My Rental Porfolio: How much is too much rent?

I’ll shortly find out from our tenants if they’re interested in staying for another year. However a new piece of information has left me scratching my head.

I have really enjoyed being a landlord these last couple of years. A large part of the reason for that has been the quality of the tenants that I’ve had. Our tenants have been very high quality. They pay the rent on time, we have relatively few calls for assistance from them and they maintain the apartment in immaculate condition.

My wife and I expect (and in fact hope!) that our tenants will likely renew. While they have previously indicated that they would like to find their own home, they’ve also recently had a baby and a lack of time to search for a house will probably leave them renting in our apartment for a third year. If that happens to be the end result then I couldn’t be more thrilled.

Not needing to go out and find new tenants means that I want have to outlay cash in bringing the apartment up to scratch for some new occupants.  I would have to do a repainting of the house remove, clean carpets and go through a township inspection as well as all of those other things that comes with trying to move in new tenants . Best of all,  I’ll avoid a one-month broker fee in trying to go through the process of finding a new tenant and also eliminate the risk of my apartment not being rented in between the existing tenants moving out, and a new tenant moving in.

However the biggest advantage in having my existing tenants stay though is that I eliminate the risk of a poor selection of a new tenant for at least another year.

If our existing tenants do decide to stay, we have an interesting decision on our hands. My wife and I decided that we wouldn’t increase the rents to our tenants on the second year of the lease just because they were good tenants and we didn’t want to rock the boat by giving them a reason to think about moving somewhere else.  We didn’t really assess market rates at the time of the renewal, however I suspect that the market rate would have moved up 2 to 3% from the base rental rate that the tenants and I agreed the previous year.

My wife and I were discussing how much if at all we would set the new rent for our tenants for this third rental year. I indicated to her that I didn’t suspect market rents would have moved all that much and suggested to her that perhaps we look at keeping rents flat for a third year and then increase the rents for the following year or more likely have a new set of tenants at that time in which case we could just charge market rent.  My wife rightly suggested that we check with our broker to see just what market rent was.

I was shocked to hear from our broker that in fact current market rents have advanced almost 10% to the base rate that the tenants and I agreed only two years ago.

Now while we would be fully entitled to charge our tenants the full market rent, I have to imagine that a 10% increase is probably going to carry some sticker shock. I’m also sensitive to the new expenses of bringing up a newborn.

I think a key question in my mind is whether it makes sense to perhaps charge them slightly less and show them that we’ve cut them a bit of slack with the thought that maybe that makes the tenants less likely to leave next year and perhaps want to continue on.

I do realize that that’s a slim possibility as it’s unlikely that a few thousand dollars slack will make the difference in committing to such a large expenditure and everything else that goes with having a home of your own. My wife wants to charge our tenants the full market rate and after having given it a lot of thought I’m inclined to agree

In retrospect I think the smart thing to have done would’ve been to implement a gradual rent increase after the first year such that we didn’t have to stick the tenants with such a big increase all at once this year. I guess all of these decisions are part of the fun that goes into being a landlord.

And besides with any luck maybe 10% isn’t really such a big rental increase and our tenants won’t bat an eye at a 10% rent increase after all?!


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