WTF?!?!?!?! Youare going to raise my rent 50%?!?!?!?!?!?!
October 1, 2014 8:39 AM   Subscribe

How do I make a ridiculously high rent increase to catch up with the market fairly and without feeling bad about it?

I know I’ve been charging the tenant of 6 years under market value for several years and the rental market in suburban Denver is going through a boom. Occupancy levels are at 96% and rents have increased almost 14% in the last year the previous one I think it was 9%. I’ve been increasing the rent 5% every year which I knew was a low rate because she’s been a good tenant, pays on time and I haven’t wanted to find a new one. Her lease is ending soon.

Personally I need to find a new apartment and won’t be able to live where I want for under $1400 and this is after already crossing off my most desired neighborhoods.

I have been charging my tenant $1050 monthly and after a recent analysis of the neighborhood had determined that market value could be as high as $1400 with the understanding that one always believes the value of their property to be higher than it is. I have been thinking over how much to raise the rent significantly without feeling like a sleazy slum lord. Also, I have been concerned with how do I actually determine market value.

Yesterday I found a listing of identical models in my condominium community advertised at $1500 and even $1600. I am shocked. I don’t understand how rents in my condo community have gotten this high. I thought I was estimating high at $1400!

So I now realize that I probably can get $1400. This is not insignificant income at almost $5000 extra dollars annually. I don’t want to force this person out and raising the rent that high seems so inhuman but this is my business and this is the market.

She is in real estate and most likely knows she has gotten a good deal and if not she can find out what the real deal is anyway so it shouldn’t shock her that much.

I’m thinking of sending her the listings and asking her thoughts. This may be a decent way of informing her the rent has to go up significantly without the sticker shock or me feeling bad about it. Does this sound like a fair way to do it? Any other suggestions?

If anybody cares that much I can always mefimail the listings I found.
posted by Che boludo! to Work & Money (63 answers total) 5 users marked this as a favorite
Can you give her a few months notice that this will happen, so she her can decide whether she wants to pay a large increase or find another place to live?
posted by Dolley at 8:44 AM on October 1, 2014 [9 favorites]

Uh, no. Asking your tenant "her thoughts" is NOT a "decent way" of informing her the rent has to go up significantly. The decent thing to do is to be straightforward and clear. Extra nice would be to give her an extra month's notice, or something like that.

I would become very familiar with your area's rent control laws and other laws regarding amount of notice, etc. Because if I were in your tenant's position that would be first thing I'd start to research!
posted by acidic at 8:45 AM on October 1, 2014 [41 favorites]

This happened to us one time when we were living in an apartment. New owners came in and they raised the rates significantly.

It really was a bummer, there's no getting around that. But one thing that was helpful is that the new owner let us know in advance that there was going to be an increase, and then he proceeded to catch up to the full increases over a period of a few years. So, it buffered the bad news, and also gave time to either make arrangements financially or to find a new place to live. On his end, it also put more money in his pocket right away, just not the full amount.
posted by SpacemanStix at 8:46 AM on October 1, 2014 [7 favorites]

I’m thinking of sending her the listings and asking her thoughts. This may be a decent way of informing her the rent has to go up significantly without the sticker shock or me feeling bad about it.

That sounds like particularly bad idea. How would that conversation even go?

"Hey, I just realized that the other rents around here are much higher. What are your thoughts on that?"
"It sounds like I'm getting a great deal and I appreciate it."
"Well, too bad!"

The fair thing to do if you're set on raising someone's rent is to raise their rent. If you want to make it a negotiation, you can, but if they don't have any say in the matter if the rent is going up, don't come to them under the pretense that they do.
posted by griphus at 8:48 AM on October 1, 2014 [43 favorites]

I would become very familiar with your area's rent control laws and other laws regarding amount of notice, etc. Because if I were in your tenant's position that would be first thing I'd start to research!

Yes, this is true, and you should start here. One of the things that our landlord failed to do is give us the proper amount of advanced notice. In CA, for example, if a rent increase is over 10%, there is a legal requirement to give at least 60 days written notice. He skipped the written part, so we asked him for more time. I believe he just wanted to give us 30 days notice.
posted by SpacemanStix at 8:48 AM on October 1, 2014 [8 favorites]

I’ve been increasing the rent 5% every year which I knew was a low rate

That's actually a lot. In my city, the maximum a landlord can increase the rent each year is 0.8% unless they go through a long appeals process.

If you are going to raise the rent, give her as much notice as possible. Especially if you're raising it from $1050 to $1400 which, as you note, is an increase of almost $5000 per year. That's a big jump.
posted by kate blank at 8:49 AM on October 1, 2014 [8 favorites]

This happened to me once before and it was a shock. We weren't given much time, and we left and did not resign the lease.

Definitely just be strait forward with her and let her know far in advance. You will likely lose her and end up with awful tenants, but thats a risk you will have to take. At this point the real decision is if it's worth the risk, for you.

If so, just send her a letter notifying her. Is there a clause that she has to give you a certain amount of times notice if she decides to not re-sign?
posted by Sara_NOT_Sarah at 8:49 AM on October 1, 2014 [2 favorites]

This does not make any sense.

You are the landlord. Inform the tenant of what the new rent will be. If he or she does not like it, he or she will move out.
posted by dfriedman at 8:50 AM on October 1, 2014 [5 favorites]

Echoing others, don't treat this like a conversation if it's not one.

Don't ask her thoughts on it unless her thoughts are actually going to influence your decision.
posted by Wysawyg at 8:51 AM on October 1, 2014 [2 favorites]

Do you want your tenant to be a steady, stable presence happily paying her rent each month, or do you want to ensure she will either leave at the end of the lease or spend each and every following year of her tenancy looking for a new place?

