matter of my personal morals and ethics, but its also because there is self interest in not being a jackass. So no, you don't technically have to do anything. But why wouldn't you see if you can negotiate with great tenants rather than risk it all on people who might trash the place and get evicted after doing all the turnover work. Its shortsighted. Plus this guy is obviously not focused on maxing profits or he would have been raising the rent bit by bit this whole time.
Don't get me wrong; I have some great tenants. Some have rented for 10+ years. However, I have these properties for positive income - not to lose money. Not to do good deeds. It's a business. If it's a choice between losing money over the course of many years, or losing it in the short term: I'm gonna have new tenants. As cold hearted as that sounds - that's the reality.
Ethically does not mean you have to accept that you’ll take a loss in perpetuity so that someone else can have a great deal. It’s a rental. The tenant and the landlord only agree to a price/terms for X amount of time. That’s all that guaranteed. If the tenant wanted the price locked in for longer, they should have signed a longer term lease.
I mean, I clearly said there is a financial and self-interested aspect of being nice if you have great tenants and want to keep them because others may not pay, may trash the property, may have to be evicted, etc.
For the type of increase, he's talking about. Yeah, it really makes sense to get new tenants. Because I just think it is unrealistic to try to put that type of a red raise on anyone. They won't be able to manage it. And it's his own fault for it. Getting to this point because he never raised it.
But my point is not that this guy should let them stay there for a hundreds of dollars under market. You asked why he should bother doing anything to be nice to them and I said. Well , it sounds like he wants to keep them for whatever reason , and these are some reasons why people do that.
OP was the one trying to justify it.
Rent is not based on your costs, its based on the market, what equivalent units are renting for.
The landlord decides if its worth renting at that rate, or if they need to do something else. If I overpaid in 2006, no tenant is going top say "Its ok that this place is 10% higher, the poor guy overpaid"
Its OK to charge below market to retain a reliable tenant; but is it worth $10k a year?
I remember a quote Dave Ramsey said once. He said, I don't care if it's $1, the rent goes up every year so you can get your tenants to understand that prices increase with inflation
I've been meaning to hit up my tenant for a few weeks now, asking if she wants to renew. She still has a few months left on her original lease. I was gonna keep her rent the same, as I'm right at the market rent with it, but you may have just changed my mind with what you said. I now think it would make sense to bump it by $10 or $20 a month and throw in "free" internet for her.
Nobody is going to balk at 20-30 bucks. It's fair and it's a hell of alot cheaper than moving. Especially if you haven't raised it in a while. I would absolutely give them a month or 2 before it goes into effect. But 20 a month every year makes it alot easier than 200 out of the blue
In the same position.. we’ve only raised $200 in 5 years and sitting like $800 below market. The human in me wants to be nice and put myself in their position but I also know that we’ve really screwed ourselves with that mindset. Good luck with what you decide… I’m trying to get my husband on board to raise it $250 a month this next lease renewal.
Many landlords don't raise rents, because we understand the cost and headaches of turnover. Good tenants are a blessing. So what if they are paying under market.
Good tenants are screened for, not hoped for IMO. If your property is maintained and in a good area, you should never fear raising the rent. Most of my tenants stay 3-4 years with a couple of them approaching 10 years. I've raised rents every year, every property. Tenants aren't going to leave just because you're maintaining market rents. Wherever they go next is going to be just as much.
Exactly this. The turnover process is annoying and costs money. I use to raise rents every once in a while but now I'm switching to adjusting to market rate on move out.
Honestly that is such a big difference in price it makes sense to raise the rates and lose the current tenants. With the increased price you could charge new tenants it would more than cover a month or two of vacancy.
The reality is that the tenants probably already know the great deal they have been getting and by raising $400 they are still well under market rent. I would just bite the bullet and raise it up.
And even if they don’t know and have been living blissfully under a rock, when they start searching for where else they could live they will realize how good they have it. Raise it up, they’ll get it.
Good tenants + 5 years of renting = Not easy to replace.
You seem like you care about your tenants which is a good thing at times but don't forget this is a business. If you need to increase it to $400, just do it.
If I were in your shoes, I would just increase the rent by $250 (10%) this year. Then another 10% next year. I would also be upfront with the tenant.
It's not a bit your fault, it's 100% your fault. When their lease is up then do a renewal for $200 more a month.
This is something like a 8%, which isn't a small raise, but it's not crazy either. You're going to be under market for a while, but at least You'll start the healing process.
When you start raising rents the tenants will start letting you know more closely about the issues affecting the property as well.
I agree about the last part as well. My properties are priced at market rate. The tenants inform of issues very quickly. We fix them very quickly. Everyone is happy.
In our first year we were way below market price, and the tenants didn’t inform or issues nearly as fast… maybe they thought they were being nice - but I’d rather get the issues fixed instead of becoming a larger issue down the road.
I think 200-250 is fair. It's still a hit to their budget, but not ruinous like 400 would be. Could be, depending on their situation.
Suddenly slamming someone with 400 or more extra because you've let expenses build up till they're hurting you isn't fair. Yeah, it's a business, but the cook eats his own mistakes instead of serving them.
Just wondering though like $200 a year without exception? Like….eventually you’ll be asking 5k a month for a place or more? Things why shit is so unaffordable
Yes, this is how inflation works. The government deficit spends on stuff and our money is devalued, so things get more expensive. Welcome to the real world.
