Excellent tenant can`t afford rent increase - what to do?

[tracy]

Hi There,

I have a question regarding a unit I purchased in Red Deer approximately 1 year ago. The unit is home to a lovely tenant who has lived there for approximately 12 years. The unit was under rented at the time of purchase. I recently issued a $100.00 rent increase for the unit effective in a few months (rent would remain under market value). My property manager e-mailed today that she recieved a letter from the tenant explaining that she had hoped to stay in the unit "until it is her time" but due to her fixed income, she could not possibly afford the increase. The property manager has asked me to re-consider the increase as this tenant has a long and excellent history in the building.

Just looking for some feedback as to where to go from here.

Thank you in advance for any insight or experience you might have with a similar situation.

Tracy

 

[DonCampbell]

Hi Tracy,

Sometimes, we all have to weigh the cost of renovations/advertising/credit checking and potential hassle vs an extra $100/rent from someone who is hassle free and will not be moving until `their time.`

I recommend that YOU have a discussion with the tenant to see "what`s real", explain the situation (i.e give her/him the options that are out there at the rent that you are asking.). Then, after you have had this face-to-face, sit back and ask your self how much it will cost you if she does move and you need to reno and put in a new tenant. You may find that she CAN afford an extra $50, so you`re out $600 a year with no hassle.

One thing you may consider is, rather than increasing the rent is to make them fully responsible for the utilities if they aren`t already.

Lots of options to consider on the business side (above) and on the human side.

Trust these ideas help. Please don`t have your manager have the conversation, take some donuts and find out what`s real face-to-face. Find a way in which you both can win.

 

[David90]

QUOTE (tracy @ Feb 22 2008, 12:38 PM) Hi There,

I have a question regarding a unit I purchased in Red Deer approximately 1 year ago. The unit is home to a lovely tenant who has lived there for approximately 12 years. The unit was under rented at the time of purchase. I recently issued a $100.00 rent increase for the unit effective in a few months (rent would remain under market value). My property manager e-mailed today that she recieved a letter from the tenant explaining that she had hoped to stay in the unit "until it is her time" but due to her fixed income, she could not possibly afford the increase. The property manager has asked me to re-consider the increase as this tenant has a long and excellent history in the building.

Just looking for some feedback as to where to go from here.

Thank you in advance for any insight or experience you might have with a similar situation.

Tracy


Hi Tracy,

This is a situation where you have to decide whether you really want to keep the tenant and can afford the reduced income, or if you require the increased income in order to make the property financially viable.

I have come across this situation recently when I issued my rental increases. If the tenant is a great tenant, and you want to keep them, here are a few options I have successfully used:

1. You can reconsider the amount of your rental increase and maybe make it a smaller increase, like $50 instead of $100 per month.

2. You can also use the rental rebate program (see critical forms) give the tenant a rebate based on thier good payment history. Here you leave the increase the same, but you give them an addendum to the rental contract in which they get a $50 per month rebate as long as the rent is paid in full and on time. If the tenant defaults on a payment, or is late, then the full rent kicks in. This motivates your tenant to pay on time.

3. Help them apply for a rental subsidy or assistance program, and hold off on the increase until they receive the funding. I will not help them with reducing their rental increase until they take some initiative to apply for the funding. If they are unwilling to apply for the subsidy, then I am not willing to help with the rent.

4. I have combined #2 and #3 with one tenant where we negotiated a fair rental rebate. The tenant has applied to Capital Regional Housing Corporation for assistance, and has been approved. As long as the tenant pays her rent on time, she receives the rental rebate. Once she receives her funding, the rental rebate ends. In this case, I get a small rental increase, the tenant stays and pays her rent on time. Once she gets the funding, I get the full rental amount.

I hope this helps. It pays to be creative to help a great tenant.

Good Luck,
David Birkholz

 

[RedlineBrett]

Excellent tips! Thanks for posting

 

[tracy]

Thank You so much for the excellent information Don and David - it is much appreciated! I will speak with my tenant directly regarding this and we`ll figure something out using your great ideas.

Tracy

 

[rico67]

Yes that is great advice , shows the human side of people and you can still run a business , I too am facing the same situation with tenants.


Riccardo

 

[Thomas Beyer]

QUOTE (rico67 @ Feb 22 2008, 02:04 PM) ... the human side of people and you can still run a business ...

Riccardo


a VERY tough decision .. as many tenants indeed cannot afford more .. so one question is "How many of my units or what % do I under-rent / deliberately subsidize ?" 5% 10% 25% 50% none ?

One option is to open a charity or partner with a charity. You rent "at market" .. say $800 for a 1BR .. and the charity subsidizes it by $200 .. and you charge $600 to the tenant and $200 is paid by the charity to you .. then at least the $200 that you donate in cash to the charity every month gives you a tax deduction !

 

[brad]

FANTASTIC insite!!!!!!!!!!!!!!! Thank you for sharing that idea.

Brad Hamilton.





QUOTE (thomasbeyer2000 @ Feb 22 2008, 05:51 PM) a VERY tough decision .. as many tenants indeed cannot afford more .. so one question is "How many of my units or what % do I under-rent / deliberately subsidize ?" 5% 10% 25% 50% none ?