If you prefer the first situation, raise the rate by 5-10% each year until it catches up with the market. If you prefer the latter scenarios, raise the rent to the market limits and make money off the rotating cast of tenants moving in and out who need a place to stay and will pay what they need to pay until they find something better or cheaper.
posted by deanc at 8:52 AM on October 1, 2014 [25 favorites]

Response by poster: Absolutely she would get 60 days. I wouldn't dream of springing something like that one somebody quickly.
posted by Che boludo! at 8:54 AM on October 1, 2014 [3 favorites]

I am in the same boat, the market is rising faster than I can humanely raise rent. I also have good, long-term tenants. In my opinion, good tenants that don't cause trouble and pay their rent on time and stick around are gold, and I do not want to scare them off. I would not do an increase of more than 7% per year or so, and I also try to time it so it feels the least painful (spring, when the high heating bills go down). I wish I could raise it more, obviously, but the possibility of finding new GOOD tenants who will stick around on the first try is pretty low. And having even one month of no rent at all between tenants would wipe out that increase in income that you desire.

Your tolerance for risk may be higher than mine.
posted by rabbitrabbit at 8:55 AM on October 1, 2014 [13 favorites]

The tenant will almost certainly move out if she's asked to pay an increased rent of $400 / month. I would do the calculations as to whether that $400 is worth the expense of advertising, showing, cleaning, re-carpeting, and re-renting the apartment to someone else. And if it is worth it, then just do it. This is a business relationship, not a personal one.

Also keep in mind that the listings in your building give you the advertised or asking rent, but not necessarily the actual rent received.
posted by Asparagus at 8:56 AM on October 1, 2014 [3 favorites]

Response by poster: What if I presented her the listings and told her the rent would be going up significantly so as not to shock her with the new price? Not asking her thoughts but showing her why I need to do this before I decide on a price? She may need to move anyway because it's out of her range.
posted by Che boludo! at 8:57 AM on October 1, 2014

Absolutely she would get 60 days. I wouldn't dream of springing something like that one somebody quickly.

How far is that 60 from the time the lease expires?
posted by griphus at 8:58 AM on October 1, 2014

You don't have to SHOW her the listings. Just TELL her that you're raising to market rates. Find a template online and use that language. Giving her specific examples to refute is not a good idea for anyone.
posted by acidic at 8:59 AM on October 1, 2014 [9 favorites]

Stop trying to come off like the nice guy. Tell her as soon as possible what the new rent will be, so she has time to find a new apartment. Don't try to get her to understand why you're doing it. She's probably not going to understand. She's probably going to think you're a jerk. Just rip the bandaid off and stop trying to manage her reaction.
posted by ArbitraryAndCapricious at 9:00 AM on October 1, 2014 [40 favorites]

I've never had to up it by that much, but I usually temper the rent increase with some upgrades. Having a reliable renter that pays on time is worth something as well.
posted by iscavenger at 9:00 AM on October 1, 2014 [7 favorites]

What if I presented her the listings and told her the rent would be going up significantly so as not to shock her with the new price?

Don't do that. In my last apartment I got a notice that said something like "We have determined that market rent for units comparable to yours are X. Because we value loyal tenants like you we are offering you a rental rate of [slightly less than X]."

I'd write her a notice like that. And I'd add something like "If you wish to appeal the proposed rent amount please submit that in writing within [whatever time period]." That should be a hint that you are willing to negotiate while also having established the market rate as the starting point.

Obviously make sure whatever you do conforms to your local landlord/tenant laws.
posted by mullacc at 9:06 AM on October 1, 2014 [24 favorites]

You better prepare for her to move. Somebody who rents a $1050 apartment is not somebody who pays a $1400 apartment.
posted by General Malaise at 9:07 AM on October 1, 2014 [18 favorites]

Remember that if she moves, any time it's unrented is lost money. If you continued the 5 percent growth, that would be about $1100, or $300 less than the $1400 you're thinking of. So, for example, one empty month loses you $1100, which will take you almost 4 months to regain (through the extra $300/month) if you do rent it at $1400.

If I were you, I'd raise it to perhaps $1200 or $1250 this year, then $1400 next year. You're a lot less likely to lose a good tenant and will still get a lot more money.

And yes, do not "ask" her or give her comps- no need, especially if she's in real estate. If once you announce the rent increase she tells you that she cannot afford it and will move out, then you can reconsider whether the pain of finding a new tenant, the risk of getting a bad tenant, and the risk of having the place empty is worth it and decide whether to negotiate with her.
posted by Mr.Know-it-some at 9:07 AM on October 1, 2014 [20 favorites]

if she's a great tenant, spread the increases to market rent over more than 1 year? that way its not as much a shock, and you don't have to worry about finding a new great tenant/have the apt be vacant.
posted by TheAdamist at 9:07 AM on October 1, 2014 [4 favorites]

Why do the listings necessitate a rent increase on your property??

The humane thing to do is 60 days notice and amortize the increase over 2 or 3 years.

The businesslike thing to do is 90 days notice with increase of $400, which will cause her to move out.

The letter-of-the-law thing to do is however many days notice your jurisdiction requires with the $400 increase.


Is your unit spiffy and renovated? How much would it cost to get it that way?


It's really only worth encouraging her to move if you have the extra couple of thousand to paint, redo floors and carpeting, + upgrade appliances.

I promise you the premium units are top of the line. If you can compete, join in.
posted by jbenben at 9:08 AM on October 1, 2014 [13 favorites]

Oh ha, I can answer this question from the perspective of the disgruntled tenant! I've moved twice in the past couple of years, not so much because my rent went up, but because the increase was handled in a way that annoyed me. First my building raised my rent 50% in one go: that irked me into deciding at a 50% increase I could do better. The second time because the building owner raised my rent a tiny amount 4x in one year, which was just administratively annoying enough to spur me to leave. (I felt nickeled and dimed, was irritated constantly updating the automatic payments, etc.)

