Updating post from Reddit.
I bought my first property(in cash) last October with a tenant in situ.The rent is £525 a month. The previous landlord didn’t maintain the property. I’ve spent about £10k fixing up the property. I have a good rapport with the tenant. I’ve been diligently fixing all the issues with the house.
Obviously, the rent doesn’t cover all the costs I’ve incurred. I was thinking of raising the rent to £575. It’s still below market value. A completely refurbished house would run around £700.
The tenant is a pensioner.
How can I raise the rent without feeling guilty or hurting our relationship?
Tell them unfortunately your costs have gone up and the market rate for rent has increased, then say you could get £600-700 but as you’ve been a good tenant you are willing to offer £575
You don't have to spin a story. Best to compare similar local properties and that's the market value. Same as you do when checking that you're being paid appropriately on your job. You don't tell your boss: Hey, my spending habits have started to balloon, I have to pass these costs onto you. You aren't putting a gun to your tenants' heads, they may find somewhere else that they prefer and save barely £50 an month if you're in the right ball park price range-wise. It's unlikely they'd move under these circumstances alone.
That's a lie though. OPs costs haven't gone up. They have applied a fixed expenditure to renovate / improve. Unless those improvements were all to make safe and bring the dwelling up to regs, then they were optional on OPs part. So not forced expenditure. Chosen.
That's like getting a quote from a tradesman, they do the job, then they say a higher price because their costs went up. But it was because they decided to splash out on completely different materials and didn't bother to shop around for parts. Their costs have gone up because of their choice, not market factors.
What a bitter, jealousy-ridden response.
OP has clearly improved the property, and by definition, the tenant’s living conditions. Based on what they have said, an increase to £575 pcm is perfectly reasonable.
I suspect you’d be rounding on the OP had he left the house in the state it was and kept the rent at £525.
Read their reply. They've improved the tenants living conditions by removing damp and bringing the wiring up to regs.
Legal requirements which the tenant is not responsible or liable for. The OP likely had no choice but to do this when taking over the property.
All landlords pass on costs to the tenants in their ask if costs increase then they will up rent to maintain their percentage ROI. Being a LL isn't a social charity experiment it's an investment. The fact is the tenant apparently is paying well below market rents for the area and it's irrelevant what costs have increased for the LL any and all additional costs can be asked for via rent increases regardless if it's for regulatory musts or not. The tenant has the right to refuse and go to tribunal but that might mean the award could be higher if the property is servearly below market norms.
You can suspect what you like. My response was objective fact.
It would be a lie. As in, not true. As in, non-factual. OP's costs haven't increased. So to say that to the tenant to try saving face is just craven. If OP wants to raise the rent that's fine, but maybe grow a spine?
The fact is they cannot save face on this. I've already made it quite clear that I don't think a rent increase is unreasonable but keep your judgements to yourself because I don't care for them.
£50 a month increase will take 16 years to pay off the improvements OP made. Hardly excessive.
I didn't say it was excessive, I said it was a lie.
If OP tells the tenant "unfortunately, my costs have gone up", they are lying. Because they haven't.
If you let a property and it gets affected by damp, that is LL's responsibility to rectify providing the tenant isn't doing anything to substantially make the problem worse.
If the LL passes on the cost of fixing that, how is it fair if the expenditure is to meet a legal requirement? The tenant doesn't own the asset so isn't responsible for rectifying that issue.
I would say the expenditure was somewhat forced. There were some damp issues in the house. That’s the main expenditure. Other expenses have been to get the electrics up to code.
I haven’t been refurbishing the house to increase the value and passing it on to the tenant.
How much of this 10K comes under that term of "forced" then?
Damp and electrics not being up to code are things you'd have known about before purchasing the property.
They're things you are legally required to sort out. Ergo, they are financial liabilities against your property investment. But ultimately you couldn't take over ownership and not sort those things out.
If, as a consequence of sorting these issues, the property value has increased, then good for you. But I think you've slightly misrepresented this because the assumption was that you've invested 10K in refurbing and renovating when actually most is just on regs and safety.
Presumably then if costs went down then a reduction should be offered?
As a tenant, I fully expect rent increases every year, although this is a pretty hefty 9.5% rise, 3 times inflation.
I here you. It might be too much.
