Dilemma regarding rent charge for friend

[Plantyshazfan]

Hello, we have a child with a disability that we bought a flat for (either to live in when he is old enough or to live off the rental income)

The flat is in a desirable area and is lovely. One of our friends has lived in it for nearly 10 years, they would struggle to pay the full rental value so we’ve never charged them that. We have just covered mortgage and management costs.

So, now we know that our son won’t ever live in the flat and our friend is loving living there. 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?

We don’t need the money ourselves but obviously we are working hard to ensure that we have enough money for our son to live for the rest of his life too as he won’t be able to work…

AIBU to ask for more rent?

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.

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.

you should have an honest conversation with your friend?

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

Presumably maintenance and repairs, new boiler etc.

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.

Lol.

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

Are you covering your tax costs too?

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.

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.

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 ££££.

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

End it now.

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?

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.

😂
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)

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.

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.

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.

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.

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

Because they’ve been paying your mortgage.

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.

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?