Here's what I'd do if you want her to stay:

1) Figure out a rent that's still a reasonably good deal for her. She will be annoyed by a big increase, and will reasonably consider her options. Once you determine something that seems fair, give it to her with comparables, so she can also see that it's fair. Err on the side of low if you really want her to stick around.

2) Give her some lead time: say, two or three months, so she has the opportunity to adjust her spending so she can stay, if she wants to. Or do incremental raises over time (but tell her what's going to happen).

3) Express empathy, and tell her she's a good tenant. Express it as your costs increasing too. If my 4x-rent-raising owner had told me she appreciated me being an awesome tenant (which I was!), I would've been somewhat likelier to have stuck around.

4) Make sure you're being a good landlord. If she's paying market rent, her place should be professionally-maintained, which means everything should work, repairs should happen quickly when necessary, you should be responsive to her, things should get upgraded occasionally, etc. Don't forget that there are upsides to her too in moving: in theory, she could trade for a newer place with fresh paint, new appliances, updated finishes, etc. That's what I did.

I don't see this as about "being nice." Bear in mind that if she moves out, there will be the hassle of replacing her, lost income while the place is empty, plus the risk of a crappy new tenant. If she's good, you want to keep her.
posted by Susan PG at 9:09 AM on October 1, 2014 [11 favorites]

Dramatically increasing someone's rent, like dumping a romantic partner or firing an employee, is one of those situations where you don't get to be the good guy, and trying to convince the other person to see it your way is just heaping insult on top of injury.

Giving her the comps is the equivalent of complaining to the employee you just laid off that your budget situation is just so tight this year and expecting them to be sympathetic.
posted by firechicago at 9:11 AM on October 1, 2014 [28 favorites]

You're making this complicated because you feel bad about raising her rents. It's fine that you feel that way, but as a tenant the only thing that will help me deal with an increase in rent is more notice. Your tenant probably already knows that she's getting a deal, so showing the other listings is useless. You're raising the rent because a) you want more money and b) you have a way to get it. That's totally fine and you should not complicate matters beyond that level.
posted by Aizkolari at 9:12 AM on October 1, 2014

We live in Denver. Our landlord informed us last year that he was raising our rent to market value, which was a 25% increase.

This was a great resource for us. Through this we learned there is no rent control in Denver, and to look at our lease. Because our landlord had used a lease he had gotten off the internet, there was language in there about how he contractually could raise the rent. That's the first thing you should check.

Second, don't make this a "discussion." You can have a conversation, but you are informing her of what you are doing, and the discussion is to do precisely that. If she is in real estate, she knows exactly what the situation is and understands the deal she has. It would be hard to be a person in Denver right now and NOT be aware of the real estate market.

Second, you can do what our landlord offered us initially: if we signed a two year contract, he would split the rent increase over the next 2 years. If we signed a 1 year contract, then we would get the entire increase at once. In other words, he made it desirable for us to stay and keep us as tenants, but gave us a chance to think about the sticker shock versus the costs of moving and finding a new place, which of course would cost market value. He also gave us a 90 day notice, and offered some minor upgrades, services, and repairs if we went for the 1 year contract.

In other words, he told us straight out this was happening, but gave us 2 options. IANAL so I don't know about the legality of what he did, but the tenant law in Colorado I linked to, which is geared toward protecting landlords, not renters, is a good place to start. But first, check the lease you have - you may have glossed over the language about raising rent when you initially began the process.

And yes, this is a business relationship. Landlords in Denver right now can be extremely choosy - odds are good you'll find another decent tenant. So do the math (vacancy, cleaning, etc.) outlined in previous comments, determine how much you're willing to raise if it's financially viable to keep her, and then inform her.
posted by barchan at 9:14 AM on October 1, 2014 [17 favorites]

I don't mean this to make you feel bad, but were I your tenant and you showed me the listings or did other stuff to try to show me why you "need" to do this, it would be utterly unconvincing, make me feel not a teeny tiny bit better, and make me view you in no more positive light. Because you don't need to; you just want to. The only circumstance where you might legitimately need to raise the rent is if the rent you're charging is less the costs associated with the apartment.

Anyway, if you're going to do this, I agree that you should just do it and stop trying to come off as the nice guy.
posted by ROU_Xenophobe at 9:14 AM on October 1, 2014 [10 favorites]

You sound like you're wanting us to justify and approve that you intend to raise her rates by $350, and you're wondering how to approach it so she'll approve, too.

Here's a clue: you pull that, she'll be unhappy no matter what. That's not terribly ethical, no matter what you try to use to rationalize it. (Also, depending on your location, you may not be allowed to increase over a certain amount per year - double-check, especially as she's in real estate herself and likely to know the rules!)

Keep in mind that you may well screw yourself over if you lose a good tenant at a lower rate to a series of not-good tenants at a higher rate... karma can be a nasty %$@#.
posted by stormyteal at 9:17 AM on October 1, 2014 [3 favorites]

Stop trying to find a way to be nice about it, what you want to do is not nice.

Calculate the value of a stable tenant. What will it cost you to lose this person?

Why do you need to raise the rent so quickly?

It seems the humane thing to do is tell your tenant the rent will be increased by $350 but that you will stagger that out over 3 years, ask them if there is a time of year that works better for them to handle the extra load.
posted by Cosine at 9:22 AM on October 1, 2014 [2 favorites]

without feeling bad about it You have to get over this. You own a property and rent it.

