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January 8, 2009
Raising the Rent
Another year has passed and I still haven’t raised the rent. I have owned a four family, 5-story brownstone in Landmarked Fort Greene since 1995; renting out three floor-thru apartments each approximately 800 sf. I purchased the building fully rented, with rents set at a then market rate $900/month. Two apartments have had active turnover with tenants staying one to three years and then moving on. The third apartment hasn’t changed occupants since I purchased the property.
I typically used the vacancies in these apartments as an opportunity to fix/repair/renovate, re-renting at market rates. Over the span of 9 years, rents went from $900 to $1400 for these apartments. The current tenants in these apartments have not had a rent increase since moving in 5 years ago. The ‘original’ tenant in the third apartment has had her rent increased once, 7 years ago, from $900 to $1050.
For years, I have avoided raising rents, hoping that my tenants would simply move on by choice, allowing me to fix/repair/renovate and charge higher rent without ‘confrontation’. Another year has passed and they still have not moved on. I really don’t blame them, they got it pretty good. Raising the rent has been a source of anxiety for me and I really want to put it behind me.
The units are not subject to stabilization or control and the tenants are currently in month-to-month leases. Market rent for similar apartments are in the $1900 to $2300 range. Taking the lower end of the scale, my units are $500 to $850 below market. I need help devising a fair and coherent strategy for bridging the difference between market rents and my actual rents.
I thought about many different ways of ‘catching up’. Q. “What would the rent have been if I had increased at 4% a year like I was supposed to?” A. $1700 for two apartments (+ $300) and $1290(+ $240) for the other. Q. “What would the rent be if I split the difference between current and market rent.” A. $1650 for two apartments (+ $250) and $1475(+ $425) for the other. Both of these options seem like a hell of increase for a tenant to bear, yet even those options leave me or short of the market rates.
How much is too much? How should discuss this with my tenants? How much time should I give them? Tia
Comments
If you increase your rents too much this year, your tenants will simply leave and you'll have a hard time finding new ones.
The market is going to hell.
Nobody is hiring . . . thus very few people are moving to NYC.
Posted by: IronBalls at January 7, 2009 3:16 PM
If they're good tenants, and you have enough to meet your mortgage, why raise rents more than inflation or a modest 1 to 3 percent a year just to keep current with the world and in case you need to sell? Except in this year, agreed, I wouldn't raise rents at all. Or certainly not more than 1 percent.
Posted by: mopar at January 7, 2009 3:20 PM
Speaking as a former renter, i can't imagine they would be surprised if you raised the rent. But after avoiding doing so during the last few boom years, it would be nasty of you to go over 10% this year.
I would probably approach them by saying that you're going to go up 5% as of, say, June 1 and another 5% on Jan. 1, 2010, with the expectation that you'll continue to monitor the economic situation and raise rents accordingly. That way they can plan a year ahead and decide if they want to move.
Or you could just jack them up to market rate right away, give them 30 days' notice to pay up or clear out. That's what most landlords do.
Posted by: Bolder at January 7, 2009 3:21 PM
I don't think it's fair to your tenants to think about it in terms of catching up now. You're the landlord--you are in control. It has been your responsibility all along to either raise the rent in reasonable increments or live with the consequences of not doing so.
If I were you, I would:
1. consider my lesson learned
2. raise the rent 4%
3. put language in the new lease that outlines a 4% increase every year
4. follow through consistently from here on out
Posted by: vanburenproud at January 7, 2009 3:21 PM
Despite the problem of being "way below" market, a $500-800 rent increase would be egregious and they may not be able to handle it. Hindsight is 20/20, yes. It should have been 4-8% or so a year and I don't think it should ever be more than 10% in any one year....unless you're trying to force them out.
As ridiculous as Ironballs always is, he has a good point that times are tougher now so it isn't a good thing to raise rents much now, if at all....unless you want to get them out to do the work.
If you have nice units and a good location you will still be able to get more for them...despite IronBalls and....you'll hear from him soon...cornerbodega.
Posted by: daveinbedstuy at January 7, 2009 3:31 PM
I would raise the rent by a small increment, just to break this psychological barrier for the future. If the apt stays below market, it's highly doubtful the tenants will move.
I lived in a similar situation as a renter in the e. village. Through a friend of a friend, had a well-below market deal that wasn't raised for 3 years. After 3 years, I was not put out when the owner raised it by 6% or so as it was still below market. I knew it was coming someday. Your tenants know the deal.
On the flipside, when I had the good deal, I almost never asked for anything.
Posted by: squaredrive at January 7, 2009 3:50 PM
Yes you are the Landlord you control their lives and their destiny. Raise raise their rent no poor folks deserve to live in your house. Put a seperate boiler so they pay for their own heat too. What rights do these poor miserable tenents have? Make them kiss your hands like in the Godfather movie, when they pay you the rent.
Posted by: hannible at January 7, 2009 3:53 PM
IronBalls, it'll be no more difficult than finding tenants post 9/11. 2 tenants were relocated post 9/11 and it took 10 months to replace. Lost rent was offset by increased rental amount.
Bolder, i definitely don't want to jack them up, giving 30 days to pay up our clear. That too much bad kharma and wouldn't want that to come back on me. I do like the idea of semi-annual increases with a sense of transparency.