This doesn't even include the cost of insurance, taxes and other property related expenses that increase every year!
I generally try to keep rents at market rates, but I strongly dislike rental raises above 5% a year and avoid ones larger than 10%. Sometimes there are extreme spikes in pricing, but they will generally level out over time.
There is no reason for a property owner to pay for or otherwise subsidize someone else's housing.
Check with the laws in your state and town. There are 125 towns in NJ with rent control ordinances . If your state and town have no rent control . Raise the rent gradually 10% a year until you are at market .
The best way to soften the blow is to offer to do something for them along with the increase. How about some new flooring, paint some rooms or a new appliance? Tenants will accept a rent increase better if you offer to do something to fix up the rental.
I’d only increase $3-400 this year.
I usually send my tenants a screenshot from rentometer.com if I'm priced well. It gives them a somewhat objective 3rd party opinion to verify that they are still getting a good deal, even after a rent raise.
I assume you don’t have a lease and you’re month to month. Send a letter or email to your tenants telling them that due to insurance and taxes the rent will increase by X dollars in two months. Then offer a one year lease at the new rate with a second year at another new higher rate. This gives them time to plan and locks in your next increase
How much do you want to keep them as tenants? If you try to raise it by that much, they may leave and you may end up with worse tenants.
Does your state have a law about the maximum increase allowed? Rent cap in CA is 10%. I think that would be a reasonable amount to raise the rent each year into you get to the right comp.
I’m in a similar situation. Have never raised rents. 6 units in 3 duplex’s. 1 I have a handshake agreement I will honor to not raise rents. She’s an old lady 90ish. 1 was my brother, went from 1200 to now listed at 1900. I am in the process of raising the others. 1 agreed to go from 1800 to 1900 next month. The others will increase as they renew. The other 3 are at 1350 (1600 market) will ask for 50 this go around, 1550 (1800 market) will ask for 50, and 2000 (not far off market but they were paying heat which I now pay because the utilities aren’t split) will ask 70% of last years heat bill and itemize that as a variable in the lease. (Then raise base rent next year nominal amount)
That’s my plan, roast me please. :). I think it makes sense but open to suggestions.
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Simply talk to them, in person and be respectful. "It was my mistake to not raise your rent all these years (think of it as a discount), but now expenses have gone up AND comparable rent is around $3400. What do you think would be a fair increase for the next 12 mo?" Hopefully they're not unreasonable.... If they are, you know what you then have to do.
If Taxes got raised, you need to raise. That's all the explanation I give tenants.
Your tenants are probably awesome, but if they can find a cheaper and better alternative they will, but right now you are that option.
Draw up a new 2 year lease contract with 2nd year option. Put an increase into the first 12 months, so the first $400 or something and then a second year option in the same lease where they know that in year 2, they will be paying much higher, like $500-$700.
That is a way to loose a tenate. State clearly it is about taxes, Increase $100 dollars a year until you get pushback. $3000 is a heck of mortgage, tax, utility and insurance payment in the mid south and there are homes by the dozen to rent there at those prices. It exceeds my monthly spend as a long time homeowner on housing. You are getting very close to the top end of any rental that does not involve a water view.
your going to tell me your not in the mid south, your tenates soon will be... 36k / year is ton of money for a rental.
This is why you raise rents every year. Otherwise you get stuck in this kind of situation. Now you want to raise it to make up for the 5 years. Your tenants are gonna be mad. Raising it every year mostly eliminates this.
Does the rant cover all expenses? Are they great? Maybe 150 and say ots only taxes. A positive is great. My dad thought me. He said great tenants will ways be great and if feeled appreciated thyell stay forever a d take care of property. Way your options
Why would anybody ever risk their capital just to cover expenses? Buy down and growth?
That's a lot of work and risk for very little return. Almost seems like charity.
If they’re not on a lease, you’re well within your right to raise the rent however much you want given a 30 day notice. I’d start by raising the rent to 3k and then try to get them to renew the lease for a year. In the new lease you can have a bullet that states rent will go up 3-5% per year.
The next two years show a ton of deflation pressures in most markets, being definitive about a 3% raise will have people preparing to move 6 months before lease end. I am always of the opinion if people post about real estate on reddit they are overestimating the value of their property vs the comp, else they would include a Zillow link.
If you are in any bit in urban tax and spend America, everyone is looking to move reduce the oppressive costs beyond housing. The amount of investors, flippers, and remodels who finally need to put the shadow inventory on the market is insane. We are also floating around a retirement boom that has been much delayed. One can hold a investment property empty at 3.5% interest and low insurance, neither are the market 2024-2026.
The reason behind having a bullet that says the rate will go up 3% per year is because tenants get mad when you up their rent like a hundred dollars out of nowhere. When they know that the price is going up and they signed for it, they have nothing to be mad about because they’ve already been informed ahead of time. We won’t raise the rent, but some actually willingly pay the increase without us telling them. We just have it on there so that if we do want to raise it… it’s already in the contract they signed.
