Dilemma regarding rent charge for friend

Could you raise the rent slightly each year? Explain to them that you need the money for your son. Surely any good friend would understand that?

The longer you let this go on, the more she will have a case to stay forever.

End it now.

If your son is never going to live there, it will make more sense to sell and invest the proceeds on his behalf. You are losing money already. Once you factor in Capital Gains Tax on a second property you will be down ££££.

Do you have a proper rental agreement contract with your friend? Given the amount of legislation for landlords, and with the new rules coming in at the beginning of May next year, you might find that you’re in a really difficult position legally if you don’t. Whether to increase the rent or not will be the least of your problems. I don’t want to scare you, but the financial penalties for renting and not following the rules can be ruinous. I hope you do have everything in place and watertight, but if not, please get advice urgently.

Op, i think you're more then entitled to charge the going rate for rent, as do all landlords in order for it to be worth while in being a landlord, its not what ppl think anymore, renting one property out doesn't make you millions. In fact costs of insurance and the legal certs you need and repairs and the tax on the income all add up. If I were you, id speak to a local agent who has all the know how on your liabilities and what you can and cant do before you speak to your friend and go from there. You may want to increase the rent but you can negotiate the increase with them. They've had it good for 10 years, if they are a good friend then they shouldn't be taking advantage of you either. Good luck Op.

Are you covering your tax costs too?

It depends on your priorities.
I thought your going to say 10k pa delta or something huge...

£3k pa under market for great tenants, no rental voids etc... isnt so bad.
If its a 2 bed in london they are 2k-3k pm. One month void wipes out that "profit" you have to pay for advertising and resetting....

You do need to prioritise your child though...
I'd keep them but start to raise rent annually by 5% or whatever PA to start to close the gap

Lol.

You have to put your son first and if she's a friend she will understand that.

Maybe not full market rate but still, meet in the middle.

Presumably maintenance and repairs, new boiler etc.

Wtf? You make it sound like the friend did the OP a favour, rather than benefitting from her very valuable asset. Try harder.

you should have an honest conversation with your friend?

This is my view having rented out my house a couple of times in the past. A 3k loss isn’t very much at all for a good tenant and a bad one could easily cost a great deal more and even more to remove.

Have you always charged the same rent regardless of inflation? If so, that's no longer working because the flat is incurring expenses which aren't covered by the rent. I'd look at slightly increasing the rent so that you are covering the mortgage and management fees plus a small sinking fund for repairs, etc. If you charge an extra £500 a year this year and again next year, that will give you roughly £1000 extra for unexpected repairs (with the caveat that you don't say what the overall rent is so I can't judge what % of an increase this would be.)
The narrative for your friend would be that unfortunately what she is paying is no longer covering the costs.

Does the “down £3k” figure account for the tax you’ll
pay on the rent, or is that a gross figure?

If the flat is intended to provide assist for your son then you need to be making a profit from it. I have a disabled adult son so I understand your motives. I think you need to have a conversation with your tenant about a regular increase in rent. It doesn’t have to be excessive but enough to build a nest egg for your sons future needs

She must realise that she’s been underpaying and that one day this bubble will burst. She either agrees to the rent increase or moves out, if it’s still below market rents she will probably opt to stay and hopefully realise how lucky she is.

Maybe research rents locally and see how what you’re charging compares

Honestly? It sounds like a giant headache. I’d sell it and put any profits / spare funds into an investment fund for your son. You said you’re seeing a financial advisor, they will be able to help with this.

Can you not find a happy middle ground?

Chat to friend and say that you need to raise the rent a little, but still will keep it below the market rate, as you appreciate her as a friend.

I had a BTL property and tenants are hit and miss. I had some lovely ones for several years, but then two nightmare tenants in a row who caused thousands of pounds worth of damage each (much more than their deposit) and left me with huge bills, lots of work and lots of stress. I had to replace the carpet every time between tenants because they kept ruining them………… so a good long-term tenant who looks after the property would be worth more than the extra £3k to me (as you could end up spending that on repairs, letting agent fees and time/admin every time the tenants change etc.)

You have a decision to make and you need to include her in the discussion (1) make an adjustment that she can accomodate (2) sell up and invest the money in stocks or saving account (3) put rent up to full value and lose a friend.
i also have to say that if she was such a good friend she should not be giving you significantly below market rent

Your tenant has had a good deal for a decade.

You’ve had an absolute dream of a time as a landlord. Your investment is being paid down and you’ve had to make next to no effort: no marketing, no gaps between tenants, no unpaid rent, no cleaning and decorating between tenants.

I agree with this viewpoint to.

It's not just £3k a year. It's £30k in a decade plus compounding interest that your son is missing out on. Then the next decade and the one after that....

Give generous notice to your friend of rental increases or eviction but you need to manage this property on your son's behalf and to his benefit. Presumably if he can't manage it himself when he is an adult you would be acting as his power of attorney to do so on his behalf and you have an obligation to manage it with his best interests served.

Inflation has nothing to do with the cost of rent, and 2-3% a year won't touch the sides in real life prices of how costs increase. You're just causing issues for yourself in the future if the mortgage suddenly increases for whatever reason, and you're stuck funding the property that should be paying for your son's future.

IME we rarely know how much disposable income people really have. I wouldn't make any assumptions about affordability for your friend. I'd give 2 months' notice of a rent increase that can be very small, e.g. £50pcm. Chat to your friend and explain you're not getting any younger and need to really get cracking on a nest egg for your DC.
I assume you also do everything in writing by the book as well, formally.
Continue this every year so she understands the rent will keep going up.

What’s the friend’s plan? To stay there forever?

Could you maybe keep it below market rate, but not by such a big amount? So perhaps 10% below as opposed to 20%? That way they still get a good deal, but you're getting more.