Vanburen, agree with points 1,3,4. Why should it be limited to 4%? Its not a matter of catching up per say. But my tenants pay significantly less than market rate. Recession or no recession. I'm simply trying to meet some place in the middle.
I totally empathize with those who say raise rent in such turbulent financial times is a bad thing. Yet for all intents and purpose my tenants appear relatively immune financially. Vacationing regularly, buying HDTVs and generally living la vida loco, while i'm tightening my family wallet.(Damn i sound like my grandmother). This is the anxiety i'm trying to do away with, as it is gnawing away at an other positive relationship with my tenants.
Posted by: la di da di at January 7, 2009 4:00 PM
Agree with IronBalls. People have lost their jobs and struggling with bills don't do it now!
Another thing is that a 150.00 increase in rent is a lot of money. You really shouldn't take more than 40-50 more a year.
There is a lot of apartmets available for rent so be wise.
Posted by: karo25 at January 7, 2009 4:03 PM
I would raise the rents using one of two standards, or a mix of both:
Use the rent increases granted to rent stablized tenants by the RSB;
or
The consumer CPI
or some blend of both.
Posted by: denton at January 7, 2009 4:03 PM
I agree that incremental increases are the best way keep the peace while bringing the rent closer to market value. (Unless you want your tenants out, that is.) In the last two buildings I lived in, as a market-rate non-stabilized tenant, my landlords still used the annual Rent Guidelines Board rate as my annual increase. So my rent went up, but it seemed more predictable.
Posted by: fawn at January 7, 2009 4:06 PM
Tricky situation you're in, and as a renter I'm tempted to tell you keep prices as are, especially given the current economic situation. However, $1400 for a 800-square-foot in Fort Greene is a ridiculous deal. Your renters know that. They may whine about losing it, but if you work with them, they're not going to leave. I think coming midway between the current rent and market rate is a good compromise, and then raising a bit each year from now on out. This is assuming, of course, that you have a decent relationship with your tenants and you're comfortable having this conversation with them.
But I can't help but wondering: why have you never raised rents until now? Just being nice?
Posted by: alsawo at January 7, 2009 4:21 PM
I am saying 4% because it's a fair increase that any tenant could live with long term, and that places responsibility where it belongs. It's your fault that you didn't raise the rent. Your tenants shouldn't have to feel forced to cough up hundreds of extra dollars every month because you couldn't bear to ask for it in reasonable increments.
If they are crappy tenants and you don't care whether or not they stay, then by all means, increase it by 50%. But remember if they are good that good tenants are worth keeping, and realize that a rent increase larger than 4% is a conflict-producer. That there's no way around it.
Posted by: vanburenproud at January 7, 2009 4:23 PM
alsawo, most of the responses have had a renter bias. I appreciate your putting aside your bias and giving a different kinda answer.
As i mentioned in the post, for the 10 years or so, i had regular turnover in two of the apartments. I made my adjustments during the vacancy and everything was OK. FG prices didn't start spiking until after 2001. In the beginning of 2001 when the one tenant signed her last lease $1050 was fair market.
But then 9/11 happened, doom and gloom.. How could i raise rent under these conditions(similar to what many are saying now) And so i waited, waited. By the time the good years came around i was programed for inaction.
In the end, most of it has to do with me being too nice. I'm just trying to figure out nice way to resolve this in a nice way so that we can all just kumbaya.
Posted by: la di da di at January 7, 2009 4:42 PM
FWIW, I am a landlord.
Posted by: vanburenproud at January 7, 2009 4:46 PM
If you have a well-located building that's in decent enough condition you should be able to easily find tenants. However, we are in the cold months where fewer folks are shopping and as vanburen proud says, a good tenant is worth keeping.
I think you need to stay under $150 per month in increase if you want to keep your current tenants. I also think nice round numbers would work better than percentages since you've been causal for so long. My inclination would be that a $100 to $150 per month increase after 5 or more years should be acceptable to the tenant.
Also jeep in mind that it's easy to lose a month or two rent when getting a new tenant.
Posted by: Bessie at January 7, 2009 4:51 PM
Vanburen, no offense, didn't mean to confuse you with a renter.
And after clarification I agree with all 4 of your points. 4% is the conflict threshold. Limiting myself to 4% so i don't produce a conflict doesn't quite do it for me. I realize there's going to be a conflict, i'm just trying to resolve in a way that makes sense.
Sure i've made a mistakes in the past(since not raising the rent is now classified as a mistake), but I am not bound by these past mistakes. I could always douchebags like the nice couple a few doors down from me that bought their $2 million brownstone who booted the old tenants, slapped on some paint and jacked up the rent to cover an exorbitant mortgage.
I'm just trying to make things right.
Posted by: la di da di at January 7, 2009 5:08 PM
Hmm, I have a 3 family in CHill and purchased at 1996. Rents for floor thrus were at $1000. I had the same tenants in one for 8 years (very nice people and I was very lucky) and I have raised their rent every year by $25. I guess that is why they stayed until they purchased their own place:) When they moved we reno the place (kitchen & bath) and re-rented at market value. The other unit had 3 different tenancies and I remember in 2001 when we just renovated it for Sept rental. First time we had no tenants for a month and a half. I am surprised you had 10 month vacancy in FG, which many people consider superior to CHill (OK it is). Anyway we rented a little below market and raised rents every two years at 3-4%.