However, you should factor in the value of having a reliable tenant who takes reasonable care of the property, pays on time, and generates little to no trouble (repairs, questions, complaints, noise). You've had no costs for turning the apartment over when a tenant leaves, which can be significant. I have been a landlord, and the value of having a great tenant for a number of years is easily worth 10 - 15% of the desired rent. I had some troubles, but no disasters. Disasters can be really costly.

In general, it's better to raise the rent a lot all at once than to spread it out. Rent increases make people angry, and the difference between a 5% increase and a 10% increase makes them pretty equally angry.
10% increase = 1155/mo.
15% = 1208
20% = 1260

1200 = 14% increase
1250 = 19%
1300 = 24%
1400 = 33%

Send her a letter. Based on comparisons with other rentals in the area, the rent in the next lease period will be X. I value you as a tenant, and look forward to continuing the lease. I wouldn't go beyond 1300, and, realistically, I'd probably go to 1225. I'd also be prepared to do any and all repairs or reasonable upgrades. Those comparables may have new appliances or other amenities.
posted by theora55 at 9:25 AM on October 1, 2014 [5 favorites]

If you want to be nice and maximize the likelihood of keeping her, you might offer a six-month lease for $1250 to be followed with a six-month lease for $1400.
posted by metasarah at 9:38 AM on October 1, 2014

Yeah, it sucks when prices go up. But I notice my local gas station doesn't subsidize my fuel rates until I can get used to the idea of higher prices.

I'd send a letter saying:

As you may be aware the rentals on similar units in the building are going for X. As of your lease renewal date, I will be raising the rent to a fair market value of X.

Then it's her decision.

You're not sleezy for doing this.
posted by Ruthless Bunny at 9:44 AM on October 1, 2014 [3 favorites]

What if I presented her the listings and told her the rent would be going up significantly so as not to shock her with the new price? Not asking her thoughts but showing her why I need to do this before I decide on a price?

You don't *need* to increase rent because comparable properties are renting for higher prices. It's not her problem that rents in the building are increasing. You are making it her problem because your housing costs are increasing and, as a result, you need to increase her housing costs. Why don't you live in the place you own? You wouldn't have to try to find a new tenant or a new affordable place to live.

Is her lease up? Can you increase rent mid-lease? I thought the lease was a contract - you pay $x/month for the next y months.

I am currently renting an apartment on a 12 month lease. I have been living in the same apartment for four years. Every year, the management company sends us a letter that says I can either sign another 12 month lease with a small rent increase, I can start a month-to-month lease for a slightly higher rent increase, or I can move. I'm supposed to check a box and return the letter to them. I actually like that because it's very clear. However, over the last year, we've had some problems with our apartment and I am concerned that our repeated complaints about it went unresolved for months. So when we get that letter from the management company, I'm planning to push back.

What I'm trying to say is that if the place you're renting isn't in good shape, you better work on that, especially if you're planning to increase rent. And even if you do this in the kindest, most compassionate way possible, she is probably still going to leave. I don't think I would continue living somewhere where the rent increased dramatically - even if I can afford it, there's a decent chance it will spike again next year so I might as well move now.
posted by kat518 at 9:49 AM on October 1, 2014 [3 favorites]

Raising the rent by 50% is effectively saying you are looking for a new tenant: what you are implicitly doing by listing the unit at a much higher price point is appealing to a different market segment than your current tenant. So be prepared to find a new tenant who will be different than the sort of tenant you currently have. Plus be prepared to compete with other landlords who have similarly priced units for tenants.

Your tenant chose to rent from you because your unit was in her price range and less than comparable units.

The issue is that you haven't thought this through very carefully. You don't seem prepared to figure out how to make your unit appealing to people willing to rent yours or any of the other $1400/month units out there. You don't sound like you have a plan beyond "I want to convince my tenant to pay 50% more in rent." She will probably leave... then what?
posted by deanc at 10:03 AM on October 1, 2014 [8 favorites]

As much as you want to you can't come off the nice guy in this. You can however come of the fair guy. Give her as much notice as possible of the increase more than 60 days if possible, be willing to be flexible if she finds a place earlier or go to monthly at the new rate if she can't find a place before the lease ends. These are just examples, what ever works for you without you being a doormat. The nicest thing you can do is to be professional & fair. Showing other condo ads in the same building just seems a bit mean & unprofessional like rubbing it in that she can't afford to live there anymore. Just say due to changes in market rates or some such boilerplate. Just make sure you follow all legal requirements.

Just be sure when comparing the condo rates you are comparing apples & apples. Have those apartments been recently renovated? New appliances? etc etc.
posted by wwax at 10:04 AM on October 1, 2014 [2 favorites]

In my book, a stable tenant is worth a lot. I agree with the above posters that you need to gradually phase-in any increases.

If my landlord raised my rent by 33%, I would be ALL OVER THE INTERNET writing bad things about them, so you also may want to consider that too. You are kicking a person out of the place that she has called home for the past 6 years, just because the real estate market changed. This may be a business decision, but you are making a business decision that is going to have a profound impact on somebody's life for a while. She is going to have to move. She is going to have to find a new apartment. She is going to have different neighbors. She is going to have a different commute. Her new apartment will probably more expensive, and not as nice. Her furniture probably won't all fit into the new place. She's probably going to have to take time off from work and spend a lot of money to make all of this happen.

Go ahead and raise the rent. Don't bother showing her comparable rents in the area -- the end result is the same. You are kicking this person out of her home, and she is going to resent you for it. You do not get a free pass to feel good about this.

