Dilemma regarding rent charge for friend

Consider the changes for landlords coming in next year and make sure you safeguard yourselves / sons future prior to this.
Your friend has had a generous gift of not paying market value for so long that she may feel short changed now but remember this is a business arrangement to support your son, when you are gone your friend won't be looking after him.

Your allowed 10% per year! If mortgage and management costs are covered why do you need to make profit?

£3000 a year is that market rate

And what proportion of the total rent is 3K?

I mean if you're losing 3K of a circa 50K yearly rent then stick with the good tenant because it's a small proportion.
If you're losing 3k of a total rent of 10K then that's a different story.

But then it will be tenantless for a substantial amount of time which will cost them much more than £3000.

If you want any chance of keeping the friendship, I'd advise you to evict and tell her it's so you can sell it empty.

Shes never going to be happy paying more and will resent you and by then Renters Rights will have come into force and it won't end well for any of you.

Keep a bit of distance and fudge that the sale unfortunately didn't go through in the end and leave it at that. Put it behind you.

We charge €500 less than we could get in order to have 2 childless professionals living in our rental rather than a family who would cause far more wear and tear. We were actually advised to do this by the rental agents. Totally worth it IMO. The place is in perfect shape as a result.

I think you need to be clear about the actual amount you're down.

Does the current rent cover associated costs from owning and renting out a property such as insurance, maintenance, service charges etc. If not, then you are tangibly losing money, and I think you should include these costs in any rent increase (with notice) as there is no reason for you to subsidise this person and actually lose money from renting to them.

If you had other tenants though you would have more uncertainty and may have to consider other costs like additional management fees (if its currently a one-off private arrangement), periods that it was empty for re-letting, periods where rent is paid late, additional costs of re-decorating between tenants, increased costs of wear and tear (eg if it was rented to a couple with a child instead of just one person) and potential increased costs of damage. Its financially worthwhile accepting a lower than market rate rent to retain a good tenant who takes care of the property and pays on time. So it isn't just a case of 'nearby properties are rented out for £x a year more so I'm down by £x'.

Talk it through with her like you have here. You will then find out how much of a friend she is. You could make a phased plan with her that works for you both. You must look after your son.
Although from a friends mothers similar experience , they proved to be unappreciative and not her friends after all the years of being looked after.

Why not get a fair rent assessment and take it from there? "How to know if my rent is fair?" Gets a very detailed AI assessment on Google. Find out from estate agents etc and then discuss with your friend what kind of discount you're willing to accept. I do hope the rent has been increased over these last 10 years??? You're not in the charity business!

You have to be having a laugh 🤣

"We are essentially down financially around £3,000 per year and feel unable to ask them to pay more…. They are a good tenant and friend. What do we do?"

Work on becoming able.

This.

start increasing the rent yearly, in line with inflation.

Also check on the % return you are actually getting, after all expenses and taxes. You may be better off selling and investing in a mix of equity funds, bonds and high interest accounts. Much less hassle than being a landlord.

Some of this will depend on the exact rental market near you and who your target tenant would be, but I'd weigh it up carefully before doing anything.

You're current Tenant is 3k under market rate per year, but (presumably) always pays on time and looks after the property well. She's also stable so you don't have months with no income while trying to get a new tenant. How many months rent is 3k in your area?

How likely are you to achieve the market rate? Is your flat of the same standard to what you're comparing to? Are you looking at guide price or what they actually rent for?

What's the plan if you get a bad tenant that goes behind on rent/doesn't look after the property well? How much would that cost (best, worst and average case scenarios). How much time do you have to deal with it? Will you need to do maintenance more often?

Are there any corners you've cut as landlords as you're renting to a friend? If there are then factor that in as you won't be able to do that with another tenant. If your friend is doing some decoration/maintenance herself at the moment would you need to take on extra responsibilities for the flat with a new tenant.

It may still be worth it but I don't think its likely to be as simple as you can get an extra 3k per year with no additional risk or effort on your side, so consider it carefully.

Theres always the in between option of raising the rent a bit but not the full market rate as well.

I'd also check what Labour is planning to bring in around renters rights/evictions/rent increases etc. I don't know the details but they'll all have an impact.

I'd take a good tenant over £3000/year. Having said that, there's no harm in raising the rent by maybe £50/month.

At below market rent, why haven't they spent that decade improving their options or registering for social housing or even saving? What if the OPs soon was moving in like they first thought he would be able to?

You need to make sure you after at least covering your costs, including maintenance etc. I think £100 increase this year and review again in twelve months. Your friend has lived there with reduced rent for a decade surely she should use that time to improve her own financial position or to get on a housing register (even where I live it's about ten years) rather than just assume she can carry on paying below market rent forever.
You need to speak to her and say Janet I know we've not raised your rent for ten years but everything has gone up for us, and we need to cover our outgoings we will need to increase by 4% from April, or whatever you decide on.

Because they’ve been paying your mortgage.

I think you’re entitled to ask for more. I wouldn’t judge you for it.

but you need to accept that will come at the expense of a friendship.

were it me, I think I would look at sell and liquidating the asset, and put the money into some sort of trust for your child

Put the rent up. You are entitled to market value. If your friend can't afford the rent they need to find their own solution, ie take in a lodger, get a better paid job, find a cheaper flat.

It doesn't make any sense for you to subsidise anyone when you have a child to think of.

Tell your friend you can't afford to continue letting it below market value and tell them you want £X and are offering them first refusal. Maybe give them 6 months to find something as a gesture of goodwill. I hope you have a tenancy agreement that allows you to end it.

Do you claim DLA for your son at the moment? He could be entitled to PIP and more benefits when he is 18? You could use the sale of your flat to give to him at 18 when he needs it? Having said that if you claim UC you will need to check he is not over the savings threshold.

Your primary responsibility is to look after your child, not your friend. £3000 over ten years is £30,000 that you could have in a trust account earning interest to pay for care and support for when you are no longer able to manage or should something happen to you.

If she is a true friend then she will understand that. If she doesn't then I would say that she is just being pleasant to get a good deal on the rent.

Protect your child. No one else is going to.

😂
that’s the point of renting you get live in a property with no responsibility for maintenance costs the off set is you pay a premium for this.

its an awkward position @Plantyshazfan is in, could you speak with your friend about increased costs or sell them the property and put the money in a trust for your son to access when needed. I guess another issue is if you keep the property and continue you to rent it out who will manage the property for you when you aren’t able or here to (sorry to be blunt)

I think you need to speak to a local letting agent who knows the market. If there is a high turnover of tenants in the area, you could find that a large chunk of the £3000 a year is lost on marketing costs, inventories, smartening up the property in between tenants, void periods etc. It may make sense to charge less than the market rent to reflect the benefits of having a long term reliable tenant.

It also depends when your DS needs an income from the flat and when the mortgage will be paid off. There may be a better way to invest your money to provide an income.