It works well for all and we have very good tenants who are with us for 3 to 4 years. I hate to do this as well, since we all like each other, but owning a building is a business, and with all tax, water, gas increases and renovations cost you have to make sure it all evens out at the end.
If they are good tenants and you have a nice relationship with them they will understand. I would not make it more than $100 for single person and $150 for couple. Also agree about reasonable yearly increases in the lease.
Posted by: mg1 at January 7, 2009 5:12 PM
I lived for many years in an unregulated apartment that was far below market, with a landlord who did not increase the rent often. With that in mind, every three years I approached the landlord and told them it was time for an increase. It seemed the right thing FOR ME to do. Even with increases that were sometimes shockingly huge (I'm talking 15-25%), and which wouldn't have happened if I hadn't initiated them, I was still living in a great apartment at below market rate. The choice not to increase the rent was yours, and apparently you were able to afford it. I would not attempt to play catch-up (nor does it seem, financially, that you "need" to play catch-up, nor would it strike me as "fair").
I think both the "fair" thing and the businesslike thing to do would be to get your tenants off month-to-month, give them leases, and tie your increases to the Rent Stabilization Guidelines. You can always charge less than the Guidelines set, but at least you have a basis for your hike which both you and your tenants can refer to. As to current increase, I would notify your tenants that in 60 days you will offer them a lease accompanied by a rent increase of "X" amount. If your tenants say they prefer living month-to-month, I might continue the arrangement, but with the condition that the increase will go into effect in 60 days regardless. (However,
I don't think it's good or smart for tenants OR landlords to live without leases, so it's not something I recommend.) In addition, I'd state that even though the apartments are not rent regulated, you'll be tieing future increases to the RSA guidelines. You can provide one of these documents with the notice: http://www.housingnyc.com/downloads/guidelines/guidelines2008.pdf
http://www.housingnyc.com/downloads/guidelines/Guidelines2007.pdf
Posted by: vinca at January 7, 2009 5:33 PM
I don't quite understand the attitude that being a generous landlord for 5 years is an error which should cost the owner in perpetuity.
Compromising and raising the rent incrementally seems like a fair and reasonable course of action. But it also doesn't seem ethically problematic to ask for market rate if plenty of notice is given. The tenants have the option to walk, right? What am I missing? I don't understand the scolding.
Posted by: squaredrive at January 7, 2009 6:08 PM
It is winter, the worst time to find tenants, and who knows what will happen few months from now. The point is for all to be happy, which sometimes is not possible. Having 3 apts vacant at the same time equals no fun and no rent. Having good tenants and raising their rent gradually in this situation may be the better option. This is not the best time to be drastic about rent increases that's all. Which does not mean not to increase, just to find "happy" middle.
Posted by: mg1 at January 7, 2009 6:20 PM
In fairness, you can't raise them to market rate but at the same time, rent stabilization guidelines are irrelevant and 4% is too low given it has been many years since the rent was increased. I think you can easily raise each of them $100 with 2 months notice.
I've been a landlord for 24 years. In the early years I never raised a current tenant and reset to market rent on turnover. After some years I decided that they really didn't appreciate the low rent.
Since then, I do not raise them the second year they are there but raise them a set amount each subsequent year making sure that each year they are further below market rent. They get an increasing break the longer they stay but I still get a small rent increase even if it just covers increases in expenses. I would skip raising the rent if it brought them closer to market.
I'm open with them about how the rent is increasing - to keep them a bigger break the longer they stay but not so much lower than market that I resent having them live there. They get it.
Of course that assumes I consider them acceptable tenants.
Posted by: jfss at January 7, 2009 8:09 PM
i think you should talk to them about it.
Explain that the economy is bad for everyone including landlords. As a result, youre gonna have to get the rental closer to mkt value. Tell them that they are welcome to stay, but your finances dont give you any chance.
Posted by: slick at January 8, 2009 3:46 AM
Why should he have to explain (and I'm speaking as a renter, here)? Pretty much the tenants have been getting a great deal, and unless they don't read the papers, they are well aware the economy has tanked. Any tenant who thinks that means they should not have to pay any increase is unrealistic. The landlord's expenses are still the same- or more. You've been more than nice and on some level your original tenant has taken advantage of that.But playing catch up now is really unfair and essentially dumps your mistake on the tenants, whom you seem to like and want to keep. Vanburenproud has the right idea- and 4% should be manageable, with the expectation that there will be incremental increases every year or so.
I can't see your tenants wanting to move- they are still going to be a great deal and there aren't many great deals out there. I rent from a close friend- when it comes to rent, I keep it all business because 1. I treasure the friendship and 2. I have to be fair. I have a great deal, no doubt about it and when I was able to, I raised the rent i was paying. I know what my landlord goes through with mortgages and expenses. In any event I don't see a landlord as an enemy, but as a business relationship. And don't think in terms of how well your tenant seems to be doing or not- you never really know.
Posted by: bxgrl at January 8, 2009 9:40 AM
as another landlord in very similar situation where my rents are very low compared (because I have rarely increased rent) to market prices and tenants never move:
I'd say start yearly increases now. At least $100 - never mind what % that is.
