NHGR: Rental help

[incognitotoday]

I didn't know the best board to post this, but figured since I have been active here recently, you all could help me out.

I live in the Northeast and have a condo in Southeast Florida.  For 5 yrs I have had my very close friend and her husband rent it from me, for a very low monthly rate.  It covers my mortgage 90%, and does NOT cover my HOA fees at all.  Quick side story, when I moved from my condo, I left in less than a month's notice and needed someone to rent from me b/c I couldn't swing a mortgage payment in FL and renting for myself now in the NE.  Ironically, my friend and her husband's lease was up at their rental place and they were more than happy to come live at my condo (as it is up to date, less than 1/2 mile from the beach, and less than 2 blocks from a high end mall; a HUGE upgrade in general from where they were renting).  I had just gone through a messy/expensive divorce and moved back up north to be near my family.  Since my friend and her DH weren't going to cover my HOA fees, my Dad has been paying for them for the past 5 yrs, while they pay 90% of the mortgage and I pay the 10% they don't pay. 

So for the first 3 yrs their rent was $1K/month.  Three years go by, and I tell them I am raising the rent to $1200/month b/c I hadn't raised it in three years, my HOA fees increased, and in general, so did the COL; along with other expenses I paid over those three years (A/C broke, bought a new washing machine, etc.).  She wasn't happy, but obliged; signing that contract for two years (locking in the $1200/month rate).  Having her live there is peace of mind.  The place is kept clean, if something breaks, she notifies me immediately, she pays her rent on time, and I trust her completely. The two years is now up, and here I am (5 yrs in total, later), and I know, at minimum this 2B/2B condo can get $1500/month in rent; EASILY...so I have heard through other friends who live rent down there (they tell me she is 'getting a steal' living in my place for what they pay monthly).  

I feel like I am in a tight spot though b/c to go to her and say, "oh and this year, I am raising your rent to $1400-$1500/month," I think she would out about die.  But, at the same token she doesn't realize that her living there, is also a 'business' transaction so to speak.  That if some random renter was in there, I would be charging them $1500/month if not more to help cover my HOA fees.  I didn't expect her to pay the mortgage in full AND the HOA fees back then (when she first started renting from me) b/c I was in a bind and needed to get out (divorce and move to the NE) and so it worked out back then with the agreement we had, but as you know times do change and so do situations.  Financial situations.  And quite honestly, I could use the additional money that I could/would be getting if the rent was more; also finally telling my dad I am going to take over those HOA payments which he so graciously has been paying for, for me.

What I do know, is that her and her husband are not ready to buy anywhere, they do not have the funds saved; at all.  And they would definitely resign from me in a heartbeat b/c I don't know if they could find a place to rent at this current rate I am charging them in a 'decent' area or an area they would even want to be in.  But, I know this will cause a huge wedge between her, and I.  I DREAD having this conversation with her about 'raising the rent', as I did two years ago.  I love our friendship and I don't want this to come between us. 


So I was talking it over my new DH/Dad and they said, contact a Realtor and find out exactly how much money you could get for that place if you were to rent it out to the general public, and when they come back and say, $1500/month or more,  you simple tell your friend that you did the research and unfortunately this is a 'business' decision and need to do what is best for you financially, and raising the rent for $1500 is what it needs to be (and again that is at the minimum).  But it is NOT as easy as DH/Dad thinks it is to just 'have this so-called conversation with her'.  

Are there specific websites that tell you what the going rates are for rentals in a certain area?  Do I need to contact a Realtor?  Or is there something online that can show me, "look in that zip code, for an equivalent 2B/2B" and this is what the average rate for a rental is going for?

Their lease is up April 30, 2014 with me.  So March 1st is 2 months notice for me to tell her - which would be plenty of time for her to decide does she want to pay the price increase with me (should I have the courage to tell her I am raising it) or does she want to move; which IMO is enough time.

Also, just curious, if this was you, what would you do in this situation?  

Side note, I could technically sell the place, if need be (need be = desperate measures), but honestly I would take a tremendous hit on the place (like $40-50K) b/c unfortunately when I bought it it was when the market was incredibly high (especially for that area, 1/2 mile from the beach), and right now, financially I don't think I could handle it.  

If you got this far, thanks for reading and adding your $0.02.

[Marmee]

Oh man, that makes my head explode...lol. I'd total up the amount of money you & your Dad separately have shelled out in the past few years on a place you don't live in & have it on hand if she gives you a lot of grief. I mean you aren't even increasing to make more profit & just being "greedy" (though I hate that term in business, because you rarely hear it applied to any other business owner outside of landlords). You can say something like sorry, but it's really ridiculous that my father is still subsidizing my decision when it is no longer a necessity & I need to move forward with my goals/life. You could start by saying something about how much you appreciated it when she stepped in & rented from you when you were in a bind & it was mutually beneficial...but at the current rent, it is no longer in your best interest. You probably could find going rate for generally comparable on the internet (postlets...zillow, google, craigslist, yahoo, etc). Ugh, if she's a good friend she might be disappointed but she should TOTALLY understand.  Good luck!

[incognitotoday]

Feb 26, 2015 20:45:52 GMT -5 nursecramer said:

I think I would say something like "Sally, I'm in a really tight spot and I would appreciate your advice. With rising prices, it is not in my budget to pay the HOA and repairs and mortgage on my apartment anymore based on a rent of $1200/mo. I would need at least $1,400/mo in rent to be able to avoid selling the condo. What would you do if you were in my shoes?"


