Real Estate Investing #15: Rent increases
April 24, 2017
It’s been a while since my last rental property update!
I’ve identified a new property manager that I will likely change over to later in the year. It will cost me $150 to make the change and transfer, so I decided not to do it until after June for a couple reasons.
First, the pain of working with the current property manager is low right now, so I can afford to leave this alone for a few months while I focus on our more pressing needs. Don’t get me wrong, she’s used up my good will. It just doesn’t make sense to try to do everything at the same time, and do them all badly, because each project needs a minimum amount of care.
Second, my rent to expenses ratio was pretty low. It was time to reassess the rent against market rates, and we found that we were something like 20% below market.
Aside from that long-running HOA violations debacle, though, they’ve been good tenants with two years of consistently paying rent. I have to make sure that my expenses, now and upcoming, are covered but also didn’t want to hit them with a huge increase so we decided to make it a 6% rate increase with an explanation that we are choosing to give them a lower rent than we might because they’ve been good tenants.
Besides, I wasn’t about to repeat the same mistake that Dad’s landlord pulled. Small regular increases over the years are easier to swallow unless you can afford to leave the rent low for years. I can’t, unfortunately, but it’d be nice to be in that position!
:: What’s the biggest increase in housing cost that you’ve experienced? Was it as a renter or an owner?
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I love that you’ve taken into account the fact that they’ve been good tenants. My LLs have also always taken that into account. In Auckland, that’s huge, because the interest rates on mortgages have been increasing like crazy. Those costs are passed on to the renters, in a huge horrible spiral.
Last year my LL increased the rent by $5 per week, which doesn’t seem like much, but adds up, esp when you’re at the top of your budget anyway (and paying more is necessary find a decent place in Auckland). She apologized but said, like you, that she wants to keep me but she had to cover her costs. I get it. It helps that she explained why she was increasing the rent.
We’re expecting to have more increases this year in Auckland. I’m guessing my rent will go up again! I will, in turn, pass as much of that cost on to my garage space renter. (It’s undermarket anyway–I charge $65 per week when several around me charge $80!)
So the cycle continues…
You know, it was your description of your own landlord that stuck with me and made me feel like I wanted to be the kind of landlady whose tenants felt the way you did: like you were a valued person in my house!
Our LLs have always been hands off, except for our very first one, so I didn’t have concrete examples of what would foster that feeling so I really appreciated what you shared long ago.
I’m continuously amazed at how anyone can continue to afford to live in Auckland at all given how awful the costs and the rental market are 🙁
My mum texted me the other week about the tenants at a neighbouring house. Their rent went up $80 a week ($550 to $630). Wife had a nervous breakdown and had to be hospitalised.
That’s a huge amount and TBH if that happened to me while renting I’d probably have a bit of a breakdown too. I’ve had $10-20 a week rent increases in the past, but $80 a week? Hell no.
Yikes, that poor lady!
We’ve noted that our expenses have gone up recently in one of our rentals, and the increases in rent haven’t kept pace. For instance, our insurance on the property went up 25%, and our HOA fee went up as well a bit. But rental comparisons mostly keep us from being able to raise rent commensurately, and we’ve been stuck with 3% or so annual rent increases to stay competitive and keep our current tenant, who’s been very consistent with the rent and does a decent job with upkeep. We know that a turnover and a couple of months of vacancy cost way more than the increase we’re not pushing right now.
That’s the same math I would do each time – does it make sense to get a new tenant in for the increase in rent with the offsetting vacancy? For me, it did make sense the first time I did it but it’s not necessarily worth it now.
Good luck with the new property manager. It’s hard to find a really good one. They are so busy because they manage so many properties. I like raising rent a bit every year too. That’s fine with working tenants because they make more money every year. A lot tougher for retired people.
Thanks! I particularly like this one because she manages a much more limited number of properties, and the best part is my investing friend tried her services first to verify that it’s worth changing over.
Good work on getting your act together on the rent issue now, not later!
“What’s the biggest increase in housing cost that you’ve experienced? Was it as a renter or an owner?”
Gosh. Never ask an old person an -est question. 😉 First one: we moved out of our beautiful old historic house into a safer neighborhood (five-year-old could play outdoors at the new address!). Tripled the mortgage payment. Just got moved in, and the hubby’s law firm fired him.
That was innaresting, because he’d never had to apply for a job before: was hired out of law school as a young hotshot. A palace revolt led to a New Regime that didn’t favor his type, so out he went.
Fast forward 25 years. I throw Semi-Demi-Ex-Boyfriend out of my house. He has been paying half the mortgage as “rent,” allowing me to write off just about every upgrade and repair. My monthly roof cost doubles. Nice. :-/
Luckily I had some money, so I just paid off the mortgage, over my financial advisor’s dead body. Best thing I ever did for myself, financially. IMHO.
Having a paid off mortgage is pretty dreamy!
I never minded a reasonable rent increase. My landlords in New Jersey didn’t raise my rent at all during the five years I lived there, even though I switched to 6-month leases for my last few years.
I did mind it before that in my apartment in Austin, when the new property managers came in and informed me that my rent would be going up 25%. I told them that I did not consider that to be a reasonable increase, and they said, “Well, the square foot rate for this area–” I cut them off and said, “I know the rate, and I know I’m paying below that. I understand you have to raise my rent, but that’s not reasonable or fair to raise it that much at once.” They then raised my rent by 9% and said they would give me six month leases with increases at the end of each. I said that was fine, and we proceeded accordingly.
At least they maintained the apartments, unlike the property managers we had in Los Angeles.