If you are that much undermarket prices - they still won't move because there is no better deal out there.
In someways I feel I enabled by longer term tenant to be financial/career-wise irresponsible by having rent so low for so many years. College educated, bright, personable working doing odd jobs in his mid-50's.
Posted by: Petebklyn at January 8, 2009 10:30 AM
that's still a hefty, and surprising jump. the tenants will rightfully resent the landlord doing this because he has been so remiss in the past. Nice, but remiss. Why not - if you really want to raise it that much- start with 50 and then tell them it will go up again by the summer? Or at least give them several months warning. It was the landlord's mistake- not the tenants, and everyone's expectations have been set by now. If you want to change that without losing good tenants, or causing undue resentment (especially since you live in the building with them) try to be as reasonable as possible in explaining why its going to jump that much.
Posted by: bxgrl at January 8, 2009 10:37 AM
I feel I am getting market rate, so I don't plan to raise the rent this June (If I am still owning the place).
Also, considering the bad state of the economy and the fact my tenants rent is paid by their parents because they are both students - I just don't feel it's worth burdening them another $100 a month when that extra $100 won't really make that much of a difference in my wallet.
Posted by: gemini10 at January 8, 2009 10:52 AM
Not to be a whiner... but I'm a renter and this city has forced me to "live on the edge" financially -- and I have a very good salary judged by anyone that doesn't live here. I simply don't have any extra money in this damn town.
That being said... a reasonable increase seems fine. I could stomach $50, and I could probably figure out a way to handle up to a $100. Anything more and I'd be moving. My income is fixed... and probably so is the income of your tenants. There's no magic way to get more $$. Luckily I found an apartment that I can actually afford (and I can actually live like an adult and not have a roommate or 4) -- and trust me it wasn't easy to find this place.
Ask yourself. Do you need more than $600 - $1200 additional per unit per year? If not, then don't raise the rent more. If so, then take your chances... but be a mensch and chat with your tenants and tell them, "Hey, in 3 months I will have to raise the rent $250. I understand if you can't handle the increase..." And be flexible about moving etc.
You've been settled for a while... hell, you've been in this place for 14 years (since 1995 right?) Being displaced from your home because a landlord charges rent based on the "market" instead of how much money they need/want is disgusting. Don't be that person. It's on the dark side of ethical.
*** And as a side note... Folks, stop buying brownstones for $2-1/2 million with a 1-bedroom rental unit. Yeah, you'll have to charge an absurd amt of rent for that unit simply because you paid too much for your house... not because the rental unit is even worth close to that amount.
Posted by: tybur6 at January 8, 2009 10:59 AM
a little history of mine growing up.. we lived in a three family house in jersey for a decent rent. (lived with my grandparents btw). they were sorta friends with the person who owned the house. then he sold the house and the new owner jacked the rent up almost three x the amount. we had to move. some strings were pulled and we got on the top of the list for a 2 bedroom apartment in the projects (we originally were in three bedrooms) one for my grandmother, one for my uncle their son, and one for me. living like that in 2 bedrooms was terrible. my grandparents lived in the living room on a pull out sofa always in their nightgown and underwear. it was really embarrassing and at the time i felt like it completely ruined my life.
i am not sure what the point of telling that was really.
*rob*
Posted by: PitbullNYC at January 8, 2009 11:01 AM
Personally, I think the amount set by the rent stabilization board is a good benchmark for all rent increases. My suggestion would be to join the Rent Stabilization Association so that you can use their standard leases. Always have your tenants on a lease and make sure that lease clearly states that the apartment is not rent stabilized. At the appropriate time send them a new lease with the proposed rent increase, then the ball is in their court, they either accept it and send the signed lease back, contact you with a view to negotiation, or give notice that they're leaving. I think a catch up is appropriate, but I would limit it to a few percentage points above the RSB rent increase until the rent catches up with market.
Also take a look at other apartments for rent in your neighborhood that are similar in size, and condition. An apartment that has only had basic maintenance done for a few years rents for less than a renovated apartment.
Posted by: bohuma at January 8, 2009 11:16 AM
I am in a similar situation and was considering telling my tenants that they have had a good deal but as of May 2010, there apartments will increase to market rate. Every month they are paying several hundred less than the going rate because I have been asleep at the wheel. Because they have been getting a good deal, it would be unfair to change things? Obviously if the rental market is bad I would not increase it but at this point that is not the case. At some point around I think 2000, my tenant came to me and said that the market went down since she rented her apartment. She had gone out and looked at similiar apartments which were listed about $150 less per month. At that point she was month to month and she told me in a nice way that she would move without a reduction. I looked around and saw that she was correct and lowered her rent. I don't landlords have any obligation to only raise there rent to cover their costs.
Posted by: carroll2stones at January 8, 2009 11:37 AM
It's not an "obligation" to only raise rent to cover expenses... but just to flow along with the NYC market is disgusting. The "get whatever you can" is a horrible way to approach any situation -- and a surefire way to create resentment with your tenants (who you're entrusting your single-most major investment to).
Posted by: tybur6 at January 8, 2009 11:49 AM
why should someone who has been getting a sweet deal on rent for several years have a special entitlement to continued sub-market rent? even if the rents were raised to market today, the tenants are still better off than they would have been with incremental increases, since they deferred paying the extra money for several years.
that said, if i were the landlord here, i would look for a way to split the difference.