Housing is inherently different from other goods, and there are some pretty darn good reasons why 33% rent increases are illegal in most places.
posted by schmod at 10:08 AM on October 1, 2014 [18 favorites]

How can you raise your tenant's rent by 50% without her thinking you're an asshole?

You can't. No matter how you try to sugarcoat it, your tenant is going to think that you are a gigantic, flaming asshole if you raise her rent by 50%, and she will move out, and if she is like me she will also advise her entire social network to avoid you as a landlord.

Here's the thing: you see the houses around yours renting for a lot more than what you're getting right now, and so you think that your house is worth a lot more. On paper, this may be true. However, it is not true to your tenant. Your house is not suddenly worth paying 50% more per month for just because a bunch of wealthier people have moved into the neighborhood and driven up prices. In her life, that is irrelevant; to your tenant, your house is worth what she is paying for it right now.

She might be willing to put up with a smaller increase (like you've been doing so far) in order to save the inconvenience of having to find a new place, but most people simply cannot afford to pay 50% more in rent than they are currently paying. If she wanted to be paying $1500 instead of $1000 (for instance) then she would've rented a nicer house in a nicer neighborhood for $1500. People choose their houses and apartments based on what they can afford to pay, not based on the market value of the neighborhood.

Expecting a tenant to stick around after a 50% rent increase, let alone continue to think that you're a decent landlord, is absurd. She is going to feel as though you are shaking her down for an additional several thousand dollars a year, and she is going to immediately decide that there's no way in hell that she can afford it, and she will move. She will feel as though you have essentially kicked her out of her home because you thought you could make more money off of someone else. There is no way to approach this situation that will cover up the fact that you are telling her that she needs to either give you a lot more money or else move out of her home. It's not the kind of thing you can gloss over.

If you really think that you can get another 50% out of that house with a different tenant, and that that 50% will be worth the expense and hassle of losing your current tenant, making the house ready for a new one, and then finding a new tenant (who will be an unknown quantity), and if you're OK with your existing tenant thinking that you're a huge dick for kicking her out (because as a tenant, a 50% rent increase essentially reads as "I need to find a legal way to get rid of you so that I can get someone richer in here") then go ahead. It's a business decision, it's legal, and it's something that renters always know can happen to them. It's not a nice thing to do to someone and it involves a lot of risk on your part, but you can do it. What you can't do is have it both ways—you can't raise the rent by 50% while also keeping your existing happy, reliable, long-term tenant. No way.
posted by Anticipation Of A New Lover's Arrival, The at 10:09 AM on October 1, 2014 [31 favorites]

Out of curiosity, why do you feel that you absolutely need to bring it up to "market rate"? I understand wanting to raise it a bit, but there's no like, law that says that you have to charge your tenants the same as other places that are on the market. You can raise the rent without making it a 50% increase.

A good stable tenant might be worth getting slightly less rent.

Additionally, have you compared this unit feature-by-feature with the comps? If she has been there for 6 years, how much repair/upgrades will it need from wear and tear? Are the appliances comparable?
posted by radioamy at 10:13 AM on October 1, 2014 [6 favorites]

Just tell your tenant as soon as possible. It's likely, she will move out. But it's not just about giving her time to find a new place. It would also suck if she bought something huge that would be difficult to move because she didn't know she'd have to leave. But it's possible she may want to stay so the extra time would help her get her budget in order.
posted by AppleTurnover at 10:18 AM on October 1, 2014

I live in a place where rents have been skyrocketing for years, and there is no rent control. So a yearly increase of 6.5% is unpleasant but not uncommon. People start complaining on online review sites when the increases are in the 10% - 15% range. That does not necessarily matter if the vacancy rate is low and there are no other red flags about your property. Either folks who can afford it will pay it, or your rental will remain vacant until you reduce the price.

It's worthwhile from a business perspective to avoid the latter situation. I agree with the folks above who are saying to consider the financial impact of keeping a good tenant and give the tenant as much notice, clearly and succinctly communicated, about large increases as you can.

Also consider that just because rents are skyrocketing now does not mean that will always be the case. For example, LOTS of new rental inventory has been coming online in my area which is now reversing rental increases. You want to make sure you are not jumping on a trend that is not going to last, at the expense of losing a good tenant.
posted by jazzbaby at 10:45 AM on October 1, 2014

Unless this rent increase is accompanied by a $5000 raise on the part of your tenant's employer, she is not going to stay. Period. Essentially no one I know (especially renters) just happens to have an extra $5k a year lying around that they aren't using and are able to just fork over to their landlord. So, you have a choice between a reasonable rent increase or finding a new tenant. Only you can decide which you prefer to deal with -- both have their pros and cons -- but I would stop with the fantasy that you asking for an insane amount of higher rent will somehow lead to your tenant magically getting a windfall that allows her to pay that higher rent. If that somehow does happen, that's awesome, but certainly don't count on it or plan around it, because I would assume it is really, really unlikely.

Now, if you decide you ARE going to raise the rent and find a new tenant, I do not think this makes you a terrible person. BUT. I think being a fair person in that situation requires you to give as much notice as you possibly can. Like, the moment you make the decision, let the tenant know. You are essentially evicting her from her home, so think about how much notice you would want and need in that situation. 90 days would be ideal. Moving expenses can be a lot, and your tenant may need to budget for them. Even if 30 or 60 days is legal, I think giving her a cushion of a few months is the kindest thing to do since she has given YOU the benefit of being an awesome, stable tenant for so long.
posted by rainbowbrite at 11:10 AM on October 1, 2014 [3 favorites]

I think the only way to make your tenant not hate your for raising the rate by essentially an extortionate amount is to also make serious improvements to the property with the additional money. New washer/dryer, new kitchen/bath, etc. You won't have more free cash flow coming, but you'll at least improve the apartment significantly and make it feel like it's worth paying more to live in, and will be able to get better rents if/when she does move out.
posted by empath at 11:27 AM on October 1, 2014 [2 favorites]

You have two different problems you're trying to conflate, and you need to consider them separately.