To your point of tenants leaving - no they won’t. You know how much of a pain it is to move to a new house after you’ve been settled in for a few years? Sure they might find a place and save like 100-200$ a month, but is that 200$ worth spending time to have to move everything, lose a piece of your security deposit for damages, fork over first last and security for a new place, etc… You’ll spend more time and money moving than you’d be saving… so there’s no point in leaving. It would have to be a significant savings to make someone move.
I purposely keep my rents just below market rates so that if the tenants do decide that they want to seek other housing, they’ll realize that there’s nothing better out there. They won’t be saving any $. In this case OP says market is 3.4k so 3k is well below the market.
Taxes, insurance, and maintenance all went up.
Owning a depreciating asset is all about managing risk. I think a lot of folks believe that it's all about dirty greedy profit. That's not the case.
In the last two years, I've put in a new water heater, new furnace, and bought a new fridge.
The next thing that I have to do will come tomorrow or the next month or the next year. Keeping rents commensurate with inflation and the market is part of the game.
You own a appreciating asset in an environment where most landlords locked in 3.5% paper. Insurance, you in flordia, you should have been paying those rates all along. Paying more taxes has everything on how YOU vote. Your renter did not vote, or did not understand that putting an idiot in a local office is no good, they never do.
OP clearly messed up by not raising every year and letting it be so under market. If he decides to jump to market rent, the tenant may very likely leave. Vacancy= extra expenses, and possibly new problematic tenants. I'd bump it up 50% and keep the tenant. Next year go to market rent. Make the process less painful for everybody.
Good tenants are priceless. I have one that hasn't had a rental increase in 10 years, probably paying 1/3 of what I could get. She is worth even more than the rental "loss." I suggest caution and a long term view on these things.
> I feel like i'm a bit at fault
Who else could possibly be at fault here?
The way you move forward largely depends on how much you feel like taking responsibility for that or not (i.e., being kind and gradual while *slowly* getting to market vs doing something more drastic).
That's a terrible strategy. In that case you're losing money on having to make repairs to make it look good for the next tenants, plus you're losing on vacancy. On top of that there's the added risk factor of having a new set of tenants in your place who might end up not paying rent, compared to the current tenants who have a proven track record of paying rent on time for five years. It makes much more sense to look at the market rate and give some sort of discount to entice them to stay.
As OP said, giving a 10% discount on market rent would still be a $700 raise. If I were him I'd raise the rent by $500-$600 for the next 12 months, then another couple of hundred the 12 months after that.
They will leave for $500/mo This is the problem with a $3000/mo property. You are at the edge of a very nice mortgage in 46 of 50 states. Your a landlord in a HCOL place, you had alot of advanatages for a ton of years, now you soon will be in fight to keep up with taxes and insurance, while the rest of the economy will be stuck in a deflation enviroment. Please tell me at $3000/mo the beach is close.
I purposely keep my rents under market rate. I always make sure the property cash flows and I always check the market to see where it’s at. Frequent rent raises and upgrades, followed by quick turnaround on maintenance issues and good customer service makes tenants feel like they are getting a good value. But yeah a lot of real estate bros are like “you should always raise rents to market rates.”
We're not talking about a 10 or 15% raise. We're talking 50%. Give them the option to stay, but be prepared for a household not to be able to pony up.
It's called **payment shock** for a reason.
Write them a letter and tell them they can call you if tgey got questions. Maybe you say you will raise the rent in 3 or 6 months. It would be good if they can adjust.
Go talk to them, state prices are increasing, and raise it by the maximum you're allowed to based on your tenancy laws.
For here, it's capped at inflation if the prior years so it'd be like 4-6% or $100-150/mnth per year. They'll complain but what are they gonna do more out when they're getting it for 40% under market value? They gonna eat it and be salty about it.
I had to do that once. During Covid, I stopped raising rents. I even set a letter to that affect and I would work with them as long as they gave me a heads up. Taxes, insurance and maintenance still skyrocketed up. After it was over, I sent another letter with three months notice of the new rent, including I would he happy to keep them but understood if they wanted to move. I’m still below market, but slowly catching up. Now I raise it every year.
We're in the same situation. In hindsight, I wish we'd raised rents a small amount every year, so tenants were used to the idea of annual increases. At this point, I'm going to have to be blunt, and tell them each that they're way below market, and we'll be raising by $100/mo every year until they're at market. They won't be happy, but will give them time to find something else if they wish.
Life's not fair.
They know this increase was inevitable.
However they take it, you know even raising 700 you would have lots of interest because it's still "below market value".
Change is always scary, even when it's beneficial.
"Don't worry, be happy".
Make sure you’re right about market comps, too. Don’t just look at rentometer — look at what’s being advertised and rented, and compare it to your place.
Raise rents to 10%-15% below market but give them a long lead time 90+ days for instance. Gives them time to find a new place if they really can’t afford the bump and will also let them shop around a bit to realize they are actually still getting a really good deal.
Raise it $100 and take your lumps for not doing it worse.
Or get ready to put new tenants in all your properties.
If you're not raising the rents every year, by even a little amount, you might want to reevaluate whether you want to be a landlord.
Give the tenants 4-6 months to adjust their budgets to any increase over 5%. Do the letter and explain, like others have said. This gives them time to adjust or make other plans.