Posted by: z at January 8, 2009 11:50 AM
Also, if you are looking at a % above expenses "profit margin" you're probably going to be below market rate by design, will be making a healthy profit, and you won't have to deal with lowering your rent when the unsustainable housing market has a hiccup.... you'll just magically BE at market rate. Oh, and your tenants may respect you.
Posted by: tybur6 at January 8, 2009 11:52 AM
I had this problem a few years ago. Except that I had the annoying benefit of having a good reason to get rid of the tenant. So I gave four months notice that the rent was increasing $500 take it or leave it. This increase still made it $500 below market rate. The timing was such that if the tenant decided to leave it would be May which is a good month to find new people. The tenant moved to BK and is probably reading this right now. A new tenant was found in one month at market rate.
Posted by: sally at January 8, 2009 12:03 PM
That your tenants buy a nice TV or take a vacation is also irrelevant. It is possible that they chose to live in that apartment so that they could afford to buy nice things. It is also likely that they have received salary increases in the time that they have been your tenants. If they have chosen to spend their additional income on themselves rather than volunteer to pay higher rent to you, you can't hold that against them.
As long as they pay you the rent you ask, their income now and what they do with the rest of their money is none of your business. The fact that this is a source of anxiety to you sounds more like jealousy that your own income hasn't increased. Again, not something you can blame on your tenants.
Posted by: lemur11215 at January 8, 2009 12:03 PM
"since they deferred paying the extra money for several years"
Yeah... cuz most renters are paying a lot less than they can afford and they are banking all the extra cash. In this city, you rent EXACTLY what you can afford... actually, you usually rent MORE than you can afford but make it work.
They are not "better off." They are moving because they have been forced out.
Posted by: tybur6 at January 8, 2009 12:03 PM
Some posters seem to have lost sight of the fact that the rental units are the landlord's property - not a public resource. I agree that sufficient notice (e.g. 1 month for every year of tenancy) should be given for long-term tenants as a matter of polite consideration, but I don't understand the argument that rent increases should be well below market and the landlord should consider this a "lesson learned." Landlords don't have a moral responsibility to minimize the rents they charge, any more than tenants have a moral responsibility to pay the maximum rent they can. If s/he were selling the property instead of renting it, would s/he also have a moral responsibility to charge a lower price than the market would bear just so that someone with less money could buy it? The relationship between landlord and tenant is a business relationship, and should be conducted based on the enlightened self-interest of all parties.
Posted by: geekspice at January 8, 2009 12:19 PM
As a long-time renter and brand-new home-owner with a tenant, I'm a little surprised that most comments slant towards the renter. A 4% increase barely beats inflation. I tend to agree with Slick. Paying a mortage is a huge, difficult responsibility, and owning a rental unit is an investment that the home-owner has a right to make a return on. It's definitely not greed, this landlord has been too generous in the past and the tenant has benefitted for *years*. In fact, you could almost say they're taking advantage. Having a tenant isn't welfare, it's a business. Market rate is market rate.
As a very very reasonable compromise, I would suggest splitting the difference between market and current rate, but giving 2-3 months notice. Also offer a new 1-year lease that establishes annual increases at a set rate that will allow the unit to eventually catch up with market rate. That way the tenant would know when to anticipate these increases, but would have the security of being locked in at a reasonable compromise.
Posted by: cottontop at January 8, 2009 12:22 PM
The attitude that this landlord is greedy and the tenants are entitled regardless of their income or plasma tvs and vacations is BS. If they came into the place when it was at market rent then they were not choosing to live there so they could have disposable income. I am a renter in Fort Greene and I pay 2300 for a parlor floor-through and these people are paying 1050-1400 for the same thing? They know that they have an INSANE deal and that is why they stay, and if the landlord turns around tomorrow and says "In 2 months I will be raising the rents to 1475 and 1650" they are still getting a GREAT deal, and if they don't think so they should peruse craigslist and find that they will not get a comparable apartment in this neighborhood for less. If they can afford a $3000 TV then they could have afforded to be paying an extra $250 a month rent. It is completely within this landlords rights to get fair market rent for HER HOUSE. You all seem to be forgetting that this is HER HOUSE and she is the one who is entitled. She obviously isn't a greedy heartless landlord or we wouldn't be having this discussion. I say give them notice and raise it to 1475 and 1650. If they decide to move out let me know, I'll gladly take their place....
Posted by: boofer at January 8, 2009 12:54 PM
Maybe I haven't been in NYC long enough, but I've been a renter my whole time here and have always been aware that rent could change whenever the lease was up -- that was the downside of renting (but we couldn't afford to buy what we could rent, and we didn't want to make the commitment that comes with buying, and so we rented).
All that said, my only expectation as a renter is to be given enough notice to find another place if I think the new rent is unreasonable (meaning I can find a better deal elsewhere) or simply not affordable for me. If your renters have children, it would be nice to give them until the end of the school year before you made any significant adjustment in rent, so that they would have more moving options if they couldn't afford the increased rent. As a renter, I would appreciate a friendly conversation (about increased costs and belt tightening) it if my landlord was proposing a significant increase in rent. Them's my thoughts on maintaining good renter karma.
