changing tenants

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Submitted by Escoguy on July 7, 2018 - 9:01pm

So I have a lease ending. Current tenants have been fine (two years) but recently started to comment on things which needed improving.

I offered to extend the lease and also wanted a 4.6% rent increase after a year without an increase from $3250 to $3400 and take care of all the items mentioned including new flooring. This may be a little below market as there is solar on the house which provides $250/month in value included in the rent.

4BR/3B, 2600 sf SFH in 92027 built 2000, freshly painted outside/inside with new flooring and in gated community with pool access.

Needless to say, the tenants needed about 2 weeks to tell me they didn't want to stay due to the rent increase. They seemed to be dragging the decision and I don't think they made any comparison with the market.

Listed today for $3450 and will likely have new tenants move in after upgrades with only 5-6 days of lost rent. Spoke with one today.

Needless to say, while I know money is important and this is a business, I can't help but have a feeling that the communication could have been better and that perhaps the current tenants could have stayed. That being said, having to ask multiple times about what their plans are was somewhat off putting. I guess I'm just grappling with balancing self interest with having somewhat longer term tenants. Thanks for listening.

Submitted by 42nate1 on July 8, 2018 - 4:24am.

I struggle with this too. I have a long-term tenant, who is paying below market rates. I am hesitant to increase the rent. The family pays on time, and rarely makes requests. It is profitable and on autopilot. Everything I want.

Raising the rent creates additional cash-flow to apply to the principle on the mortgage, so in my self-interest to do so.

The tenant has been there 4 years, and we have not adjusted the rent. 1 month of lost rent may take 2 years to break-even. You also have the risk of choosing unwisely with the new tenant - who could leave in a year after the lease is up.

Submitted by Escoguy on July 8, 2018 - 9:16pm.

Well one day later, I have two families who are strongly interested in the home at the new price which will be a $200 increase and $50 more than I offered the current tenants to renew at. I will likely lose 5-6 days of rent to do some upgrades which were overdue. Both families appear to have longer term ties to the area.

Was surprised to see one potential tenant is losing their current home to a short sale. I thought we were done with that.

From one perspective, I think the current tenants may have raised issues to either get something done, or perhaps they were thinking I wouldn't raise the rent after things were taken care of. Kind of hard to read minds. I normally think a $50/increase every year or $100 every two years isn't a big deal. I can't imagine they thought I'd never increase the rent. This time was $150 but only after a year without and after/while doing some meaningful upgrades.

I remind myself not to feel bad as they have four cars for three drivers so there are places they could cut back if they wanted to.

Submitted by gzz on July 11, 2018 - 12:12pm.

Nate I also do not do yearly rental increases, but when you hit the 5-year mark moving them from 20% under market to 12% under with plenty of notice seems reasonable.

I do know people who don't even raise after 10 years and get to be 30-40% under market. I don't think they are all irrational. The most common situation is that there are maintenance issues the current tenant has accepted but a new one likely wouldn't. They might also not have the energy to deal with even a medium-maintenance tenant and don't want to lose the money associated with a property management company.

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