Rent increase

[B1anche]

I lived alone for many years before moving in with my partner. I kept my house and rented it out. At the time, the going rate for the same type of properties in that area was around £1,000 to £1,100 per month. I wanted to find a tenant quickly and, as I wouldn't be incurring letting agent fees, advertised it with a rent of £915. I had a lot of interest and chose the applicant who seemed the most trustworthy. He then asked if I would consider a rent of £900 instead and, as I couldn't face the thought of dealing with references again for some else, agreed but said, in writing, that it would go up in 6 months and then reviewed annually thereafter.

As he was a decent tenant, I didn't increase the rent after 6 months. Covid came and went and the cost of living crisis but I still didn't increase the rent. Mainly because of procrastination on my part but also, I'm not greedy and didn't want to burden the tenant with more costs at a time when everything else was going up.

As you can see, I'm probably not cut out for being a landlord and hate confrontation.

Fast-forward to this week. I decide to increase the rent to bring it more in line with market rent. Houses on this particular estate rarely come up for rental and get immediately snapped up. My research shows that rents for identical properties are around £1,200 - £1,300. If I were to put my property up for rent now, I could probably ask for more. However, as I didn't want to hit my tenant with a massive increase, I decided on an increase to £1,100 and wrote to him.

He came back to me, very nicely saying that he understands the need for the increase and what a great landlord I've been but that he can't afford the increase and could only manage a maximum of £1,000. He reminded me that he has kept the house in great condition. Please would I reconsider.

If I agree, he would be getting a property for at least £200 per month below the going rate (probably more). I feel that I have been very reasonable and fair with the increase and he wouldn't even get a 1 bed maisonette on the same estate for £1,000 (this one is a 2 bed terrace with garden). My partner thinks he's taking the piss and could probably pay more.

I'm not sure what to do for the best and would really appreciate some other opinions:

YABU - He's a great tenant, it will be a hassle finding someone else. Give the guy a break and let him stay there for £1,000 per month.

YANBU - You have been subsidising this guy for years now. Increase the rent to £1,100 per month and if he cannot pay it, then he will need to find somewhere more suited to his budget.

You need to weigh up the hassle and risk of finding a new tenant, for the sake of £1200 a year, or potentially £3600 a year if you can max out market rent. Damage, non-payers, even constant emails from demanding tenants can really add to your time and expense.

Obviously he wants the rent as low as possible, you want to maximise your investment return. He probably knows he won't get anywhere for that rate and wants to stay, so it's basically a game of chicken where you either meet somewhere in the middle for the sake of a good tenant, or play hardball with your eye on maxing the rent and taking the associated risks. Bear in mind if he says he has nowhere to go/can't afford anywhere else, you might have some hassle getting him out as the council won't house him without a long process. Only you know your tenant and the market well enough to make that decision.

Why do you need to increase the rent? Is there any other reason except "bringing it more in line with market rent" ?

Good and easy tenants are worth their weight in gold. I think YABU. And as you say you're not cut out to be a landlord and hate confrontation, so how would you deal with a nightmare tenant potentially in his place if he leaves?

If he is a good tenant and your financial costs and return are being met then I would be inclined to accept his offer.
There is value in a decent tenant and focus shouldn't always be trying to squeeze every last penny.

If you want more money then go for it but you may find you lose more if you get a tenant that isn’t so good or if he has no choice but to go through the process of you evicting him.

Perhaps you could agree a figure in the middle of that works for both of you.

I’m a landlord and my tenants pay below market value. My costs are being met and I have peace of mind that they are good tenants. Treat others how you want to be treated is a good value to have in life.

If you are struggling financially then it could be different but this is my opinion on it.

A good, long-term tenant is worth keeping imo. Maybe meet him halfway, and increase to £1,050? And review annually thereafter?

Maybe

I would accept his offer. He sounds like a good tenant.
If you are needing to increase the rent because the sums don't add up perhaps you could talk in person and suggest a time frame.

A good tenant is valuable. Someone who looks after your property nicely and pays rent on time. I’d look on it like gambling so for an extra £200 a month you could risk more tenants ( sounds like he lives alone) a 2 bed could easily have four people and all the wear and tear. Non rent payers who need to be evicted and or people who trash the place.

Im risk averse so wouldn’t do it and have voted YABU. But if you are happy with risk and have good landlord insurance then it is your property to do what you want with. It’s much better to increase rent in small increments like £50 every six months rather than in one chunk. That you haven’t suggests to me you are quite a hands off landlord and would prefer an easier tenant.