ETA: If having this conversation damages your friendship, then it wasn't that much of a friendship.

My sister said the same thing about the friendship. Still makes it hard.

[polarbearfans]

After two years, they should expect rent to go up. I have never rented anywhere that rent didn't go up every lease. It sounds like they will still be getting a good deal.

[InBetweenDays]

I would definitely find out what the going rental rate is. A 25% increase in rent (if you ask for $1500) is a huge increase and could be very tough for them to swallow, but if that is the going rate then hopefully they'll appreciate the deal you have given them the past 5 years.

Sent from my SCH-I535 using proboards

[emoflamingo]

Don't take the loss if you don't have to. It's only fair you get the going rate and she has had a good thing going for 5 years by underpaying you.

We are in a similar, smaller scale position and spent a year and a half losing ~$200/month because it was a friend (this was after losing a total of $3k the year before to another friend :/) and will now be losing our tenant, but can't sell because we would lose $7-10k we cant produce.

Good luck!

[jenstar]

It is a hard conversation to have and I had to do it with one of my best friends when he was renting from me, also below market value, also because I was desperate at the time. He took it fine though because he is a reasonable person.

You are basically subsidizing your friends lifestyle the way I see it. That is ok if you are comfortable with it but i suspect there are other things you'd prefer to spend that money on. I think 5 years at below market rates is more than generous and at some point you need to make your investment work for you, not for your friend.

It is a business decision and I would approach it that way. You can't afford to keep renting below market value and you can't afford to sell at this point. You would love to keep them there but you more than understand if they need to find somewhere else. If they try to find another place they will most likely realise they've been onto a good thing and the cost of moving probably doesn't make sense.

GL!

[julygal]

I think you should raise the rent, but I would look into local laws about the amount you can raise it. If you are in the clear about raising it to market value, then you have 2 choices: rent at market value or rent at a price that covers your mortgage/taxes/HOA. I would charge which ever was the lesser amount, as I think a long term renter that takes care of your place is worth something along with not having to find a new renter. From what you wrote, it sounds like market value is higher than your monthly cost. So pretending your mortgage/taxes/HOA are $1400 a month and other units in the neighborhood are renting for $1500, I would phrase the conversation along the lines of...
It's time to renew your lease and there will be a rent increase this year. I looked at what other units in the neighborhood are renting for and most places are going for $1500 a month. I really would like to keep you there as you take great care of the place, so rent will be $1400 a month. I know that this is a significant increase, and I understand if you have to find somewhere else to live, but at this time I can't continue to rent at loss. Take some time to think it over and let me know what you decide.

[mrs.jacinthe]

Raise the rent. It's a business transaction. If they can't afford it and you decide to keep them anyway, perhaps you can negotiate something like "rent stays the same but any repairs under $1k are your responsibility." Or something.

(My parents are landlords and one of their tenants gets a rent discount for doing the lawn mowing and snow removal.)

[msmerymac]

I agree about checking local laws. A realtor might be able to help with that as well. Even if they are below market value, it's possible you can only raise it by a certain percentage each year.

You say market value is $1500ish, but what would cover all of your costs? I would probably only raise it to $1400 if that would work for you. That's a pretty big hit for them. And yes, it's a steal, but they are great tenants and part of being somewhere for a long time is often a good rental price as other units increase, as long as you have rent control. The pros of having them there are having people who will stay for a while, pay on time, and generally take care of the place. If you rent it out for $1500, yes, you'll be getting more money, but you might have to consider a property management company and/or you won't know if you will be getting another reliable tenant.

[emoflamingo]

I can tell who has been a landlord before in this thread lol.

[downtoearth]

We have run into this with our friends renting our place. We did a $100/month increase for a year and another $100/month increase for the 2nd year if they signed a 2 year lease. We also offered no raise the third year if they signed a 3-year lease right then.

They took the 3 year lease option, so it went up $100/month for the first year, and was up $200/month by that second year. We aren't in the 3rd year yet, but it seems to be working well and it didn't stress them a lot and got us up to market value in 12 months.

ETA: Oh and if the condo isn't worth as much, maybe you want to sell it to them at lease to own. You might consider that depending on the equity you have in and then length of time you would set up the lease to own - maybe 5 years.  But I'd talk to someone about that b/c I don't know how those work.

[incognitotoday]

Feb 27, 2015 12:18:32 GMT -5 mrs.jacinthe said:

Raise the rent. It's a business transaction. If they can't afford it and you decide to keep them anyway, perhaps you can negotiate something like "rent stays the same but any repairs under $1k are your responsibility." Or something.

(My parents are landlords and one of their tenants gets a rent discount for doing the lawn mowing and snow removal.)

Very good/interesting perspective; one I hadn't even thought of, so thank you!!!

[incognitotoday]

All great suggestions and advice, thank you! I agree with those who said that over $200/month is a huge hit. I also agree with those who said, "subsidizing your friend's COL". It's a tough situation to be in....one in which, I realized I do not like being a landlord. And yes, I learned there are a lot of you who have been in this situation and also comment that it isn't easy.

I appreciate your ideas/thoughts. Thanks again.