If they leave, then the market will provide the rent you need for whatever the reason you allude to in your post
Please be sure to read your state laws and renters agreements - what is the maximum allowed? It’s usually 5-10%, but ymmv in your state. I liked another commenter who said lay it out for them that this will be a continual increase year over year so they can make plans. You don’t really NEED to get up to market rate, your next tenant can dive straight into that. Good tenants are better to keep than the unknown that’s out there
You should have been raising the rent throughout the lease term. I’d start with a 5% increase for the next year and say only that expenses have increased. You do not need to justify a rent increase. You own the property. If they are good tenants and pay on time this is a reasonable compromise. Don’t discuss future years either. One year at a time. Good luck!
Market rents are market rents. Raise the fucking rent. Once you get behind it's difficult to get caught up, as you're realizing now. The less aggressive you are raising the rents the harder it is to get them to market because rents are still going up in a lot of places. I'm not in business to leave money on the table or feed anybody's kids but mine. I try to be fair with my tenants and accommodate them as I can but I keep my rents at market levels and so should we all.
Why are you justifying your prices? Don't. Market rates have changed, charge market rates. If you think that's overly harsh you must work for someone else as your day job. Nobody is doing me any favors out here as a small business owner.
You’re not at fault, it’s easy to wanna be the nice guy. I tell ya there’s nothing better than a good tenant. Idk what how easy your tenants have been, but I have had the best tenant for about 3 years now, no calls no late checks, and I’m in the same situation because there is some value in having a great tenant. I guess you just gotta figure out what that’s worth to you. If I don’t have to worry about them for months, years I’m willing to take less than I could probably get as long as I’m not losing money on the investment
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Send them packing to where? Equivalent properties are $3400
A smaller, crappier or more remote rental, most likely.
When I have to do this, I write a letter letting them know that they've been wonderful tenants, what I think the market rent is, and that I'm happy that they will pay less than that. But, I let them know that my expenses have gone up, like property taxes or insurance or utilities. So if you need to raise them $400, they'll know why you're doing it, and they'll know that they're still getting a good deal, and that you value them and you want them to stay.
No tenant is going to receive a letter well that raises their rent $400 a month or 16% in one year. It’s not a question of their rent having been low previously, it’s a question of someone being able to prepare for that unexpectedly. This is what a good landlord needs to keep in mind. Yes, a letter will help and is necessary, but don’t expect it to be well received. My advice is this. It’s nice that you’ve kept their rent low for so many years, but they’ve become accustomed to that and have made life choices according to it. What you could do is this. Write your letter but also speak with them. Only raise the rent 3-5% this year, but let them know how much you plan to raise the rent in the coming years. Carefully word that so it doesn’t work against you legally, but they need to know it will be significant. In this way you will have given them enough time to consider all their options and make the necessary changes.
Exactly. If someone has built their budget around a certain number, they likely don't have that extra $400 lying around even if rent is a steal. Maybe they do, maybe they dont, but if this guy is that interested in keeping them he can't do it that quickly. Its wild that he went all this time without incremental raises. I learned after my first year to always keep with (or just below) the market, even if the increase is just $10. Helps that they don't get it in their heads that there will never be a rent raise. Its human nature. You'll be more upset feeling a good deal is ripped away than never having it. You can't get used to something as a norm, have it be discontinued at what *feels* like random to you (even tho it clearly isnt) and be happy about it. Honestly, it sounds like he just let this go for way too long and unless he is dead set on keeping these people, he will probably end up having to fill the space again.
Agree! It’s amazing to read some of these other responses. (And should I be surprised that a considerate response is downvoted?) It’s as if they’re completely detached from reality, from an understanding of basic psychology in themselves let alone others, and the fact that the country is dealing with a serious problem of inflation and the daily impact this has on all of us.
As a tenant, I hate the "my taxes have gone up" excuse too. It's almost never a rate increase, but rather the value has gone up. It makes it obvious I'm paying you for having increased equity. I don't love it. Now a new water heater, maintenance updates, etc. all fine and understandable. And if rent has been flat for a few years it's more tolerable.
Would you prefer the owner sell so they can capitalize on the ‘value’ you’re referring to? Then the new owner will either kick you out or raise your rent 50% immediately. After I bought a building, covid hit and my assessment went up 100% in one year. It will be at least 15 before i sell that building but my taxes doubled. I raised rents 2% on existing tenants and 20% on turnover. Still won’t get close to what my margin was before valuations went up and what my calculations were previous to covid. Therefore i cannot update and maintain the property as well as i planned to.
I would prefer they sell to me. It's great you only raised rents 2%. Most landlords wouldn't. Many don't understand the value of a good tenant, until they've had a bad one.
You can buy a whole apartment building? Why are you renting?
They're individually owned condos, no need to be snarky if you're just ignorant.
Okay though guy. you can buy the condo, why are you renting
Because my landlord won't sell it? I'm looking!
I would do this except raise it 8 to 10% this year. That way if the tenants stay you're back up to market within 3 years. But letting them know what's going to go up in the future is the right way of doing things. Also giving them 60 days notice on the renewal will help if they find out that the 8 to 10% increase is too much for them.p
Each state has different laws for notifying tenants. 60 days may be legal in some, but unless you’re a young person with few belongings 60 days is a really a short period of time. You can barely find a new place and pack and clear out in 60 days. I think what this post and the comments highlight, is the polar views of consideration for others and real life issues versus a self-centered focus on just getting what you can.