Tough one. I also agree to meet him halfway at £1050.

You have been very reasonable so far.

I think an increase of £200 is taking the piss a bit. I thought a 10% increase was the recommended amount.

This is my understanding too

I agree with the others, a good tennant will save you so much head ache, is it worth risking so much more stress, hassle and potentially a ruined house for the sake of a couple hundred pound. Also, I’m guessing you’re in the south east but £1000 for a 2 bed terraced house is insane!!

I'd let him have it for £1000, he's a good tenant, you could get someone who you ask £1200 and they don't pay and you have all the faff of court and the could damage the place and cost you a fortune.
Better the devil you know.

I’m a landlord. Firstly a good tenant is invaluable.

Secondly I would never put rent up by more than 5% no matter what the market rent is - that’s just greedy. You’ve increased the rent beyond the rate of inflation which is unfair. It’s not their

Moreover don’t take advantage of a good tenant you will regret it if/when they move out. I’d much prefer to have a good tenant paying below market rent than a constant revolving door of tenants who only stay for a year and/or don’t pay because they can’t afford it.

Be careful what you wish for.

Thank you. This is exactly the kind of feedback I was looking for. As I've said, I'm not confrontational and I do worry that people take advantage of me as a result of that.

My main reason for keeping the house is for security but the income is handy, as I'm working part-time while my son is young. I don't have a mortgage, so my main expense on the property is tax and the odd repair.

My worst nightmare would be non-paying tenants, or tenants who damage the property.

I'm definitely now leaning towards the fact that a good tenant is very valuable and perhaps preferable to an extra hundred quid, or so, a month.

I might suggest meeting in the middle and see how he takes it.

I would go with £1050.

If the average is £1300 in the area then presumably it’s still a bargain.

I would just nicely write back and say you understand the cost of living, but it’s also affecting you. Your offer of £1100 is still below average for area, and you can try and compromise by going halfway to £1050. Then review yearly after that, so you can add a smaller % if needed

No I haven't increased it above the rate of inflation. £900 in October 2019 is worth more than £1, 100 today.

Renting an identical property would have cost him thousands more over the last 4 years. I am certainly not being 'greedy' which is why I'm asking for opinions on this.

Take £1000 this year and say there will be an annual review going forward.

My main reason for keeping the house is for security but the income is handy, as I'm working part-time while my son is young. I don't have a mortgage, so my main expense on the property is tax and the odd repair.

Given you don't have a mortgage, I would just accept his offer. I understand that you initially rented it to him below market value, but your initial suggested hike was over 20%! That's unreasonably high.

Yes I do regret not keeping up with regular incremental increases and as time has passed I've felt more and more awkward about approaching him with an increase.

I think the overall feedback here is very clear and I'm grateful for your responses. Thank you.

I am certainly not being 'greedy' which is why I'm asking for opinions on this

Take the £1000 per month and keep your good tenant who looks after the property.

You seem very fortunate indeed - there's the saying 'don't look a gift horse in the mouth'

So you've gone from 915 to 1100 in one jump? That's quite a jump (20% or so) - realistically I'd suggest 1000 ish for now. His compromise sounds good. If you really need the money, and are not just thinking about market rates, then make it clear to your tenant that you will have to eventually increase to market rate/closer to market rate at some point (with annual % increases).

You made the decision to initially rent under market value and now would like to recoup some of that lost money.

I am not sure this is the tenants issue and I suggest like others proposing middle ground.

You haven't been taken advantage of as you set the rent per month figure originally.

A good tenant who pays on time and looks after your property is worth their weight in gold.

Consider the hassle of ending up with a non payer. Happened to friend and it was a nightmare getting them out plus they left the place in such a mess it needed new carpets and redecoration.
Far more expence than covered by deposit.

So you are getting near a grand a month for doing damn all? And you have no reason to increase it other than wanting even MORE money for doing damn all?

Yeah you are greedy.

I've been in your position OP and I rented to my tenant below market value as it was covering the costs and they kept the house lovely. I could have put the rent up by another 200 but just felt that if they moved another tenant may not keep the house as nice. I'd end up paying the money in repairs.
I'd reply and tell him the going rate of similar houses in the area then meet him in the middle of what you wanted and he offered. With a stipulation that it will increase again

From the timeline you give it sounds like you first rented it to him in 2018?

At the time minimum wage was 7.83/hr. From April it will be 11.44/hr, that’s a 46% increase. There is nothing unreasonable in your initial increase.

The value of a good tenant, though, might make it prudent to accept his offer or meet him halfway but make sure you stick to annual increases.