Your Own Rent:
Your stated reason for raising her rent is that you want to cover more of your own costs to rent elsewhere. You're couching it in terms that the unit is being rented below market rate, but that's beside the point. The fact your own rent is going up shouldn't be considered in the context of your investment, except to the extent that you could potentially convert the investment property into a home for yourself, either by terminating the tenant's lease (so you can move back in) or by selling the property outright and using the proceeds to finance your own move.

The Condo:
Presumably her rent covers your mortgage and expenses on the condo. Have you been doing the sort of maintenance that justifies a rapid increase to equal the market rate for newly-available units, or have you just been doing just 5%/year worth of maintenance? If her rent doesn't cover your costs on the condo itself, you have a strong argument for raising the rent. You haven't made that case, though.

Your condo is an investment, and you have to look at it as a long term investment and not a short term fix. There's an acquisition cost to getting a new tenant in and you say she's been a good tenant. If you raise the rent that much just to cover your own costs elsewhere, no matter how you try to justify it you're running the risk of alienating and losing a good tenant for factors that are external to your existing business relationship with her.

Before you raise the rent you need to figure out what your acquisition cost truly is. Those costs include, but are not limited to:
  • Lost revenue while the unit is empty;
  • Deferred upgrades you haven't done while the unit is occupied (appliances, kitchen cabinets, floors, bathroom finish, etc);
  • Advertising;
  • Time you have to take to show the unit.
If you have a good handle on your acquisition cost and know how long you can afford for the unit to be empty, then you can figure out if raising the rent to market rate all at once is worth it. Also you don't (and can't) know the true cost of a bad tenant, in terms of missed rent payments, damage to the unit, and so on.

If you think your investment is underperforming against its own potential then you should do what you can to maximize the return, in some combination of raising the rent, performing upgrades with a strong ROI, or selling the unit outright in order to capture gains in the market. But don't just go raising the rent all at once when you have a good tenant who treats the unit well and pays on time. Those things are worth a lot, and you have an investment that currently provides a steady return.

So. I'd raise the rent some, but I wouldn't try to recover to market rate in that much of a hurry.
posted by fedward at 11:32 AM on October 1, 2014 [5 favorites]

Is the extra $5000/year worth it to you in exchange for the risk that comes with a new tenant (possible vacancy period, needed maintenance between tenants, new tenant is a problem or doesn't pay on time, etc.)?

Is this the extra $5000/year worth it to her in exchange for not having to move (cost of move, cost of startup expenses at a new place, possible downgrade of apartment features due to market uptick, unknown new neighbors/landlord, probably moving farther out of the city center due to market uptick)?

These are the two market forces at play. You're running a business, not a charity. She can accept the raise, negotiate for a lower amount, or she can move.

As someone who lives in an apartment that is undermarket by about $500/month, I say just propose the increase you want - don't ask her opinion or show her other listings. She should be anticipating this (especially if she's in real estate) and should have saved for either (a) the cost of a move or (b) the cost of increased rent.
posted by melissasaurus at 11:47 AM on October 1, 2014

Can you live in her apartment yourself? If you need a place to live, that seems like it would actually be a fair reason not to renew her lease.
posted by three_red_balloons at 11:58 AM on October 1, 2014 [2 favorites]

You can either care about being nice to her, or care about the money you're getting from the unit. There isn't really a middle ground here with that level of increase. You could maybe find one with a lower increase, something like 10% per year. A 50% increase will not be received well by anyone (and will almost certainly cause her to leave), regardless of how prettily you frame it. It doesn't make you a bad person to focus on the money, but you can't prevent her getting upset by it, because an extra 5000$ in rent is a really big deal to most people, and flat-out impossible for many.

Also - if you're using the market value to determine your price, you should be very sure you're estimating it correctly before you boot out a good tenant. Identical units may be advertised at 1600, but are they actually getting that rent, and are there other things that make those units more appealing than yours (age, location, building facilities, appliances, how nice the interior looks, etc etc etc). Maybe try to go on a tour of some of these apartments so you can compare?
posted by randomnity at 12:25 PM on October 1, 2014

Response by poster: The other thing is that she has been talking about purchasing a house so I will lose her eventually anyhow.
posted by Che boludo! at 12:56 PM on October 1, 2014

If that's the case, what's the urgency to de facto evict her? When she leaves you'll be able to advertise the apartment for as much as you want and take the highest bidder.
posted by Asparagus at 12:59 PM on October 1, 2014 [15 favorites]

The other thing is that she has been talking about purchasing a house so I will lose her eventually anyhow.

This is perfect for you. Raise the rent 5-10% which pushes her home buying process along reminding her that this is a consequence of renting. Then when she moves out, clean, fix, and renovate your unit to get it up to standards that you can offer it at market rates.

Going forward, increase the rent slightly every year so that the unit doesn't fall so far below market that you are stuck in this position again with a far-underpriced unit that you can't rent out for market rates without a logistical mess.
posted by deanc at 1:26 PM on October 1, 2014 [3 favorites]

If she's been talking about buying a house, maybe you could try to figure out how much longer she's planning to stick around? If it's only for a year or two, you should probably enjoy another year or two of having a stable tenant who doesn't hate you.

You should also offer her a lease that allows her to break the lease without a penalty -- if she's contemplating an eventual move, this would be a mutually-beneficial.

