# Rent Increase?



## iherald (Apr 18, 2009)

I rented the first floor of my house last year to a couple. They've been great, good tenants, pay on time, quiet, keep the place in good condition. 

They moved in Nov 1, so that's slowly coming up. The rent increase (Ontario) is set at 2.1%, which will amount to about $30 a month, or $360 a year. 

I'm torn on the issue. I know that $30 a month won't kill the tenants, and the lack of a rent increase won't kill me. What are peoples thoughts on not increasing rent as an attempt to keep the tenants happy and around longer?


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## sprocket1200 (Aug 21, 2009)

if this is an issue for you, you need to get out of the landlord business....


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## FrugalTrader (Oct 13, 2008)

IMO, if the property cash flows, good tenants that pay on time and take care of the residence are worth more than the rent increase. Personally, as an incentive to remain a "good" tenant, I would not increase the rent.


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## Berubeland (Sep 6, 2009)

These are my thoughts... 

Never give anything away. 

It may not seem like a lot but you need to view the cumulative effect of not giving an increase. Basically if you don't use it you lose it. 

Now I also understand your point, you have good tenants and want to keep them and even reward them for being good tenants. 

My recommendation is this, give them the increase, talk to them and tell them they are good tenants and you would like to keep them. Offer them a promotion, they keep their existing rent payment if they will sign a new lease and give you prompt payment. 

Write up a new lease with the increased amount.

Then you add an addendum to the lease giving them a credit of the increase per month for prompt payment and postdated checks if you want them. Also if they default on the rent the promotional rent is clawed back. 

Then next year you don't lose your increase forever the new increase is based on the increased price. They get the same rent, you get another year lease out of them and also keep the option of further increases. 

Not sure if this makes sense to you..... but if you look at the effect of not increasing the rent over time you get my point. What if you do this over 20 years?


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## Four Pillars (Apr 5, 2009)

Some great points.

I would think a survey of market rents would be useful - if it's a renter's market then you might have to hold off on the increase. If the vacancy rate is low then raise away!


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## iherald (Apr 18, 2009)

Berubeland said:


> Not sure if this makes sense to you..... but if you look at the effect of not increasing the rent over time you get my point. What if you do this over 20 years?


That is a good point. The magic of compounding.


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## MoneyGal (Apr 24, 2009)

Berube's logic is solid. 

I was on the board of my kids' daycare for a few years and as the treasurer I had this argument ("discussion") with other board members all the time. "If we don't raise fees a little bit now, because you don't want to invoke the ire of the other parents, we will need to raise them a lot more later."


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## brad (May 22, 2009)

When I was renting, I often worked out deals with the landlord to do things in exchange for no increases in rent. These people might be willing to do something similar, so both of you benefit.

In the last place I rented (we stayed there five years), I shoveled my landlord's walkway and driveway in winter and helped out with occasional odd jobs in exchange for no rent increase; this saved him having to contract with a service to do that stuff. He didn't raise the rent once in five years, although I actually volunteered to pay more once I heard that my city's property taxes were going up; he grudgingly agreed to a small increase.)

In another place, I mowed the lawn and did other basic maintenance in exchange for stable rent, also for four or five years. Both parties were happy. 

If you want to keep these people but don't want to be too generous, you could offer a deal like that: in lieu of a rent increase, ask if they'd be willing to do some chores around the place to save you money.


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## the-royal-mail (Dec 11, 2009)

Very interesting discussion! Nice to see both sides. I truly appreciate the points of view offered by each since I've been on both sides of this issue at various times in my life.

I do think though that landlords are taking advantage of the situation though. IMO there is no need to increase the rent EVERY year. I would think once every two or three years would be a lot more equitable, especially when the tenant is quiet, doesn't bother the neighbors, obeys all the rules and keeps their premises clean.

My objection to the increases is also that they are based on a % of the overall rent, so that if a tenant finds a building he likes and the LL keeps increasing the rent every year, in 20 years the rent cost to that tenant is outrageously expensive and I am sure is much more than NEW tenants are being charged. You are paying % increase on top of % increase. The % increase allowed by rent control should be a % of the ORIGINAL rent, not the inflated, increased rent.

Workers could only wish their salary would increase at the same rate some of these landlords increase the rent every blasted year.


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## Dana (Nov 17, 2009)

If the cash flow is good and our costs haven't increased over the past year we will keep the rent the same for good tenants (those who pay the full amount, on time and keep the property in good condition). 