Now what makes sense for you as a landlord -- in terms of keeping the rental income coming in . . . I do not know, but that didn't seem to be what you were concerned about.
Good luck.
Posted by: slyone at January 8, 2009 1:20 PM
I never said the landlord was greedy. However, the tenants ARE entitled to spend their income on whatever they choose after they've paid the rent they're currently asked to pay.
The OP said that knowing her tenants have gone on vacation and purchased a TV while she is cutting back is causing her anxiety and ruining her relationship with those tenants. My point is that this is not the tenants' fault. If she hasn't even tried to raise the rent, why shouldn't they buy whatever they want? How is that taking advantage of the landlord?
Should she raise the rent? Well obviously. Especially if the apartment is under market, she is forced to cut back on her own spending, and it is creating anxiety for her.
If she asked and they claimed they couldn't afford more, that might be a different story. But her own fear of asking for more money does not make her tenants greedy, nor does it mean they are taking advantage of her.
Posted by: lemur11215 at January 8, 2009 1:21 PM
tybur6
"Being displaced from your home because a landlord charges rent based on the "market" instead of how much money they need/want is disgusting. Don't be that person. It's on the dark side of ethical."
This makes no sense - on so many levels - on the most basic level - if the LL charged rent based on what LL "need/want" - who makes the determination of what LL need/want - what if LL felt she needed to always fly 1st class or by private jet. Or what if LL didnt ever replace the boiler or windows - so his costs are so high that he actually needs a really high rent to break even?
and how is charging "market" rent - even slightly unethical (or "on the dark side of ethical" - whatever that means) - it is actually a morally neutral standard (certainly a more objective measure that "want" or "need") - the market is what a group of people think something is worth - that certainly seems moral to me - not effected by the judgment, greed, altruism, or ethics of a single person but rather the buyers.
And then you go on to say:
"*** And as a side note... Folks, stop buying brownstones for $2-1/2 million with a 1-bedroom rental unit. Yeah, you'll have to charge an absurd amt of rent for that unit simply because you paid too much for your house... not because the rental unit is even worth close to that amount."
Again - you make no sense. Do you think people pay 2M for a brownstone because they wanted to spend that much? Should your (silly) lecture actually go to the sellers of Brownstones?? A buyer almost always prefers to pay less - so I am sure buyers would love to be able to pay less - newsflash - they cant.
And what do you mean "the rental isnt even worth close to that amount" - obviously IT IS - or you wont get a tenant. If someone signs a lease a X price then presumably they feel X is a fair price in COMPARISON to other available units (see above comment on fairness of "market rate")
In fact alot of the reason that the Brownstone can sell for $2M is because the rent will presumably cover alot of the mortgage....So.....maybe you should give your (silly) lecture to perspective tenants - as in - "Dont pay absurd rents for an apartment, because that forces up the cost of the building (brownstone) which makes them sell for insane prices, which results in more rent increases"
Posted by: fsrg at January 8, 2009 2:01 PM
I don't blame the tenants. I don't know why there should be any blame placed on either side since I don't see where any wrong was done. If I was paying 1050 a month in rent I would certainly be vacationing often. By the same token if my landlord said to me "Hey, your paying last century's rent, do you think you could afford a little more?" I would have to comply and would not resent the landlord. I would have been expecting it every year since the time I moved in. I once lived in an amazing apartment on Columbia Heights, 1000 sq ft overlooking the promenade. Somehow I got the deal of a lifetime and was paying WAY below what the place was worth. After 3 years the landlord came and said he wanted to redo the kitchen and bath and he was going to raise the rent substantially. I understood and was grateful that I had gotten the chance to live in a place like that and I moved out. He rented the place for $5400...good for him. Went off on a tangent there, but the point is no one is at fault. It's time to get things back on track for the landlord and the tenants and there is nothing wrong with doing so and it doesn't sound like she will be putting poor people out on the streets as some have suggested. We don't even know how many incomes are in each household..could be 2 or even 3.
Posted by: boofer at January 8, 2009 2:01 PM
I think giving charity (below mkt rent) to those that dont ask/need is dis-respectful. You really arent a "lord" even though your the Landlord. You are simply entering an (important) business relationship.
Charge market rate rents from the beginning with a written lease that contains articulated escalations so that people can plan for the future.
To me fair, honest and clear terms at prevailing prices is the most ethical way to conduct business.
Posted by: fsrg at January 8, 2009 2:06 PM
fsrq --
My "silly lecture" is to ALL sides... all sides determine the market. The only party that has a CHOICE is the seller or landlord. The only "choice" the buyer or tenant has is whether or not they are going to play the game... and guess what, of course they do.
The point to my "silly lecture" is that the Market is not what should be informing prices. And I use *should* intentionally... this is because the Market is a sickness and, as we have see, the unsustainable growth in the real estate market came crashing down around our ankles. The rental market is the same unsustainable mess.
If I have a 2-unit brownstone and the 1-bedroom garden apartment is paying 2/3 of my mortgage and expenses... would you say that's OK? Of course it's legally OK. Of course it's OK in all the strict senses... but is it OK in terms of the Social Compact that all of us have lost sight of?
