The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: fidgiegirl on April 06, 2013, 04:23:13 PM
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We have renters in our home and they have a two year lease. They have indicated that when the time comes (in almost a year) they would like to sign another one. Yeah!
Our question - how to go about increasing the rent? Our taxes have gone up considerably. What is fair? What do you consider in this situation?
They are awesome tenants and we do not want a rent increase to drive them away, but in 2015 in the middle of the second lease our expenses will inevitably be higher than in 2012 when they signed the first lease.
Thanks all!!
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Your expenses are irrelevant. What will market rent for the property be at the time you renew? That's what counts. If it has gone up over the lease, you can raise the rent. Otherwise, you will have to renew at the current rent. If rents drop, you may even have to lower the rent to keep your excellent tenants.
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Does the city have any guidelines? Here, it's illegal to raise the rent over a certain amount without getting it approved by the associated government body. Which, as a renter I'm very grateful for, as with the super low vacancy here rents are already rising a lot faster than inflation.
If that's not an issue, I'd tried to do a mathematical breakdown of the increase to expenses, but probably give them a bit of a good tenant discount. As well as comparing to the market, as noted.
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+1 to AR. Market rent is what matters.
Assuming it has gone up, I'd give them a discount (not having a vacancy and delaying turnover costs will save you quite a bit), but still increase it to just below market rent. Print something like Zillow's rent estimate, rentometer's estimate, etc. and bring it to them with the new lease addendum (which merely says two lines, rent to be XYZ as of DATE1, lease to be extended to DATE2, all other terms and conditions to remain the same, or something close to that effect) and explain your costs have gone up due to higher property taxes, rent in the area is up, show them comparables, let them know you are keeping theirs below market rent, and have them sign addendum.
It's pretty straightforward. :)
And, of course, if rent hasn't gone up, you can just have them sign an addendum that just changes the extends the lease length.
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Agree with above
- Market rent is what matters.
- Leaving money on the table to keep good tenants is worth a lot as you are avoiding vacancy, turnover costs, and the uncertainity that comes with a new tenant (character, ability/willingness to pay rent, etc. ).
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If it does look like market rent requires you not to raise the rent, you could say something very openly to them such as, "You guys are great tenants and we don't want to lose you. At the same time, taxes/fees/whatever has gone up, so I am wondering what rent increase you feel would be fair for us and still low enough to keep you as tenants?"
If they say nothing, you get what you would have gotten anyway. If they say anything, you're ahead.
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I'll give the renters point of view. First off I'll always say my current rent is fair because for me it is. But that being said I understand that taxes go up, maintenance costs, etc. So I do expect rent to go up every so often. Assuming I want to stay (as they have indicated) then as long as I feel it is fair I will stay. How much information depends on how much you have to raise the rent. If it is a small increase just letting them know taxes went up should be fine. If it is larger you may want to give them some information. Also be kind and let them know 1-2 months beforehand so they can make adjustments to their budgets as needed. If you are giving them a fair deal they will stay.