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!
Raising Rent advice
January 5th, 2016 at 06:08 pm
January 5th, 2016 at 06:42 pm 1452019334
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.
January 5th, 2016 at 07:10 pm 1452021019
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January 6th, 2016 at 02:39 pm 1452091168
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.
January 6th, 2016 at 06:41 pm 1452105680