It's just sort of disgusting... if you make $100k, you may live somewhere safe and a reasonable distance from your work. If you make $45k (a good living in most of the country), you have to live in a sketchy neighborhood in East Bushwick and spend 3+ hrs a days getting to and from your work.
I'm not a crazy socialist -- but if a landlord feels compelled to raise his/her rent simply because they are "under market value," this is a sad testimony. If you are making a profit of your property, you are happy, you're tenants are happy... why does this landlord have to play the game and reinforce the ABSURD numbers floating around in the marketplace?
I, for one, am sickened when I hear some got a "great deal" if they are paying less than $1800 for a 1-fucking-bedroom apartment.
Posted by: tybur6 at January 8, 2009 2:46 PM
If you are a couple making $45k each and are spending less than $1800 a month for a one bedroom then you are spending one weeks pay OR LESS on your rent, which I was always taught was what you should budget yourself. (Why landlords require tenants make 40x the monthly rent) Many people I know in New York City spend more than that fraction because this is NEW YORK CITY. Millions of people want to live here! So if you are living somewhere where you only have to pay a quarter of your income on housing, I find it difficult to see what is disgusting about that.
Posted by: boofer at January 8, 2009 3:06 PM
As a renter for most of my adult life (but not all!) I'd say that a single person can likely handle an increase of 50-100 per month. If you want to increase more I would hope you would at least offer a one-year lease. Moving is a hassle and expensive, so most renters are inclined to stay put. On the other hand, if you have nice tenants who pay the rent on time and are responsible, you are taking a chance that your new renters won't work out as well.
Posted by: Carol Gardens at January 8, 2009 3:07 PM
Whenever I've been a tenant, the rent was always raised when the lease came up for renewal. The spot where the rent is typed in always had a higher amount than the year before. The covering letter usually explained that the rent was increasing in line with the rental market in the neighborhood. I never complained, this is business. I actually prefer the use of the terms lessor and lessee rather than landlord and tenant. Lessor and lessee, to me at least, indicate that the parties are equals in the contract, each has rights and duties that can and will be enforced in law.
I reiterate, when the lease is due to expire, send a new lease with the proposed increase in rent, with a polite, business like letter indicating that the rent is increasing in line with market changes.
Posted by: bohuma at January 8, 2009 3:17 PM
tybur6, you're not making any sense. the market *protects* tenants from greed. what do you think keeps landlords from charging $10,000 for a 1BR? it's not altruism. it's the fact that there are cheaper, comparable properties to be had -- i.e., a MARKET. landlords compete for tenants, particularly good and creditworthy tenants, so they can't ask for more rent that their competitors are seeking. and there are so many properties/landlords that collusion to fix prices is impossible.
the reason rents in NYC are high isn't that landlords demand them; it's because there are so many people who are willing and able to pay them.
think about this another way: if market rents fell by 20%, yet your landlord asked you to stay put and pay the same rent because s/he needed the money, would you just shrug and say "ok"? i highly doubt it. you'd request a reduction in rent (maybe a "split the difference" approach like la di da di is considering), or you'd move. and that's ok.
Posted by: z at January 8, 2009 3:18 PM
Boofer.... who said a couple? And who said each?
Posted by: tybur6 at January 8, 2009 3:19 PM
I feel protected.
Posted by: tybur6 at January 8, 2009 3:23 PM
tybur6 - "I'm not a crazy socialist "
well maybe not crazy but a socialist for sure and thats ok (mostly wrong IMHO but ok)
The basic premise of your post is that the buyer/tenant is a victim of the seller/landlord - I am afraid I do not agree. The power to 'walk away' is just as powerful as the pricing power of the seller.
And again you say things that make little sense
1st if buyers/renters are simply the victims of LL/sellers - then why are you lecturing buyers not to buy 2M brownstones - its the sellers who should be asked to lower prices (under your theory)
- and then you say if you are making a "profit" and you're happy and you're tenants are happy....[why raise the rent] - now you may be talking about this one example but on a more general basis:
what do you mean by "making a profit" - how much ROI is ok and who determines what profit is morally ok and which violates the "social compact" (frankly isnt that what progressive taxation is for?) And what does "happiness" have to do with it - plenty of tenants are unhappy paying 50% below market (they think the market is too high) and plenty of LL are unhappy with market rate (they cant pay their mortgage at that level) and what makes the number "absurd" -
Doesnt location factor in at all???? Obviously being in a "nicer" neighborhood is going to cost more - if not - how would you suggest we divy up a limited number of units?
and BTW - you cant rent a gorgeous apartment in a middle class (relatively safe) neighborhood in the Bronx for $1000 and commute to Manhattan in 30 min.
Finally I wonder if your equally as "Disgusted" when a tenant gets a "great deal" when their paying (say) $500 for that same 1BR???
Posted by: fsrg at January 8, 2009 3:25 PM
A single person making 45k could not afford a "1-fucking-bedroom" $1800 a month apartment comfortably obviously. That is what studios are for. (sorry! again, it's new york city!)So you are talking about an individual..fine. It seems then that your problem isn't with >$1800 1-bedrooms being deemed a deal, but rather people living beyond their means? If a couple, as I described, came to you and said they got an $1800/month apartment you would not say that it's disgusting?...confused
Posted by: boofer at January 8, 2009 3:34 PM
From here forward, raise it every year, 4%. Many employers, especially white collar, offer cost-of-living raises every year. Rent should rise in a commensurate way.
