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Raising Rent advice

January 5th, 2016 at 10:08 am

I have a rental property in a different state. My current tenants have been there since September 2011. They had a year lease and now it is month to month (not something I would do again, though this has worked out fine.) They are great tenants, have really improved the house and never have given me any trouble. I want them to live there forever (unrealistic).

I have never raised the rent on the house. Right now it is $1500. Zillow says the going rent rate for the house is $1750, with the range being between $1600 and $1900. The fair market value for rent is $1649. I need to start raising the rent so I don't get into trouble with taxes. I am already making a killing on the rent (no mortgage on the house) but it needs to go up.

I want to raise the rent but not so much that they would consider moving. Should I start with $25 or $30/month and then in 9 month to a year raise it another $25-30? That would put me closer to the going rate of rent. Would an increase of $50/month be enough to make them start looking around?

I know that eventually they will move and if the house was even within driving distance (it's not-about 2000 miles away) I would just risk it. But it will be such a hassle to re-rent it out, even with help from family.

Any advice or thoughts would be appreciated!

8 Responses to “Raising Rent advice”

  1. AnotherReader Says:

    I never raise the rent on an existing tenant more than 2 or 3 percent. Their income probably went up by about that amount and most people won't move at that level of increase. I would probably raise the rent $30.00 this year, and re-evaluate next year. If rents are increasing raise the rent again.

    There's a balance between getting close to market rent and losing tenants. Turnovers cost money, including lost rent. Your house may not be in move-in condition. Your tenants may be living with some minor issues that you would have to fix if they moved. If you ask them to pay the same rent that a newly painted and carpeted house rents for, you may cause them to move - into that house.

  2. patientsaver Says:

    If they are great tenants, always pay the rent on time and have made improvements to the property, I wouldn't raise the rent at all, especially if as you say you're already making a killing. Because you never know who you'll get to replace them and as I'm sure you know, bad tenants can cause you a lot of misery, inconvenience and headaches. I'm sure most others will disagree with me, but good tenants are really something you want to hold onto. In any event, if you did raise the rent, I would only do it once a year at most. If someone raised it now, then raised it again in 9 months, I would definitely start looking if I was a tenant; you expect some degree of certainty of what your expenses will be for at least a year out.

  3. Laura S. Says:

    As a renter who pays on time and keeps the property in good shape, I would be looking to move if my rent were raised over $25. In my last apartment, the management company raised it $75 one year and $50 the next and there were no improvements (not to mention it was 1970s style and this was a big company who could have made improvements). The rent going up over 5% each year was a big part of my decision to move.

  4. Mich Says:

    I agree with patient saver. Count your lucky stars.... esp since u live far away and the fact they have improved your property. I don't think its worth the risk

  5. Ima saver Says:

    I agree with patient saver. I had rentals but I NEVER had good renters. I would NOT raise the rates at all. I am holding the mortgage on a new house that my husband just built. Their mortgage payments are lower than your renters are paying and part of their payment goes to the principal. I say, don't raise the rent!

  6. ceejay74 Says:

    How would you get in trouble with taxes? (Curious because I rent to my friends for less than market value.)

  7. jokeabee Says:

    Another Reader- I hadn't thought about it in terms of percentage- that is a great guideline to go on.

    Patient saver- Raising rent more frequently than once a year is ridiculous. Thanks for point that out, I don't know why it didn't raise flags in my head when I wrote it out!

    Laura- Thanks for your input! I've looked around and there is nothing for rent for less than $1650 in that area, and those are just apartments not houses with yards and a garage. I know there is a certain price point that everyone has where it makes sense to leave rather than stay put and I am hoping to stay within that point with my tenants.

    Ceejay- After more reading it isn't necessarily a penalty. If you have an investment property (or non personal use property) and don't charge fair market value, then there is a limit to how much you can deduct on your taxes. Since my expenses are really low and rent is really high this probably won't effect me, at least not this year. I am still going to talk to my tax man about it. From what you have said about your situation it also doesn't seem to apply to you because you also live there. But I am no tax expert so you might want to verify that for yourself.

  8. ceejay74 Says:

    Wow, thanks for the info! That makes sense. I'll definitely ask my guy this year so I don't accidentally cheat on my taxes (because even though it's not a business thing per se, I do count it as rental income and deduct expenses).

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