It is such a ***** to have to fill a vacancy. It will cost us at least one month's lost rent - more than I would earn from the rent increase.


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## Sampson (Apr 3, 2009)

I've held off rent increases over several opportunities, precisely for the reason Berubeland describes.

Why mess with a good thing, rent on time, no problems with the tenants, investment is already giving returns you are happy with.

As landlords or any other type of investor, you don't always have to be 'as greedy as possible'. An analogy would bonds of different ratings, Aa- vs. BB+. Would you be willing to venture into the junk category for higher returns?


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## stinsont (May 29, 2009)

I say raise'm. If you are still within the market value for rental property your tenants (assuming they are reasonable) will pay up. 

Besides, as a couple posters have already mentioned, the longer you wait to raise rents the worse off you will be. 

I have looked at purchasing properties were landlords have never raised rents. The result is the property does not generate enough income to demand what should be the market price - so they are essentially de-valuing their property by NOT raising rents.


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## DavidJD (Sep 27, 2009)

definately do the incremental increase as allowed - even if on paper and in lieu of services (yard maintenance).

In general, if you ever want to sell, a lease with accurate and current rent levels are more attractive and shows the buyer the unit/s are desireable at decent rents.

I LOVE having the tenants do the work for a cut in rent. NOT going to the house to shovel or mow the lawn is worth a great deal to me.

My questions for all of you that are more experienced in this - is it better from a landlord's perspective to charge $900 for rent and then offer a $50 discount for services or is it better to charge and collect $900 and PAY $50 for services? Is it a wash? Does it depend?

Would the tenant benefit from one or the other?

I am being lazy and not figuring this situation out for myself - if others have already considered this, please share.


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## brad (May 22, 2009)

stinsont said:


> I have looked at purchasing properties were landlords have never raised rents. The result is the property does not generate enough income to demand what should be the market price - so they are essentially de-valuing their property by NOT raising rents.


True, although note that in the cases where I've rented from landlords who didn't raise the rent while I was living there, in each case the landlord raised the asking rent significantly to the tenants who came in after me. At my last apartment I paid $550/month for five years; the tenant who moved in after me paid $675 or $700/month.

I guess where you run into trouble is with good renters who stay in the same place for 20 years or more, but I think everyone understands that your costs are going up and you need to charge more.


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## MoneyGal (Apr 24, 2009)

I should clarify that there are times when we did not raise daycare fees while I was on the daycare board. (In fact, we lowered fees slightly once.) 

However, my POV was that we should always assume fees would be raised at least once a year, and communicate to parents that the decision not to raise fees wasn't because we "forgot" - it was an exception to the "rule." 

I'd feel the same way about rent increases - if you *don't* do, it communicate to your tenants that you could have - but you value them and will not raise rates. I also like the raise rates but discount for services provided, or even for no services provided, just as a courtesy (but make it explicit they are getting a discount). 

As for whether it is "better" to get $900 from a tenant and pay $50 for a services vs. getting $850 from a tenant who provides the service: mathematically these are identical and you should be indifferent (i.e., have no preference) for either alternative. The second alternative is slightly more tax-efficient though (but it doesn't change the tax payable).


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## Berubeland (Sep 6, 2009)

Well David, 

It might seem a little counterintuitive but I always issue issue a check. 

When it comes to taxes I can claim it. 

It is best in my experience to keep the rental amount sacrosanct. The work that is getting performed is a different transaction then the rent. 

It helps to keep the paperwork straight which when you start involving other people in your business becomes even more important. If you have two or three tenants it might not be a big deal but when you have 20 or more and an accounting system it starts being a lot more challenging especially over time. 

The last property I was managing I actually tried to evict a guy because of the owner's lousy bookeeping. In that case it cost us over $500 because our collection efforts were deemed harassment. Now if I was the owner I would have appealed the decision but what happened is the guy gave us three postdated checks and two bounced and one cleared. 

Another thing is that arrears are probably the most difficult thing in the world to sort through and change. For what ever reason no one in a building ever wants to tackle the accounting system to reverse improper charges and make them go away forever. 

So for instance you make a deal with a guy to clear snow for a month for $50 off his rent. The system has his rent at $950 which you don't want to change. So then you have to create a credit for his account for work performed every month. This is a one off transaction and if for one month the bookeeper forgets it it will become a nightmare to find the error and correct it. The nice tenant who was kind enough to shovel your snow will receive a automatically generated N -4 every single month which I can guarantee they will not appreciate. 