Posted by: mmfarland at January 8, 2009 5:23 PM
Hi Everyone,
I have been finding the conversations today interesting. It is a bit like listening in on conversations amongst 20-somethings and 30-somethings you hear on the subway, restaurants, etc. Please don't take offense because none is meant. The back-and-forth on the Biggest Sales topic was very informative on the kind of dialogue that goes on...
Anyway, I just want to say that I think I figured out who La Di Da Di is in the neighborhood, a very kind, sweet person in our community who was very nice not raising the rents on current, on-going tenants. Yes, the rents should have been raised little-by-little over the years. I'm sorry so much time past for LaDiDaDi's sake.
Now, I have to say, I do wonder at the rents on the updated apartments not being raised substantially in the late 1990s/early 2000s. I'm not sure what guidelines LaDiDaDi is using thinking the rents were at market in 2001 because not-so-huge floor-through apartments were already commanding $1400 rents in 1998-99 as I remember. Yes, a neighbor kind of lost one tenant (a couple) because she raised the rent to about $1500/month on her decent one-bedroom (with deck) in, maybe 1998...but that said, some friends of my daughter were (this past year...) taking a long time to find a Fort Greene one-bedroom under $1800/mth.
They said they kept looking at apartments asking $2000...I think they finally found something at about $1800 or so.
Look, ultimately, I would suggest you raise the rents 2% with 60-days notice and then another 2% 6 months later. First, do a face-to-face meeting and then put it in writing spelled out nicely...not too legalize-ish sounding f you can manage it (the final leases should you decide on doing them should be legalizee though) and inform your tenants that due to the cost of heating, utilities, taxes, etc. you cannot afford to continue to go years without increases. You should let them know there will be annual incremental increases, that you'll try to do your best not to make these increase burdensome and that you must apply the increases at the same percentage on each apartment for fairness so no one can say you are randomly increasing one person's rent faster than another's.
As I said, you probably should have a meeting individually with each renter and explain the how and why. I know you're very friendly with your tenants as I have observed (if you are who I think you are). Because of the fairly close relationships, you should probably tell them that you do not want to simply jack up the rent like other people might, that you've been very fair in the past and that aside from the rents not keeping pace with the market, as they well know (but don't dwell on this point if you can help it), point out that due to inflation the rents are actually lower in real dollars than they were years ago, that they’re sliding backwards while all the expenses and taxes keeping going up and up and up…
I think you should also assure your tenants that you are flexible and fair (considering your past performance!) and if they are having trouble, that they should be open with you and things will work out…Make sure they understand that you value them and that you're sure you can continue living with good feelings AND allow for annual increases based on what is going on in the economy and what it costs just to run the house.
Who knows, if things get dire, you never know, you may need them more than they need you! Ugh...
Anyway, why not go coop and offer to sell the units to the tenants? Speak with some professionals on how to do this. Who knows, maybe you can do a "rent-to-own" allowing for a good deal higher rents (since the tenants will be building equity)...frankly, it might be a way to 'spread the risk'. If we're to believe Mr. BrownstonesHalfOff, our houses may not be worth the materials they're built with in a couple years...who knows!
You could set up a holding company or whatever it is and could be the mortgage company in a sense and if anyone defaults, the ownership reverts to you...Do I even know what I’m talking about???...anyway, I just realized, you probably have a current mortgage on the house...okay, nix that idea...it would be all too wildly complicated...and sounds horrible and cost a fortune...sorry!
Well good luck having the necessary conversations with your "housemates". Just remember to have the conversation face-to-face first. You don't want to send them a registered letter or slip one under the door cold.
Ms. BG
Posted by: BrooklynGreene at January 8, 2009 7:13 PM
You need to get people on a yearly lease, for one. The renewal has a formality, gives you a chance to talk things over, discuss the apartment, how it's going, etc and to vent any frustrations or issues. Then you need to charge a little more every year. I agree that it is not a good idea to wack anybody, especially now. Take the rents you are charging and imagine losing the tenant and having an empty apartment. You might have that if you jack up the rent by a lot or worse, the tenant becomes very upset and becomes your worst nightmare. It could happen. When outraged, right or wrong, tenants don't leave peacefully. I have two apartments. One was fully renovated and I am charging a rent that might be a little under market, and I will raise it a negligible amount, maybe 15 dollars, just so that this concept of rent raise is not so alien. The other is not renovated, but way below market, and that one I have been raising for 4 years (5% yearly); this year I will charge less of an increase since it is such a bad year for everyone. I would say you need the structure of a lease and a yearly sit down and you need to think about the stability of your cash flow. My two cents. Good luck.
Posted by: donatella at January 8, 2009 10:20 PM
Interesting post ladidadila
I agree with people saying $50-$100
They have been living for so long without increase.
I would decide what to charge first and not make it a discussion that might change the outcome. But be human by explaining things to make things understandable for both sides. And then ofcourse write that notified letter using all info about terms and notices given here.
A landlord should be firm and fair. wish they were all like you. Good luck.
And Pitbul Rob's story here was hilarious....
Posted by: dutchman at January 10, 2009 11:14 PM
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