One option is to open a charity or partner with a charity. You rent "at market" .. say $800 for a 1BR .. and the charity subsidizes it by $200 .. and you charge $600 to the tenant and $200 is paid by the charity to you .. then at least the $200 that you donate in cash to the charity every month gives you a tax deduction !

 

[timk519]

QUOTE (thomasbeyer2000 @ Feb 22 2008, 04:51 PM) One option is to open a charity or partner with a charity. You rent "at market" .. say $800 for a 1BR .. and the charity subsidizes it by $200 .. and you charge $600 to the tenant and $200 is paid by the charity to you .. then at least the $200 that you donate in cash to the charity every month gives you a tax deduction ! I`m confused.

• If the rent`s left at $600, there`s no extra income to tax, hence no tax on the $200 that wasn`t charged. If RevCan finds out the tenant`s getting preferential treatment, they may deem it to be income to the tenant, and want taxes paid on it.If the rent`s raised to $800, and then the $200 is donated to charity, who pays the tenant, then tax on $200 is avoided, so the net effect to the landlord is no different than not raising the rent other than to give the accountant/book-keeper more work. There`s also the question as to whether this money would be considered income to the tenant with it`s associated tax implications.

There`s also the question on the legality of a charity "giving" money to a specific person.

So I have to ask - what`s the advantage to this idea?

 

[georgefung]

An old topic, but very relevant to today. I'm going through the very same thing right now.



I have an excellent tenant that I don't want to lose. I didn't want to rescind on the rental increase, since it would make me appear indecisive. Instead, I'm considering offering a rebate of half my increase to "soften the blow".



George

 

[invst4profit]

Unlike the rest on here I always place my business interests first. Ontario is of course under rent control and as such I have always applied the allowable rate to every tenant annually.

My only question is are we in this profession as social workers or business people. I am not a social worker however I commend those that have the excess income to supplement there tenants rents.

I have never based my business decisions on any individual tenants record. I never allow my decisions to be influenced by who the tenant is or what there personal situation may be. I know they can find another place to live and I will find a new tenant at a higher rental rate.

Many tenants have told me they can not afford a increase and would move. The majority never do because I keep my rates at market and tenants trying to move are usually unable to find a savings elsewhere with out down grading.

Actually, due to rent controls, the personal decision is eliminated due to the fact that the majority of tenants expect a annual rent increase. All my tenants know it is automatic on the anniversary date. Landlords that raise there rents annually to keep up with the cost of living never place themselves in this type of difficult situation. You train your tenants to expect a increase and you do not fall behind the market in theory.

Regrettably because of rent controls most landlords in Ontario, even if they do apply the maximum increase annually, still find there rental rates behind market if they have long term tenants. About the maximum time a landlord can keep a tenant is 5 years, three is better, before a rent adjustment requiring a new tenant is needed. Long term tenants in Ontario are killer on the pocket book.



Bottom line for me is I never allow a rent increase to be a personal decision. It's business no different than raising the price of gas, milk, bread etc.

 

[CarrieKoch]

We often offer a rental rebate of the increase for on-time payment. Provided they always pay on-time they get the discount. All documentation shows the higher rent though.



Weigh the option of turnover, necessary repairs, short term tenants following, possibly the wrong tenant / eviction.



I always like to see good, paying, respectable, low-maintainance tenants stay, and I do what I need to make it happen.

 

[invst4profit]

The consensus on REIN would appear to be:



1) rental rates are determined based on individual tenants.



2) Rates are based on ability to pay



3) landlords are prepared to supplement the rents of tenants wishing to remain a long time.



4) Questionable or less than ideal tenants receive no consideration regarding rental rates.



I am wondering if this policy applies regardless of the number of units a landlord has, Would Thomas for example base rates on each of his thousands of tenants based on ability to pay or on individual assessments.

Is there a threshold where by a landlord would not be willing to supplement a tenants rent out of there own pocket.

What is the supplemental dollar value a landlord is willing to pay to keep a good tenant over a period of 1 year, 5 years, 10 years.



Obviously the landlords posting on here see no problem in what I view as discriminatory actions. I do however see a issue particularly in the professional aspect of your decisions.

In Ontario all tenants are, or should be treated equally, otherwise landlords are risking action by the LTB. Preferential treatment can definitely be viewed as discriminatory by some tenants regarding rent increases and they will file a complaint with the board. In essence if you have one, or a few separate units, you may get away with discrimination but as you grow or expand to multi units it becomes far more difficult.



I see this issue as a measurement of the professionalism of individual landlords. If you are small and view yourself as operating a mom and pop rental business then it's OK to not place the financial health of the business first however as you grow and become more professional it is unacceptable to operate in such a inconsistent fashion. Not only do you pay out of pocket to supplement rents you also negatively impact the resale value of your investment property. Don't misunderstand choosing to operate as a mom and pop business is fine but in Ontario you need to be very careful in doing so as not to risk discrimination charges from some tenants that may view there rent increase compared to others as unfair treatment. In Ontario sometimes being nice can bite you in the butt.



I believe individuals should live where they can afford the rent not that landlords should adjust there rents to make it individually affordable.

That to me sounds like the realm of social workers.

 

[Nir]

[quote user=invst4profit]I commend those that have the excess income to supplement there tenants rents.



Hi Greg, you often mention how people with millions think differently*

I say think differently and make millions.



*It's easier to give when you have more etc..



Cheers