Q: Should I keep rent stable for a good tenant?

rental cottage

Ellen M. writes: I have a tenant whose lease is ending in a couple of months (yes, right in the middle of winter, terrible timing.) The rental is a cute, two-bedroom house in a popular neighborhood, where demand for rentals has increased substantially since she moved in. Based on the current market, I think I could raise the rent by about 15 percent (roughly $200/month) and still rent the house within a month or so of listing it. However, I know that a 15 percent increase would be out of the reach of my current tenant, who has had to cut back on her hours at work due to a health situation in her family. She’s been an ideal tenant—she pays her rent on time each month, and maintains the property beautifully. What should I do?

Rental Agent Guide Answers:┬áThis is an increasingly common dilemma in the current housing market, and it’s a difficult choice to make. In your particular case, it sounds like there are several factors in play:

1) The lease is ending right after the winter holidays. No matter how hot the rental market is in this particular neighborhood, no one wants to move in January. If your current tenant were to vacate, you’d likely either have to price rent significantly below market to get the house rented quickly, or potentially endure an extra month or two of vacancy than you would in warmer months. Either way, you likely don’t come out ahead in terms of your total yearly income from this property. If you’re renting your house for around $1200 per month, two months of vacancy costs you the entire yearly $2400 you were hoping to gain from raising the rent by $200 per month.

2) Your tenant’s ability to pay a higher rent may change in the near future. You say your tenant is currently feeling squeezed financially due to “a health situation in her family.” Health situations change, and this one may resolve within a few months. Once she returns to work full-time, she may be ready to pay a higher rent, especially when she glances through the rental listings and realizes that she’s not likely to do better by moving.

3) A reliable tenant is a huge asset. No matter how carefully you screen tenants, you never know quite what you’re going to get until your tenants have moved in. Tenants who pay their rent on time, take good care of your property, and never cause disturbances in the neighborhood save you a considerable amount of time and money. Anytime a good tenant moves out, you risk a more problematic tenant moving in. As long as your cash flow from this rental is within a normal range, you might consider keeping your tenant’s rent a bit lower than the market rate to keep her from moving elsewhere.

All that said, it seems like a reasonable solution to your problem might be to sign a six-month lease with your current tenant. This way, the next year-long lease you sign will be set to renew at the beginning of summer, when the market is at it’s peak. You could tell your tenant that you appreciate what a great renter she is, and let her know that you’re willing to keep her rent at its current level for the next six months—but that come June, you’ll be raising it to something closer to the market rate. That gives her some time to work through her family’s health crisis and decide what she wants to do.