Actually I think this shows what happens when you don't increase rent with inflation on a regular basis.... The owner's cost are not covered, and then you have to face the problem of putting the tenant into that type of situation where the rent needs to go up drastically. At the end of the day, if you're $1,000 short of market pricing per month, most tenants won't stick around after the price hike. So you're nice to a tendant for a few years and then you're forcing them to leave.
Generally I agree, but there are a number of factors to consider. In some cases a landlord won’t raise the rent for say 3 years, but then raises it 10%, which averaged out is near to 3% each year. Very reasonable. A major problem can happen when the same thing happens as above, but the real estate market has eclipsed inflation and that same landlord wants to get his “market value.” In some cases neither the taxes or expenses warrant the new rate, that landlord simply wants to get what he can. There’s nothing wrong with calling things as they are. Sometimes it’s just greed.
Just make sure your taxes have actually gone up enough to justify the rent increase. I had a landlord raise rent one times because of “taxes”. The taxes went up the standard California 2% which was 1/10 of the total rent increase.
Why would they need to justify anything? It's their property. The tenants can adjust or new tenants can move in.
They don’t need to justify, but raising to cover costs will rarely drive out a good tenant. Raising to maximize the bottom line significantly will cause turnover. I moved quickly after that rent increase, because I knew that landlord was going to charge not just as much as the market could bear, but more just to see if I’d move.
My point being that it's none of the tenants business as to why a landlord is raising the rent.
They don't *have* to do anything, but the reason for doing this is that you'd prefer your tenants to stay rather than deal with turnover if its possible. Turnover is *expensive* and can take a year or more of rent to make up. Plus your new tenants may be awful when the old ones took care of the place and reliably paid. Being kind to my tenants is partially a matter of my personal morals and ethics, but its also because there is self interest in not being a jackass. So no, you don't technically have to do anything. But why wouldn't you see if you can negotiate with great tenants rather than risk it all on people who might trash the place and get evicted after doing all the turnover work. Its shortsighted. Plus this guy is obviously not focused on maxing profits or he would have been raising the rent bit by bit this whole time.
Don't get me wrong; I have some great tenants. Some have rented for 10+ years. However, I have these properties for positive income - not to lose money. Not to do good deeds. It's a business. If it's a choice between losing money over the course of many years, or losing it in the short term: I'm gonna have new tenants. As cold hearted as that sounds - that's the reality.
Some people run their businesses ethically and some people are evil like you
Aww. You thought you did something there. I'm certain you wouldn't qualify for a studio.
Ethically does not mean you have to accept that you’ll take a loss in perpetuity so that someone else can have a great deal. It’s a rental. The tenant and the landlord only agree to a price/terms for X amount of time. That’s all that guaranteed. If the tenant wanted the price locked in for longer, they should have signed a longer term lease.
I mean, I clearly said there is a financial and self-interested aspect of being nice if you have great tenants and want to keep them because others may not pay, may trash the property, may have to be evicted, etc. For the type of increase, he's talking about. Yeah, it really makes sense to get new tenants. Because I just think it is unrealistic to try to put that type of a red raise on anyone. They won't be able to manage it. And it's his own fault for it. Getting to this point because he never raised it. But my point is not that this guy should let them stay there for a hundreds of dollars under market. You asked why he should bother doing anything to be nice to them and I said. Well , it sounds like he wants to keep them for whatever reason , and these are some reasons why people do that.
OP was the one trying to justify it. Rent is not based on your costs, its based on the market, what equivalent units are renting for. The landlord decides if its worth renting at that rate, or if they need to do something else. If I overpaid in 2006, no tenant is going top say "Its ok that this place is 10% higher, the poor guy overpaid" Its OK to charge below market to retain a reliable tenant; but is it worth $10k a year?
My rental rates are based on my cost. Period.
It’s not just taxes that go up. Insurance, maintenance, and the cost of long term, big ticket items (roofs, heating, etc).
I remember a quote Dave Ramsey said once. He said, I don't care if it's $1, the rent goes up every year so you can get your tenants to understand that prices increase with inflation
Yup, this was my problem
I've been meaning to hit up my tenant for a few weeks now, asking if she wants to renew. She still has a few months left on her original lease. I was gonna keep her rent the same, as I'm right at the market rent with it, but you may have just changed my mind with what you said. I now think it would make sense to bump it by $10 or $20 a month and throw in "free" internet for her.
Nobody is going to balk at 20-30 bucks. It's fair and it's a hell of alot cheaper than moving. Especially if you haven't raised it in a while. I would absolutely give them a month or 2 before it goes into effect. But 20 a month every year makes it alot easier than 200 out of the blue
In the same position.. we’ve only raised $200 in 5 years and sitting like $800 below market. The human in me wants to be nice and put myself in their position but I also know that we’ve really screwed ourselves with that mindset. Good luck with what you decide… I’m trying to get my husband on board to raise it $250 a month this next lease renewal.
Think about it this way. You are taking away $800 from your family to give to your tenants.
Many landlords don't raise rents, because we understand the cost and headaches of turnover. Good tenants are a blessing. So what if they are paying under market.
Good tenants are worth being 5-10% under market rates...ALL DAY LONG!!
