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Mentor
I might suggest that a 4 year guarantee with a good tenant might be worth far more than the extra money per month
Eg even one month if vacancy would obliterate a year of extra income. Bad tenants could trash the place. On and on
So your suggesting keep the rent at 1850?
Counterpoint, if I’m a tenant and enjoy living somewhere and have plans to stay long term, I’m probably not going to quibble over an immaterial increase in the rent. Would cost more to move than the increase will be annually.
Just bake in a 3% annual increase (or $50 if you like round numbers). More than fair to both parties. That said, there’s certainly validity to the point on locking in good tenants long term. Could definitely consider waiving the increase if they’re willing to sign another long term lease.
Maybe have a conversation with them before sending over a new lease with a new price. Communication is helpful vs a surprise adjustment. You could see how much more they’re willing to go, if at all.
Honestly $50 a month isn’t worth it to me to potentially lose good tenants. Nothing’s guaranteed, they could end up moving next year so I wouldn’t plan for anything ‘long term’ - maybe they’d be interested in signing a 2 year lease and locking in current rent prices?
Subject Expert
I think most tenants understand that rent goes up over time. $25 or $50 per month likely isn’t make or break.
One thing I like to do is offer 12 months at one price, or a longer lease at a lower price. This incentivizes the action you want. IE: 1 year at $1950, or 2 years at $1900. You could also do $1900 for a 1 year, or $1875 in year 1 and $1900 in year 2 if they commit to 2 years.
They’re probably going to walk on you before the $2k mark.
Insurance and property taxes have skyrocketed where I live in addition to market rates. Even with that, I only raised the rent $50 bc the switching costs weren't worth it to me plus good tenants. If they were bad tenants, I would have increased to the market.
In all cases, I explain what market trends are in that neighborhood and what I could charge so they hopefully interpret the increase as small.
Just had a good tenant move out bc they purchased a house. House unleased for 4 days and rent is now $250 more than I was getting.
As a landlord, you should be increasing your rent year after year unless you just really struggle to find tenants. You don’t want 3-4 more years to go by and your rental is under market by $200-300. People are going to pay for something nice. I have great tenants in multiple Duplex properties and will cap increases at 5 percent across the board. It costs a lot more for people to move and than it is to start paying any extra $75-100 per month. Insurance, tax, etc. increases add up over the years you need to be maximizing your rental income. Just give them an appropriate notice like 60 days and have them confirm within 30 days so you can start the new search for tenants in the event they don’t want to renew.
If you have good tenants and they are paying $1850, have them sign the 4 yr contract. If they do a 4 year contract then they can stay at the fixed $1850. But if they depart early, then you can take a $50 per early month fee. But don't lose good tenants. Not worth it IMO
I would just raise it each year. Depending on the other costs you pay for (heat, water, etc.). I never build in rent escalation clauses in residential units as I do in commercial units. As residential units are generally year-to-year, you can reevaluate this stuff each year.
Where are you located? Have rents risen in your market? Have brand new competitive units come on the market since the lease was signed?
There have been years I kept rent the same and years I raised it 15%. Depends how long they’ve been there and how markets have shifted. I don’t think I’d ever sign more than a 2 year lease - doubt your tenants would either even if they plan to stay long term. But I’d they wanted to I’d push rent a bit higher than otherwise by a few % maybe. Rents do NOT always rise continually in a straight line for the record though. Especially in older units.
When a lease comes up you check local comps and price the rent accordingly. In theory I like to raise at least 1-2% a year just to be in the habit of a tenant stays. If they are great or long term tenants I may not raise all the way up to market values if that would mean over a 5% increase.
In reality if they push back I always cave because I don’t want them to move or even shop around. Turnover is a beast and sucks away profit and time/energy.
That’s great, sounds like a good situation for you and for them!
Coach
Multi-family properties have performed far better than commercial over past few years because their (relatively) short-term leases of 1 year provides built in inflation hedge by allowing you to raise rents more frequently. In this environment, I would never sign more than a 1 year lease with tenant.
how do you deal with tenants who don’t pay and trash your place on their way out
Thou can keep the security deposit. Also, you could sue in small claims court. Unfortunately, the kind of people who would do this are usually judgment proof. Though if you do end up getting a judgment, you could garnish wages. Though paying (or finding) a lawyer to do this may be difficult as there’s just not enough money involved.
it seems reasonable to increase the rent to $1900 for the next year and gradually increase it by $25 each year to a maximum of $1950. However, it's important to consider the local rental market conditions and the tenants' financial situations when deciding on the amount of the increase.
It's recommended to outline the rent increase to the tenants in writing, either in the lease agreement or in a separate notice, well in advance of the renewal date. This gives them time to prepare for the increased cost and may help prevent any misunderstandings or conflicts in the future.
It's also a good idea to be open to negotiation and to listen to your tenants' concerns or feedback. Perhaps you can offer some incentives or benefits, such as upgrades or repairs to the property, to make the rent increase more palatable.
Ultimately, the goal should be to maintain a positive and respectful relationship with your tenants while also ensuring that your rental business is sustainable and profitable.
If you have built good relationships with your tenants, increasing rent from $1850 to $1900 or $1950 won't be an issue.
If they want 4 years, if you are ok with 4 years for $1950, then do it.
If not, make it 2 years for $1950, then disciss again after 2 years.
Long-term tenants won't leave just like that.