To increase the rent?

[Dickensian]

Just that really. I'm an accidental landlord. Have lovely tenants - an elderly couple in their late seventies who have lived in the small house for 4 years. They are my first ever (and last) tenants. I will sell the house once they are no longer there. They love the place and expect to be there 'forever'. Before moving in, they had fallen on hard times for various reasons and would never have passed official rental agent tests, and a previously undeclared dog appeared (it's fine), but have always paid their rent on time. I have never increased the rent, they pay what they did when they moved in (£850). I don't have an agent but looking at market rents in my area I would say that £1000+ is the going rate for a similar type of property..

I actually have no idea about their financial circumstances but presume they wouldn't be able to/ want to buy the house.

The problem is that my BTL mortgage deal is coming to an end. From making a small profit, I will start to make a loss.

The UK inflation calculator shows that prices in general have increased more than 25% since they moved in.

My gut feeling is to look at an increase of 8-10% and absorb some of the cost myself. Or not increase it at all, but (being brutal) they might live in the house for another 20 years so that would be 20 years of loss which isn't very sensible.

So which option would you take:

1. No increase at all (and make a loss) YABU
2. Increase by 8-10% and review again in a couple of years
3. Increase by 8-10% and start reviewing every year to keep pace with inflation
4. Increase by more than 10% (up to 25% even) to bring rent up to market rent and nearer the price it was in real terms 4 years ago. Review annually in line with market rent.

Why dont you propose them the option of buying rather than assume they couldnt?

Depends what you want out of renting it out really.

Are you wanting to make a profit or are you happy just breaking even until you can sell it?

Either way work out how much it costing you….mortgage, tax, landlord insurance, annual gas certificate, etc it all adds up, add an extra £50 at least a month on to save to one side for any repairs, again although this doesn’t seem much this will add up eventually and be a buffer if you have any big repairs. If you don’t want to make a profit then once you’ve worked all this out then just charge this, if you do want to make a profit then decide how much you want to make and add this on.

I’m a landlord, wasn’t fully planned either, me and now husband both owned properties when we met so we decided to rent mine out. I haven’t increased the rent since my tenants moved in 7ish years ago, I know I could get significantly more now but to be honest they’re good tenants, I very rarely hear from them with any issues, they pay the rent on time so I’m happy to leave it as is at the moment, I make maybe £50 a month profit now that the cost of everything is going up but as long as it’s not costing me anything I’m happy to carry on, I can’t be bothered with the hassle of putting the rent up for them to potentially need to move out if they can’t afford it so I’d then need to either find new tenants or sell it.

I had to stay on a residential mortgage when remortgaging my property that I now rent out. At the time of remortgaging you needed minimum 25% equity to be able to get a buy to let mortgage so I had to stay on a residential mortgage with the same mortgage company…I imagine next time I need to remortgage I’ll have to change to a buy to let as I’ll definitely have the minimum equity by then.

Talk to them, explain you may be looking to sell as you cannot afford the buy to let mortgage based on rental payments, tell them you hope the new buyer will consider keeping them on once sold but that it may mean the rent increasing depending on the buyer. Tell them they obviously have first refusal or if they know anyone who may be looking for a buy to let to put them in touch. Don't hold on to it and take a loss in order to do them a favour. What happens when repairs are needed and your already taking a hit?

2,3 or 4.

I don’t know how anyone can afford to operate at a loss.

But it does make good business sense to retain tenants, and not have vacancy periods, which in my view means you should always have a rental price of £50-100 pcm less than the going market rate, if this doesn’t put you into loss making territory. and also you shouldn’t increase rents in-necessarily.

I haven’t increased my rent price in 8 years but so many successive interest increases mean I can’t afford to keep it where I am at; I am also in loss making territory. I am about to ask my tenants for a £200pcm increase; which if they refuse I will put it back on the market with a further £375pcm increase and still I will be below local price demands.