I wasn’t sure what a reasonable increase would be but certainly anything over 15% feels like too much.
In your LA properties, did you have to ask (and wait forever) for repairs / maintenance or were they proactive?
Ask and wait forever. I figured out that the sound I was hearing in the wall was a plumbing leak. First, the manager chewed me out for not calling her earlier in the day, because she would have to pay more for an after-hours plumber. Then, the plumber knocked holes in our kitchen to get to the pipes, and they left the holes there for three weeks, until we called to ask when, exactly, they would be patched. They never did repaint that wall.
This is not the most egregious example, but it’s one of the shortest to type.
Wow. That sounds awful!
I never had a large increase, except self-inflicted ones induced by moving from Iowa to Los Angeles! 🙂 Hello, 3X monthly rent!!
Most of my renting in LA was during the great recession, so raising rent wasn’t really a thing during those years.
Way to go on the regular but modest increases. It is fair to keep the rent below market for a good tenant, but a good tentnt also will not expect 20% below market rent. Although you would have to be prepared for the flip side of the coin in the somewhat rare case of falling rents. A good tenant might expect a reduction.
Yes, I need to save up the “profit” to cover major maintenance like replacing the hot water heater and the roof eventually, so it makes sense to keep sort of in pace with the market even if I stay a bit below the market rate over time.
Here’s hoping that until I have that stashed, we won’t be hit with a recession!
We’ve only dealt with rent increase once and the result was us moving into a smaller apartment.
We understand the raising costs of owning a property and would have happily paid the 10% increase, if our former landlord would have taken care of the problems we were having with the apartment! Instead, he took forever to deal even with the smallest problems, yet decided to increase rent.
Now, we pay way below market value, but we do our best to be ‘perfect tenants’. So far, it pays off 🙂
That’s a reasonable trade-off to me! 🙂
$100 a month increase, every 2 years. it blows. we like the area and schools. i understand raising rent to keep pace with costs. however it sucks as long time tenants. Assuming we stay in this house for many years, we will have worn out carpets etc..but have to pay higher rent.
Yikes, that’s a lot! Would it be better to see it as a $50 increase per year? It seems like if they’re holding off two years that might be their concession to your long term tenancy?
Aren’t they required to replace the carpet after ten or so years? And do a paint refresh?
As a LL… it’s a tough balance in keeping good tenants and getting fair market rent. In addition…I just read your blogs about your Dad and your assistance. I share your pain to some degree with my “Dear Mother” who’s financial situation is “less than perfect”. In addition…she continues to make poor decisions with little regard as I will be “picking up the pieces”. It is frustrating … and hard to watch. I wish you well with your Dad…
Thanks, it is frustrating! And I wish you the best with your mom’s situation as well.
OUr homeowner’s insurance had gone through the roof. Back when we bought the house 20 years ago, our payments were in the high $600 range, and we felt like we’d accomplished something if we were able to pay $800 in a month. Nowe we are paying over $400 per month in taxes and insurance; luckily the mortgage is paid, I can’t imagine how high our payment would be if we were still paying for the house.
Goodness, we never really do pay off a house entirely between taxes and insurance, do we?
I really want to get out of the rental market. Rent just got hiked again, and while we’re still below market, we would be paying less if we owned. Probably one of the few regions of the country where that’s true.
I agree that the small increased on tenants to like is both a benevolent and smart business move!
Is buying an option for you?
My tenants are paying about $400-$500 under the going rental rate. I finally raised the rent last fall for the first time in 5 years. I raised it 2% which comes out to $30. They take great care of the house, have been excellent tenants and I live 2,000 miles away and don’t want to have to deal with getting new tenants. If they ever decide to leave on their own then I’ll raise the rent to the going market rate (assuming it doesn’t come back down. It is Southern California though, so probably not.)
I like that you told your tenants the increase isn’t as much because they’ve been good tenants. This is hard for me to remember, but the rental property is a business. If the rent isn’t covering your expenses, and it’s artificially low, then you need to raise the rent. That’s a business decision. But you don’t have to be a jerk about it like your dad’s landlords. I hope the 6% increase covers your expenses.
That’s an amazing below market rate – I hope they’re aware that you’re keeping it quite low? We were definitely aware on Dad’s side, or at least I was.
I think including the explanation about leaving it lower than you could and even a mention about market rates might make it more palatable to them. The last time I rented somewhere, the rent jumped like 20% in one year and I was like “heck no” and just moved out. Maybe it was on par with what was happening in the area, but with no explanation or anything, I was out. As the owner, you clearly don’t have to explain anything, but I think sometimes that can go a long way in a good relationship.
Yes, I don’t owe them an explanation but it just makes sense to me that communicating more, especially in cases where the other person has to swallow an increased cost, is better.
We received this year’s new appraisal values in March and I already let my long-term tenant know that I’ll be increasing the rent $50 a month in November since the taxes are increasing by about $750 a year. She’ll have been in our rental for 5 years this November and will be paying $1300 a month in an area where $1450-$1550 is the going rate for a 1750 sq ft 3 bed/2.5 bath. I told her to let her new roommate know so she won’t have to eat it alone. This is only the second $50 a month increase in the 5 years. She started at $1200 a month in 2012 and has always been $100-$200 under the going market rate since she’s super clean, reports all issues (though sometimes even dumb ones that are her responsibility like burnt out light bulbs), and always pays on time.
That’s serious early warning – she should be glad you were willing to give her so much notice! I’m considering how far in advance I should give them for future increases, maybe a couple more months is better.