Compare similar properties in the area. That's the market rate. Much less/more and you're following an anti pattern.
If the property is at least close to being up to a decent standard now, your tenant is still getting a pretty nice discount over market prices
You’re being completely reasonable
A 10% hike is a bit big in 1 step, but, with it still being well below the market rate, they’re very unlikely to move out.
And if they do? You’ve got a freshly redecorated property that’ll get market value easily.
It’s worth taking the £575 if they’re a good, long standing tenant.
Very unlikely to move out and if they do... bonus!
Okay. So you're a lovely person then and not the sort to give LL's a reputation for being mercenary grifters.
I am a lovely person. 🥰
Feel free to tell yourself that whilst you continue to regard people purely as a source of income.
Talk to your tenant and explain your position that costs have risen and the market value for the flat is around £700. Say you need to raise the rent and ask your tenant what they feel is a fair increase with the caveat that no final decision has been made as of yet.
If your tenant has a meltdown then you know that they probably can't afford anymore than their current rent. They may suggest an increase inline with what you were considering then they will be pleased you matched their suggestion. They may offer more than you were thinking in that scenario you can up it the amount you thought and make them happy or choose to go with their higher figure.
It's always hard to up rents if you have a conscience, personally I don't raise rents during tenancies but between tenancies I might adjust to similar rents in the area.
That’s good advice. I can ask her what she thinks is a fair price. Thanks
Please advise which of OP's costs have risen?
Property was bought with cash.
Costs of everything has risen. Property insurance, cost of repairs as trade prices have increased, costs from management companies, costs of certification such as EICRs etc.
OP isn't a social charity and shouldn't feel they should lose by having an investment. If they have bought the rental for cash they have tied up that money and the rent should be equal to if not more than what they could get from interest if they stuck the same amount of cash into a high interest bank account.
So materials, cost repairs and insurance never rises?
Of course they do. But OP has bought the property for cash. They didn't have any expidenture for materials, insurance etc prior to this for this property. So there was nothing costing anything to increase in costs.
Unless you're suggesting of course that they're just a more costly landlord than the previous one? In which case, the letter goes, "Hello, I'm your new landlord and I want a higher yield than the previous landlord, therefore the cost of renting the property are going up".
Which, as you can plainly see, is quite different to what was previously posited.
Do they pay bills? Have any of their bills been lowered by the improvements you have made? Can you make any improvements to lower any of those bills. Then you can show that the increase in rent is offset by their lowered bills.
Given the previous owner hadn't maintained the property, did you purchase it at a discount? Your argument to justify the rent increase is that the condition is NOW such that the rental price warrants market value. But by the same token, if you purchased below market value due to poor condition, then actually it was purely your choice to renovate and improve. In which case it isn't anything to do with the tenant.
There's probably no polite way of doing this if you took the actions without consulting the tenant and insinuating that higher rent was going to ensue.
Which isn't to say you're unreasonable in wishing to increase the rent, because you aren't. But looking to do this politely at this stage is a bit naïve and I think you've missed a couple of prime opportunities.
Don't forget to save all those receipts for repairs to offset CGT when you sell.
Why offset it from CGT if the standard advice is to recoup it by increasing the rent? Greed, I guess?
Spend money on the asset to ensure it's legally compliant and recoup the cost through rent increases. Then also offset the costs of repairs when selling?
If you do that you're basically getting your tenant to pay for the material upkeep of your asset and then claiming an additional tax relief from the state for the privilege of someone else footing the bill.
Only if the rent was above market value would that be true and op says it's servearly under present norms for the area. Anyway what business is it of you to judge op for wanting to increase rent if they have spent 10k and want to recoup a small percentage of it.
Tenants have more rights than LL and can go to tribunal if the ask is perceived excessive and a professional adjudicator will decide not some salty Reddit troll whom argues incorrectly over semantics of what they perceive as fair. If any costs to LL increase then they have a right to increase rents under the current rules set out and in the correct manner. OP is trying to be a fair, kind and generous LL and your arguments that his costs has increased is lying is just frankly laughable. They have increased as he has spent 10k of improvements and it's immaterial if it's been asked for or wanted by the tenant and or if it's statutory requirement. Tenants don't set rents that's down to LL and you have no idea clearly of the costs involved and no idea why you post in a sub where a LL is posting a question if you're clearly anti LL.