Pensioners got an increase in line with inflation this year and last year etc. You need to cover your costs at least so put the price up.

if Landlords are not a charity, then they should pass most of the cost increase on, irrespective of how two elderly people on a fixed income can pay.

However the Op is doing the socially responsible thing and trying to balance their needs with hers.

I’m looking after a property for DM, my late DSF did not put the rent up for 3 years as the tenants are nurses and he had huge respect for them. I’ve had to put it up by 5% as the insurance/maintenance etc cost have really risen - no mortgage. But….. the contract says we can put it up by July’s RPI figure. I think having steady, dependable tenants trumps maximising rent.I will put it up by 5% ((subject to RPI figure cap) each year until it comes in sight of the market rate. The nurses know this and are still happy they have secure, below market rate accommodation.

Some businesses operate ethically and do not just try and squeeze as much money out of people as they can.

OP, you mention that local rates are £1000+ a month. You also mention that you do not employ an agent to oversee the let property. To be fair you would need to allow for this saving in any proposed rent increase.

I am a landlord, not an accidental one but I kept my house when partner and I moved in, rented it out. Current rent is around £500 when I could easily get £650, but my tenants pay regular as clockwork and keep the house lovely. I don't understand the logic of making a loss or profit in the sense that at the end of the mortgage term, which for me is 13 years, I will have a house that I own that has been rented out for 17/18 years of a 25 year mortgage. So in affect, someone else has paid the majority of those mortgage payments for me in rent revenue and I pay tax and repairs, mortgage is slightly less than the rent.

if your rent is £950, so your income is £950, and your mortgage is £1000, for example, let's say with tax and repairs bills and time management you actually get £650 a month, for argument sake, you've still got a house at the end of it worth whatever its value when the cost to you has only been £450 a month for the duration of the mortgage term compared to £1000 a month if you didn't have the rental income?

is it just me who sees it like this?

I really don't understand this I've got to have all my costs covered 110% because at the end of the term it's you left with a fully paid asset?

Sorry for £350 a month, clearly maths isn't my strongpoint 😂

YABU to describe yourself as an accidental landlord. There's no such thing. You made a choice to let the property. You made the choice own it. Don't pretend to be doing them a favour your not your in it for the money.

Why would the property not being agency managed affect the rent?

Market rents are driving people into poverty. An elderly couple wanting the companionship of a dog shouldn’t be the crime of the century. In the years when it’s very profitable to own houses landlords don’t lower rental prices to pass on the benefits. The majority of another person’s income going into your capital is not ‘making a loss.’ Some of my best friends are landlords, and there are clearly some decent and honest ones, shout-out to @Alana1983 , but my god something about being in the fortunate position of having a lump of capital at the right moment does seem to rot peoples souls pretty fast.

3

Good tenants who pay are worth a lot. Can you just have an honest chat with them?

It sounds like you'd be willing to sell from your OP. If you are willing to sell, I would offer them the option to buy or, if they can't/don't want to, explain that your mortgage rate is changing so you will need to increase the rent. I think you should aim to at least break even.

What would be the point in making a loss?

Surely the option would be to raise the rent to break even or sell?

Most landlords do not have a repayment mortgage on a rental property as that is not tax efficient, so at the end of the mortgage term you don't own the property! You either remortgage or have to sell it!

Op I'm quite sceptical about money. They could be absolutely minted.

However having good trustworthy tenant's is worth weight in gold...

Also a bird in the hand is worth ten in the bush.

Why can't they get housing rent paid for?

@Alana1983

I'm more like you.

I take a longer term view and also don't charge my tenant the going rate but I'd rather someone was in there

I don't think you really are making a loss though are you? You're still going to have a very valuable asset at the end of that - it's just that these tenants aren't covering the full monthly costs of this asset.

But if said asset is costing OP money on a monthly basis rather than earning it for her, she is by definition making a loss. Just because she still had the asset at the end of it, it doesn’t mean she isn’t making a loss. If she was renting it out at market rate, she’d make a profit AND still have an asset at the end of it. It’s really not that complicated.