Similarly, if your costs for holding the property (condo fees, repairs, bundled utilities, taxes, etc) are going up by more than 5% a year, I think that's a valid reason to ask for a larger rent increase (if it's actually true).
posted by schmod at 1:29 PM on October 1, 2014 [1 favorite]

When I first became a landlord, I got some sage advice from another small time landlord.
Rent the unit for "X". If the tenant is a PITA, at the end of the lease, the rent goes UP.
Here's the kicker... if the tenant is great, reduce the rent. Even just a little bit, cause, hey, that NEVER happens! (I like to start with a 6 month lease if I can. I never tell tenants about the "incentive plan".
I have personally reduced the rent on one of my apartments because the tenants were great, and they indicated they were having a bit of a time making the rent.
I always figure it is going to take me around 6 weeks of no-rent before I get a tenant. Plus painting, fixing, etc. Not worth it if you have a good tenant. I've had some great ones, and I've had some I've had to file dispossesory warrants on and go in and find a refrigerator that's had no power for weeks but is full of food.
posted by rudd135 at 4:34 PM on October 1, 2014 [2 favorites]

So here's what happened when my landlord actually tried to do the "what are you thoughts?" convo with me:
LL: "So...I was wondering how you'd feel if I raised the rent a little bit?"
Me: "Well obviously I wouldn't like it at all and would move out."
LL: "OMG! But you've been such a good tenant! It's just... property taxes have been going up, and..."
Me: "Actually, the taxes and property values have been fluctuating wildly. So yeah, you're within your right to raise the rent, but I don't have to pay it. As you know, I'm an excellent tenant who has paid the rent early and in full every month; has covered minor repairs on my own; who has never, ever been the object of formal complaints like the deadbeats you used to rent to. Also, when I leave you're finally going to have to replace the hole-y carpet and torn up floors I didn't care about when I moved in, along with the crappy washer/dryer."
LL: "On second thought, you can stay as long as you like at this rent. It's more cost effective than upgrading the unit."

So I've never been a landlord, but as an exemplary tenant, OP, we're worth our weight in gold (and/or not raising rent 50%).
posted by TwoStride at 5:01 PM on October 1, 2014 [3 favorites]

OP, are you looking for validation or approval or what?

Here goes, then:
I, the undersigned anonymous Internet person, hereby acknowledge your agency in making a business decision that may be uncomfortable for your tenant and cause you to experience guilty feelings. I hereby approve of your making that decision and accepting the consequences - business and emotional - that arise therefrom.

There you go. You wanna raise the rent, you're entitled to do that. You can't make it something it isn't.
posted by TheNewWazoo at 5:46 PM on October 1, 2014 [2 favorites]

I think you are getting judged a little harshly here. The way I see it, your tenant has had a great ride for a long time now, but unfortunately prices go up. She is not owed a dirt cheap rental forever simply because she's been lucky enough to have it up until now. And with property prices going up, services to maintain your property go up too. So you're paying extra to keep it liveable (or you will be whenever you have to replace things) but the rent isn't in line with the additional expenses so you'll be having to eat that. If I were here, I'd actually be thanking my lucky stars that she had it that good for that long, it's enabled her to save to buy her own place.

Everyone who says that you're mean to increase the rent - it's business, and he's not ripping her off, simply asking her to pay in line with the market. I'm assuming taxes and rates etc on the property go up too and everything has to be accounted for. Of course, she doesn't have to pay it, and you run the risk of losing her as a tenant but if you keep it a touch below the market rate, she may stay simply because she will still have to pay more for the equivalent elsewhere.

If it will make you feel better, wait until she leaves then raise it. The comments about running the risk of getting a bad tenant in are valid but only to a point. What I've noticed in really hot rental markets (I live in one) is that there is so much competition to get in that landlords have their pick of renters, so you're not forced to take the 20 year old hard core partiers who trash the joint, you can choose the retirees who may look after it better. People tend to look after a place much better if they know they can get kicked out of it at the end of their lease and face a slog to find the equivalent again, it's in their best interest to look after your place and be good tenants.

I come from having once been in a similar position to you where I had a tenant who got a great deal on my place for quite a while until I decided to raise the rents, it was well below market rate. The increase wasn't 50% but it was considerable. He was a good tenant, he looked after the place but I was also a good landlord, everything was fixed and looked after the instant it needed to be. When the rent increase came, I had no issues from him at all as he knew that to leave and find the equivalent would still cost him more and so he paid and stayed on. It never occurred to me to feel bad about raising the rent, nor he to complain. When I finally decided to sell, I also gave him the first option to buy.
posted by Jubey at 9:29 PM on October 1, 2014 [2 favorites]

When I finally decided to sell, I also gave him the first option to buy.

And he didn't take the offer, because he had already given all of his money to you in rent.

I know this story, because I've been on the other end of it.

It still hurt. I miss the place that I called home for nearly 4 years, and resent how I was basically thrown out onto the street because I couldn't pony up half a million dollars to buy my unit, and couldn't afford to rent anything remotely comparable, because the rental market had gone batshit insane in the 6 months prior to my eviction (it's since calmed down; the place sat vacant for a year before my old landlord managed to sell it for well below his asking price; good riddance all around).
posted by schmod at 11:00 PM on October 1, 2014 [1 favorite]

I think the fact that you're raising the rent to catch up with the market rate matters a lot. I'm not convinced your tenant will move -- it's not like she'll be able to find as good of an condo for a lower price so her options are basically:

a) Move to a cheaper, worse place
b) Continue renting from you at the increased rate
c) Move to a different condo of the same quality / price as yours.

Between b) and c), I don't understand why your tenant would choose c) unless you royally piss her off by how you conduct yourself. As to whether she'll chose a) or b), it probably depends on her finances and whether she can afford and is willing to pay the higher rate.