You could let them know it’s going up by £20 per month per year, for the next 3 years, so not £50 all at once, and £60 by the end of 3 years.
If they need to move because they can’t afford it they have time to work it out.
But also you have to get to market asap. The days of being under are over due to the rrb.
With the new rules you will have a cap so best start getting there asap. In percentage terms it’s a lot but not in monetary terms based on market.
I would also communicate the need to get to market asap
I don’t think there is a way to maintain the relationship by increasing the rent from £525-£700.
Why did you get into the property business?
They said about rising it from £525 to £575, which is still well below the market rent of £700
It is still a 10% increase though. Whether it's below market value is irrelevant in this context because the term "polite" has been used.
This is more a moral question. OP is absolutely within their right to increase the rent. In fact, to market value should they so choose. But is it morally right given the situation and the tenant?
There's no indication the tenant is anything other than a good tenant. They pay their rent on time and, seemingly, have put up with poor to no maintenance on the property and issues not being fixed. You could argue that they've been paying over the odds for years if that's the case.
Fast forward to now. New landlord fixes the issues - which is great but not an act of kindness, it's what the tenant is right to expect from a landlord as part of their tenancy. So the issues being fixed and however much OP has spent on that is also irrelevant because they're responsible for that.
Therefore the only consideration is the amount spent on renovating. I personally don't think that's a factor either because the improvements will have increased the value of the property as an asset. And if they're all that - as being suggested - OP could've used money from a discounted purchase to put towards that.
If they didn't buy the property at a discount that's on them surely? Why should the tenant absorb that cost?
Yep I agree with a lot of what you’re saying, but whatever happened before between the original landlord and the tenant (ie them possibly overpaying) is not OP’s responsibility and from what we can tell they seem to be taking action to remedy the problems whilst also trying to remain reasonable with price increases
There's a reason landlords are selling up properties...
You say it's obvious your costs aren't covered but haven't mentioned the purchase price, your main cost.
Sounds like the place is not yet completely refurbed. Ideally, talk options with tenant before trying to do more spending and rent hiking.
From current position, one valuable thing you can offer is some stability, with caveat that situation may change of course - you might suggest £25 a year to take you up to market rent over a decade, during which you'd bring property up to fully refurb level. That's barely 5% a year, recent triple lock territory.
All credit for concern about tenant / guilt etc.
What is the housing benefit rate for the property in your area. You should be able to raise it that that at least.
Have you finished fixing? You can mention that they will have much less interruptions and inconvenience now.
By not being a landlord?
Landlords somehow forget that upgrading property increase property value. And tenants are responsible to pay for value increase:d But rent sounds cheap, so its not end of the world.
>And tenants are responsible to pay for value increase:d
What?!?
I agree with the first part, not the second.
It's already apparent the property's value has increased thanks to the work OP has done. But the tenant is not responsible for paying for the property's increased value until it comes to recontracting.
Most renters pay the LL's mortgage. If the LL spends on the property to add or improve, their mortgage doesn't suddenly increase.
OP has bought the property outright with cash. There's no ongoing costs for them beyond what they're required to spend on the property to address issues as legally required of an LL. At the end of the tenancy they can set the rent to whatever they want, but the issue here is not about that it's about doing it nicely and with a smile.
You might not be able to. Ultimately you bought the house knowing there was work to be done and tbh the costs are not the tenants responsibility.
It’s also not the landlords responsibility to keep the rent well below market rate
I'm never said it was. My response was to the question stated by the OP about trying to justify the rent increase BECAUSE of the work done, nowt really to do with the below market rate.
Fair but imo it has everything to do with it being under market rate - OP is doing the house up and was charging a very low rate ass a result, now he’s spent £10k on it and I’m guessing it’s a lot closer to houses being able to achieve market rate and yet OP is still wanting to do a small incremental increase, in order to help further get the house up to scratch. To me that’s more than reasonable
It wasn't under market rate until OP bought the house for cash and spent 10K on it though.
So that has nothing to do with it if you're talking about doing this in a way to maintain a relationship or not feel bad.
OP hasn't asked if they've a right to do this, they've asked how to do it and maintain a clear conscience.