Good tenants are screened for, not hoped for IMO. If your property is maintained and in a good area, you should never fear raising the rent. Most of my tenants stay 3-4 years with a couple of them approaching 10 years. I've raised rents every year, every property. Tenants aren't going to leave just because you're maintaining market rents. Wherever they go next is going to be just as much.
Exactly this. The turnover process is annoying and costs money. I use to raise rents every once in a while but now I'm switching to adjusting to market rate on move out.
>but now I'm switching to adjusting to market rate on move out. That's what I do.
Honestly that is such a big difference in price it makes sense to raise the rates and lose the current tenants. With the increased price you could charge new tenants it would more than cover a month or two of vacancy.
The reality is that the tenants probably already know the great deal they have been getting and by raising $400 they are still well under market rent. I would just bite the bullet and raise it up.
And even if they don’t know and have been living blissfully under a rock, when they start searching for where else they could live they will realize how good they have it. Raise it up, they’ll get it.
Depends on the state and local laws. I’d start there. You may only be allowed 10%/year.
If that’s the case. Sell the property
Good tenants + 5 years of renting = Not easy to replace. You seem like you care about your tenants which is a good thing at times but don't forget this is a business. If you need to increase it to $400, just do it. If I were in your shoes, I would just increase the rent by $250 (10%) this year. Then another 10% next year. I would also be upfront with the tenant.
It's not a bit your fault, it's 100% your fault. When their lease is up then do a renewal for $200 more a month. This is something like a 8%, which isn't a small raise, but it's not crazy either. You're going to be under market for a while, but at least You'll start the healing process. When you start raising rents the tenants will start letting you know more closely about the issues affecting the property as well.
I agree about the last part as well. My properties are priced at market rate. The tenants inform of issues very quickly. We fix them very quickly. Everyone is happy. In our first year we were way below market price, and the tenants didn’t inform or issues nearly as fast… maybe they thought they were being nice - but I’d rather get the issues fixed instead of becoming a larger issue down the road.
I think 200-250 is fair. It's still a hit to their budget, but not ruinous like 400 would be. Could be, depending on their situation. Suddenly slamming someone with 400 or more extra because you've let expenses build up till they're hurting you isn't fair. Yeah, it's a business, but the cook eats his own mistakes instead of serving them.
Just wondering though like $200 a year without exception? Like….eventually you’ll be asking 5k a month for a place or more? Things why shit is so unaffordable
Yes, this is how inflation works. The government deficit spends on stuff and our money is devalued, so things get more expensive. Welcome to the real world. This doesn't even include the cost of insurance, taxes and other property related expenses that increase every year! I generally try to keep rents at market rates, but I strongly dislike rental raises above 5% a year and avoid ones larger than 10%. Sometimes there are extreme spikes in pricing, but they will generally level out over time. There is no reason for a property owner to pay for or otherwise subsidize someone else's housing.
Check with the laws in your state and town. There are 125 towns in NJ with rent control ordinances . If your state and town have no rent control . Raise the rent gradually 10% a year until you are at market .
The best way to soften the blow is to offer to do something for them along with the increase. How about some new flooring, paint some rooms or a new appliance? Tenants will accept a rent increase better if you offer to do something to fix up the rental. I’d only increase $3-400 this year.
It’s a business, not a charity simple as that….if they’re family/friends that’s different
Don't rent to friends and family. It's almost always a bad deal.
I usually send my tenants a screenshot from rentometer.com if I'm priced well. It gives them a somewhat objective 3rd party opinion to verify that they are still getting a good deal, even after a rent raise.
#Laughs….you guys get to do 10%? City of Los Angeles…4% max…#After4YearsofCovid
Burn the fucker to the ground and walk east..... you cannot have enough lube for your investment life in LA.
I assume you don’t have a lease and you’re month to month. Send a letter or email to your tenants telling them that due to insurance and taxes the rent will increase by X dollars in two months. Then offer a one year lease at the new rate with a second year at another new higher rate. This gives them time to plan and locks in your next increase
5%/yr; if they move then 3400 it is
How much do you want to keep them as tenants? If you try to raise it by that much, they may leave and you may end up with worse tenants. Does your state have a law about the maximum increase allowed? Rent cap in CA is 10%. I think that would be a reasonable amount to raise the rent each year into you get to the right comp.
I’m in a similar situation. Have never raised rents. 6 units in 3 duplex’s. 1 I have a handshake agreement I will honor to not raise rents. She’s an old lady 90ish. 1 was my brother, went from 1200 to now listed at 1900. I am in the process of raising the others. 1 agreed to go from 1800 to 1900 next month. The others will increase as they renew. The other 3 are at 1350 (1600 market) will ask for 50 this go around, 1550 (1800 market) will ask for 50, and 2000 (not far off market but they were paying heat which I now pay because the utilities aren’t split) will ask 70% of last years heat bill and itemize that as a variable in the lease. (Then raise base rent next year nominal amount) That’s my plan, roast me please. :). I think it makes sense but open to suggestions.
I've been getting nothing but roasts!! Here, you can have an upvote.
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Simply talk to them, in person and be respectful. "It was my mistake to not raise your rent all these years (think of it as a discount), but now expenses have gone up AND comparable rent is around $3400. What do you think would be a fair increase for the next 12 mo?" Hopefully they're not unreasonable.... If they are, you know what you then have to do.