So then to correct your 50$ booboo the accountant will have to look through several months worth of transactions until he finds the month where the credit is missing. Then you will have to sign off on the change to the accounting system because the accountant never seems to be authorized to credit even $50 on his own. 

So keep separate transactions separate.


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## andrewf (Mar 1, 2010)

I think Berubeland's idea is best. You should not give up your 2% increase p.a., as your costs as a landlord are likely to rise at that rate anyway. It might be lumpy, being 0% one year and 5% the next (big property tax hikes, etc.).


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## Alexandra (Apr 3, 2009)

We are in Toronto, and the new HST tax is going to increase our heating/oil bills, plus add to the cost of maintenance and service calls by plumbers, electricians, etc. This is already in addition to David Miller's awesome garbage tax (I hate that guy!)

So our costs are definitely increasing, and we are in the position of having to raise the rents. We love one of our tenants - he already does a ton of work around the house and helps us fill vacant apartments by doing showings for us. We will not be raising the rents on him. The other two apartments will have their rents increased by the maximum allowable amount. I hope it will not be enough to make them want to leave. We plan to explain why we are raising the rent, and hope that similar rising rents across the city will make moving a non-viable option for them.


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## DavidJD (Sep 27, 2009)

Berubeland said:


> Well David,
> 
> It might seem a little counterintuitive but I always issue issue a check.
> 
> ...


I was wondering if it was better to have higher costs AND higher revenue (Charge full rent and then PAY (getting a reciept) for the $50 in services) or better to have lower rents (disco.) and no additional costs. _From a tax perspective I wonder._ Reason being I was have been schooled in the lesson of 'Cutting one dollar of costs is like generating two dollars in revenue'.

One element I had not thought of is that if the person is slack or 'going to be away for 4 weeks' (which happens) than the payment for services is not made whereas the discounted rent would already be setup.

I know it is not a lot of cash but every month, over years it can add up.


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## cardhu (May 26, 2009)

royalmail said:


> IMO there is no need to increase the rent EVERY year.


CPI increases every year, does it not? ... Therefore, a rent that doesn’t increase every year is a declining rent, on a real basis ... why should landlords accept a declining real income, unless there are specific circumstances that justify it? 



> _The % increase allowed by rent control should be a % of the ORIGINAL rent, not the inflated, increased rent._


That’s not how inflation works ... the % increase each year is compounded on all of the prior % increases ... again, you would have landlords accept a declining real rent. 



> _in 20 years the rent cost to that tenant is outrageously expensive and I am sure is much more than NEW tenants are being charged. _


Not in Ontario, where rent increases are limited by legislation ... often it is the new tenant who pays much more than their neighbors.


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## iherald (Apr 18, 2009)

cardhu said:


> Not in Ontario, where rent increases are limited by legislation ... often it is the new tenant who pays much more than their neighbors.


If you used the CPI as the inflation calculator $1500 in rent twenty years ago meant:

Rent of $1500 in 1989 would cost $2562.42 in 2009.


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## Four Pillars (Apr 5, 2009)

Just my opinion, but I think supply and demand is just as important a factor as CPI or rising landlord costs (ie property taxes, maintenance) etc. Over the 17 years I've been in Toronto (has it really been that long?) there have been a couple of cycles where rental vacancy rates went from high to low to high etc.

It seems like rental rates are currently quite reasonable in Toronto, although to be fair I haven't actually investigated this.


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## andrewf (Mar 1, 2010)

DavidJD said:


> I was wondering if it was better to have higher costs AND higher revenue (Charge full rent and then PAY (getting a reciept) for the $50 in services) or better to have lower rents (disco.) and no additional costs. _From a tax perspective I wonder._ Reason being *I was have been schooled in the lesson of 'Cutting one dollar of costs is like generating two dollars in revenue'.*
> 
> One element I had not thought of is that if the person is slack or 'going to be away for 4 weeks' (which happens) than the payment for services is not made whereas the discounted rent would already be setup.
> 
> I know it is not a lot of cash but every month, over years it can add up.


This applies where your expenses are not tax deductible. With a rental property, your expenses are deductible from income for tax purposes, so charging $50 more rent and paying $50 in services is tax equivalent to getting those services for 'free' in exchange for the lower rent. The difference would be for the tenant, who would have lower after-tax expenses, as if you paid him $50/(1-t) where t is his marginal tax rate. If t=30%, then it would be as if he earned $71.43 pre-tax. I'm not sure if providing services as in-kind rent payment without declaring that in-kind payment as income is tax avoidance. Maybe MoneyGal would know.


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