In my case, my rent has gone up a lot over the last couple of years. I huffed and I puffed but then I looked around and realized that the local market has been crazy and it's not like I would save any money by moving to an equivalent place elsewhere -- so I stayed put.

Also, like everyone said, definitely don't 'hint' at a rent increase or ask her thoughts. If you want to be generous, be generous -- ask for a lower-than-market increase or make the increase gradual. Be clear, professional and prompt in your communication. If your tenant wants to negotiate, she'll negotiate -- you don't need to be wishy-washy about your plans. Remember, this is a business and you have actually been very generous to your tenant by charging lower-than-market rates so even if she feels upset, you've actually done well by her.
posted by bsdfish at 1:24 AM on October 2, 2014

Schmidt, I'm sorry you got bled dry but I can promise you this guy didn't, he made a lot more money than I did. The reason property prices in my region were going up was due to a mining boom and he was a miner cashing in. He was in no way crying poor, which is why he could more than afford a rent increase - that still wasn't in line with market rates. I didn't bleed him dry and quite frankly resent the implications that I did. As I said, he got a very good deal for a long time. Don't assume your situation is everyone's.
posted by Jubey at 3:33 AM on October 2, 2014

From the tenant side, I had a landlord once who would call me about things she was considering. "I'm thinking about selling...I'm thinking about raising the rent... what do you think?" What was I supposed to say? "I think the rent should be $5." It was needlessly stressful. Eventually she raised it to market rate after a jump happened and she lost a quiet, stable family who fixed things, mowed, and were easy to work with and got college students in exchange. But that's business eh. Just raise the rent. If your tenant is paying any attention she probably has some idea of what the rates are out there.
posted by Lardmitten at 8:01 AM on October 2, 2014

Why do you want to raise rent?

Supposedly, because you want to make more money. "Below market rate" can mean a lot of things and I don't really know the details of your market for your particular unit type. However, rather than just think you'll get extra $x/month, think about all the cleaning and reno you'll have to do (especially after a long term tenant), the risk of a new tenant, the work of finding a new tenant including all the showings, and of course, the time that you will not be collecting rent because you'll be turning over the unit and most professional rental companies expect it to take 4-6 weeks to rent out a unit or they feel they've priced below market.

If you do choose to increase the rent all in one go, expect the tenant to move out. Most people spend as much as they would like on rent and don't have that much wiggle room in how much they can/want to spend on rent. Anyway, if you raise rent by 50% all at once, it will feel like a bad deal.

All that is to say that if you feel you can afford it, I would suggest you amortize the increase over multiple years. I am a small time landlord and I would rather have a trustworthy tenant (especially one who is for example, willing to schedule repairs without me showing up, and who is willing to take care of yard work) even if it means a hundred or two less a month, because a large repair or hiring a yard work service or having to hire a property manager all adds up to lost profit anyway.

But if you feel like it's worth the extra trouble and risk, because 50% is a very significant increase, then go for it. At the end of the day, it's a business decision, and as long as you give the tenant a decent amount of notice, it's fair all around. It'd be nice if we could all pay a comfortable price for a comfortable home, but that's not reality, and renters' risks are inherently different than homeowners'. That is, homeowners might have repair/maintenance/housing price drop issues. Renters have to deal with rents increasing.
posted by ethidda at 8:13 AM on October 2, 2014

If you decide to raise the rent, don't couch it in terms of "rents around here are going up so I'm raising your rent too". For sure I would move it you told me that you were looking to cash in, all other factors be damned.

If you feel you must give an explanation, which I wouldn't, at least couch it in terms of your expenses.

I think you could do a more reasonable increase, like to $1200/mo, probably keep her happy, and keep her until she decides to buy a place as she's mentioned. Hell, keep her happy, and she might send you your next tenant.
posted by vignettist at 8:39 AM on October 2, 2014

In sales they talk about "compelling event," which is what tips a person or company from inaction to action. You raising the rent on this tenant could potentially provide her the compelling event she needs to go buy a house.

House-buying aside, no matter how much comparable rent has increased in your area, a rent increase like what you describe will make the tenant ask herself (and probably you) "What am I getting for this additional money?" Unless you clearly and promptly articulate how your rental expenses have increased and/or how you will use that increased rent to benefit her ("I will use the money to paint/renovate/replace appliances etc") then she will see it for what it is, which is her getting exploited for more money.

You are entirely within your rights to raise the rent (unless there's some rent control laws in place) and she is entirely within her rights to seek new housing under the terms of your lease. Don't make this a touchy-feely, "I want to raise the rent but don't want you to leave" interaction. Either you raise the rent or you don't. This is a business transaction and should be treated as such.

I say this as a renter who recently went through this with my last landlord. It was an increase of $270/month because they had "looked at comparable rates and discovered they were underpriced." We immediately found a new place to live that gave us more for our money, and our old landlord seemed very surprised that we didn't jump at the opportunity to give them $270 every month for the same townhouse as before. They said repeatedly that they didn't want to lose us as tenants, but didn't seem to realize that they messed with my bottom line and I wasn't going to stand for it.
posted by zompus at 1:16 PM on October 2, 2014 [3 favorites]

My long-ago apartment saw an increase of exactly 50%. The owner just announced that the rent (for a 4BR apt in a fast-gentrifying part of Brooklyn) would be going from $2400/mo to $3600/mo. The good elements were the notice she gave and how straightforward it was. So, nthing the responses that you absolutely shouldn't break the news by "asking her thoughts."

Give her long notice, but also be sure you have enough reserves that it will be okay if you can't get a tenant for the new rent right away, because her response may well be to move out as soon as her lease allows her to.
posted by kalapierson at 11:02 PM on October 2, 2014

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