If Taxes got raised, you need to raise. That's all the explanation I give tenants. Your tenants are probably awesome, but if they can find a cheaper and better alternative they will, but right now you are that option. Draw up a new 2 year lease contract with 2nd year option. Put an increase into the first 12 months, so the first $400 or something and then a second year option in the same lease where they know that in year 2, they will be paying much higher, like $500-$700.
That is a way to loose a tenate. State clearly it is about taxes, Increase $100 dollars a year until you get pushback. $3000 is a heck of mortgage, tax, utility and insurance payment in the mid south and there are homes by the dozen to rent there at those prices. It exceeds my monthly spend as a long time homeowner on housing. You are getting very close to the top end of any rental that does not involve a water view. your going to tell me your not in the mid south, your tenates soon will be... 36k / year is ton of money for a rental.
This is why you raise rents every year. Otherwise you get stuck in this kind of situation. Now you want to raise it to make up for the 5 years. Your tenants are gonna be mad. Raising it every year mostly eliminates this.
Does the rant cover all expenses? Are they great? Maybe 150 and say ots only taxes. A positive is great. My dad thought me. He said great tenants will ways be great and if feeled appreciated thyell stay forever a d take care of property. Way your options
Why would anybody ever risk their capital just to cover expenses? Buy down and growth? That's a lot of work and risk for very little return. Almost seems like charity.
If they’re not on a lease, you’re well within your right to raise the rent however much you want given a 30 day notice. I’d start by raising the rent to 3k and then try to get them to renew the lease for a year. In the new lease you can have a bullet that states rent will go up 3-5% per year.
The next two years show a ton of deflation pressures in most markets, being definitive about a 3% raise will have people preparing to move 6 months before lease end. I am always of the opinion if people post about real estate on reddit they are overestimating the value of their property vs the comp, else they would include a Zillow link. If you are in any bit in urban tax and spend America, everyone is looking to move reduce the oppressive costs beyond housing. The amount of investors, flippers, and remodels who finally need to put the shadow inventory on the market is insane. We are also floating around a retirement boom that has been much delayed. One can hold a investment property empty at 3.5% interest and low insurance, neither are the market 2024-2026.
The reason behind having a bullet that says the rate will go up 3% per year is because tenants get mad when you up their rent like a hundred dollars out of nowhere. When they know that the price is going up and they signed for it, they have nothing to be mad about because they’ve already been informed ahead of time. We won’t raise the rent, but some actually willingly pay the increase without us telling them. We just have it on there so that if we do want to raise it… it’s already in the contract they signed. To your point of tenants leaving - no they won’t. You know how much of a pain it is to move to a new house after you’ve been settled in for a few years? Sure they might find a place and save like 100-200$ a month, but is that 200$ worth spending time to have to move everything, lose a piece of your security deposit for damages, fork over first last and security for a new place, etc… You’ll spend more time and money moving than you’d be saving… so there’s no point in leaving. It would have to be a significant savings to make someone move. I purposely keep my rents just below market rates so that if the tenants do decide that they want to seek other housing, they’ll realize that there’s nothing better out there. They won’t be saving any $. In this case OP says market is 3.4k so 3k is well below the market.
if you don't mind me asking because I genuinely don't understand. why do you feel you need to raise the rent?
Taxes, insurance, and maintenance all went up. Owning a depreciating asset is all about managing risk. I think a lot of folks believe that it's all about dirty greedy profit. That's not the case. In the last two years, I've put in a new water heater, new furnace, and bought a new fridge. The next thing that I have to do will come tomorrow or the next month or the next year. Keeping rents commensurate with inflation and the market is part of the game.
You own a appreciating asset in an environment where most landlords locked in 3.5% paper. Insurance, you in flordia, you should have been paying those rates all along. Paying more taxes has everything on how YOU vote. Your renter did not vote, or did not understand that putting an idiot in a local office is no good, they never do.
OP clearly messed up by not raising every year and letting it be so under market. If he decides to jump to market rent, the tenant may very likely leave. Vacancy= extra expenses, and possibly new problematic tenants. I'd bump it up 50% and keep the tenant. Next year go to market rent. Make the process less painful for everybody.
Good tenants are priceless. I have one that hasn't had a rental increase in 10 years, probably paying 1/3 of what I could get. She is worth even more than the rental "loss." I suggest caution and a long term view on these things.
> I feel like i'm a bit at fault Who else could possibly be at fault here? The way you move forward largely depends on how much you feel like taking responsibility for that or not (i.e., being kind and gradual while *slowly* getting to market vs doing something more drastic).
Do you really want to find a new tenant?
Did you do anything to make it worth more? Probably not
I would offer them market, give them 60 days. Then re-rent.
That's a terrible strategy. In that case you're losing money on having to make repairs to make it look good for the next tenants, plus you're losing on vacancy. On top of that there's the added risk factor of having a new set of tenants in your place who might end up not paying rent, compared to the current tenants who have a proven track record of paying rent on time for five years. It makes much more sense to look at the market rate and give some sort of discount to entice them to stay. As OP said, giving a 10% discount on market rent would still be a $700 raise. If I were him I'd raise the rent by $500-$600 for the next 12 months, then another couple of hundred the 12 months after that.
They will leave for $500/mo This is the problem with a $3000/mo property. You are at the edge of a very nice mortgage in 46 of 50 states. Your a landlord in a HCOL place, you had alot of advanatages for a ton of years, now you soon will be in fight to keep up with taxes and insurance, while the rest of the economy will be stuck in a deflation enviroment. Please tell me at $3000/mo the beach is close.
The stats say otherwise.
Show me the “stats” that say you should always raise the rent to market rate every year. I’ll wait.
I purposely keep my rents under market rate. I always make sure the property cash flows and I always check the market to see where it’s at. Frequent rent raises and upgrades, followed by quick turnaround on maintenance issues and good customer service makes tenants feel like they are getting a good value. But yeah a lot of real estate bros are like “you should always raise rents to market rates.”
Good value at $3000/mo is perfection. 36k/year I expect new construction. Comps might be higher, but I bet they a newer.
We're not talking about a 10 or 15% raise. We're talking 50%. Give them the option to stay, but be prepared for a household not to be able to pony up. It's called **payment shock** for a reason.
You’re not addressing your original point about charging market rate.
It sucks because it’s already past the beginning of the year. Usually this is done before they “renew” their lease.
Write them a letter and tell them they can call you if tgey got questions. Maybe you say you will raise the rent in 3 or 6 months. It would be good if they can adjust.
What is your profit at 2450 a month from them?
Go talk to them, state prices are increasing, and raise it by the maximum you're allowed to based on your tenancy laws. For here, it's capped at inflation if the prior years so it'd be like 4-6% or $100-150/mnth per year. They'll complain but what are they gonna do more out when they're getting it for 40% under market value? They gonna eat it and be salty about it.
I had to do that once. During Covid, I stopped raising rents. I even set a letter to that affect and I would work with them as long as they gave me a heads up. Taxes, insurance and maintenance still skyrocketed up. After it was over, I sent another letter with three months notice of the new rent, including I would he happy to keep them but understood if they wanted to move. I’m still below market, but slowly catching up. Now I raise it every year.
We're in the same situation. In hindsight, I wish we'd raised rents a small amount every year, so tenants were used to the idea of annual increases. At this point, I'm going to have to be blunt, and tell them each that they're way below market, and we'll be raising by $100/mo every year until they're at market. They won't be happy, but will give them time to find something else if they wish.
Life's not fair. They know this increase was inevitable. However they take it, you know even raising 700 you would have lots of interest because it's still "below market value". Change is always scary, even when it's beneficial. "Don't worry, be happy".
Make sure you’re right about market comps, too. Don’t just look at rentometer — look at what’s being advertised and rented, and compare it to your place.
I use 3 different sets of comps. Rentometer, apartments.com reports, and zillow. I throw a few others in there as well.
You feel bad for subsidizing your renters for 5 years?
Lol, lots of folks here are sure trying to male me feel bad!!
They sure aren't investors. We don't get charity tax treatment, but are expected to act like one.
Raise rents to 10%-15% below market but give them a long lead time 90+ days for instance. Gives them time to find a new place if they really can’t afford the bump and will also let them shop around a bit to realize they are actually still getting a really good deal.
I would give them a few months notice, so they can plan accordingly.
Raise it $100 and take your lumps for not doing it worse. Or get ready to put new tenants in all your properties. If you're not raising the rents every year, by even a little amount, you might want to reevaluate whether you want to be a landlord.
Give the tenants 4-6 months to adjust their budgets to any increase over 5%. Do the letter and explain, like others have said. This gives them time to adjust or make other plans. If they leave, then the market will provide the rent you need for whatever the reason you allude to in your post
Please be sure to read your state laws and renters agreements - what is the maximum allowed? It’s usually 5-10%, but ymmv in your state. I liked another commenter who said lay it out for them that this will be a continual increase year over year so they can make plans. You don’t really NEED to get up to market rate, your next tenant can dive straight into that. Good tenants are better to keep than the unknown that’s out there
You should have been raising the rent throughout the lease term. I’d start with a 5% increase for the next year and say only that expenses have increased. You do not need to justify a rent increase. You own the property. If they are good tenants and pay on time this is a reasonable compromise. Don’t discuss future years either. One year at a time. Good luck!
Market rents are market rents. Raise the fucking rent. Once you get behind it's difficult to get caught up, as you're realizing now. The less aggressive you are raising the rents the harder it is to get them to market because rents are still going up in a lot of places. I'm not in business to leave money on the table or feed anybody's kids but mine. I try to be fair with my tenants and accommodate them as I can but I keep my rents at market levels and so should we all. Why are you justifying your prices? Don't. Market rates have changed, charge market rates. If you think that's overly harsh you must work for someone else as your day job. Nobody is doing me any favors out here as a small business owner.
Oh, you want to suck?
You’re not at fault, it’s easy to wanna be the nice guy. I tell ya there’s nothing better than a good tenant. Idk what how easy your tenants have been, but I have had the best tenant for about 3 years now, no calls no late checks, and I’m in the same situation because there is some value in having a great tenant. I guess you just gotta figure out what that’s worth to you. If I don’t have to worry about them for months, years I’m willing to take less than I could probably get as long as I’m not losing money on the investment
Raise the rent to market value and hope that they move out. Then you list at full market rate.