Renting out a flat - moral dilemma

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Renting out a flat - moral dilemma

70 posts & 53 voices | Started 4 months ago by TandemJeremy | Latest reply from paulosoxo

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TandemJeremy - Member

Well sort of. You thoughts would be appreciated / interesting

We rent out a small flat. We let it at slightly below market rent but as its an expensive city its not cheap by any means. We have tenants in at the moment who are great tenants - pay everything on time and don't make a fuss /mess. They have been there a year.

We make a small profit - maybe a bit over £1000 a year which is 3% return on what we have invested but 1% on the value. ( the value has gone up a lot since buying)

Do I put their rent up? they love that flat and want to stay and would probably pay a good chunk more.

So three options
1) be the good guys - no rent increase - we are making enough and they are nice people
2) moderate rent increase - costs have gone up ( we pay the heating bills)
3) Be a capitalist - rent up as much as they will stand. Maximise our profits.

thoughts?

Posted 4 months ago #
hels - Member

2. If costs genuinely have gone up, and explain that to them.

Posted 4 months ago #
alfabus - Member

2 at the very least - you are not a charity.

Probably somewhere between 2 and 3 though.

Dave

Posted 4 months ago #
binners - Member

Capitalist Pig-dog! You is like Fred Goodwin, innit?

I'm starting a campaign to get your knighthood revoked

Posted 4 months ago #
soma_rich - Member

2) no brainer. Unless you want to subsidise their living costs.

Posted 4 months ago #
Junkyard - Member

2 probably but you have said nothing about their circumstances.
They may have had a good or a bad year for all we know

Probably worth keeping good tenants though all other things being equal

Posted 4 months ago #
whatnobeer - Member

Good tenants are probably worth keeping, so option 2 would be the best bet, best deal for both of you.

Posted 4 months ago #
Lawmanmx - Member

world would be a better place if there were more like you TJ, if you are comfortable with your profit then leave it alone but if you need more from it then show justification to your tennants and im sure they will be Ok with it.

Posted 4 months ago #
geoffj - Member

I'm in the same position. Rent has gone up only £25 per month in 9 years. The tennant will however, probably stay on until she can't manage the stairs or die. For the sake of £500 a year (or one months rent), it's not really worth putting it up.

2) moderate rent increase - costs have gone up ( we pay the heating bills)

But if you were lucky with the mortgage, its probably the lowest it has ever been and likely to be ever again!

EDIT: The only issue with sitting tight, is that it then becomes more difficult to increase the rent at all. Maybe a middle ground is a £5 a month increase every year.

Posted 4 months ago #
Nick - Member

2

You only need it to be empty for a couple of months before your profit is wiped out, imagine getting 3 wrong and them deciding to move out...

Posted 4 months ago #
ourmaninthenorth - Member

thoughts?

It's an ethical dilemma.

For that reason, I'm out.

Posted 4 months ago #
stilltortoise - Member

We have a rental property too so often ask this.

My immediate response was option 1. You say you make enough so why do you need more? However, when I thought on it a bit more I realised this is not the right attitude. We're in uncertain times financially so you should not be turning away opportunities to - relatively easily - make more money. Who knows what the future holds. Major renovation work? A burst boiler? etc

You could put their rent up and at the same time explain what plans you have for the property in terms of renovation. That way both parties are sort of winners.

Posted 4 months ago #
TandemJeremy - Member

They work really hard in fairly basic jobs - both do two jobs. Saving for their future I think - young couple

I simply do not know how much the costs have gone up - the only cost rise is the gas I pay and as it is in with my bill and I don't monitor how much it is I don't know how much over the year it is worth. Not noticeably excessive.

Even if I don't put their rent up I am still making money on it.

Posted 4 months ago #
Rusty Mac - Member

2 Definately,

At the end of the day if it is in line with other properties in the area they can hardly complain. I'd be wanting enough to cover mortgage, insurance and bills if you are paying for them plus enough to build a small slush fund to account for any modernisation/upgrades/repairs that may be required in the future. on a 3% profit margin if you had to replace the boiler for exmaple it could be a year or two before the rental price covered the repair.

Posted 4 months ago #
sadexpunk - Member

Is it worth asking (telling) them to pay their own heating instead of a rent increase? May work out about the same and they'll just be paying for what they use?

Posted 4 months ago #
Zulu-Eleven - Member

Movin' up on second place, behind Nicholas van Whatshisface...

Posted 4 months ago #
TandemJeremy - Member

You could put their rent up and at the same time explain what plans you have for the property in terms of renovation. That way both parties are sort of winners.

I want to do some fairly major internal work that will IMO improve the value by rearranging the internal layout - they prefer it as it is so I have put my plans on hold.

Posted 4 months ago #
IanMunro - Member

I like sadexpunk's suggestion.

Posted 4 months ago #
binners - Member

Posted 4 months ago #
TandemJeremy - Member

IanMunro - Member

I like sadexpunk's suggestion.

Unfortunately it can't be done - communal heating system probably £50+ a month which would be a 10% increase

Lols @ binners

Posted 4 months ago #
loum - Member

2 is fair and necesary.
If you do not you may feel that they "owe you a favor" and would possibly not act as fairly towards them if they came to you with a problem that requires your financial input.
You don't want to allow it to become possible that you ever use the excuse "they're already getting it cheap!" in future dealings.
I am in no way suggesting that you personally would ever think like that, just giving an opinion of why its in their and your best interests that a fair rise happens.
It would not be unfair to conduct a little market research and apply some of option 3 if you like, but would be in the best interests of the relationship that this is minimal.
Always remember that if you put them off and they move out, and end up with a month without rental income then your percentages will be massively out.

Posted 4 months ago #
Stoner - Member

I never increase the rent while I have sitting tenants. Only when there's a new lease.

I prefer to keep a good tenant rather than squeeze an extra £20 out of them a week.

In fact one tenant that I liked was made redundant a few christmases ago, so I gave him 50% discount on his rent until he was back in work. took 3-4 months ISTR. he stayed for another 9 months before he moved in with his partner. He had been a tenant of mine for about 3.5 years.

My last tenant I didnt know at all and only stayed for 9 months and they are moving out at the end of Feb. My agent, however, says that every cloud has a silver lining as rents have increased quite a bit since last year and a new letting will be about £50 a month greater.

Posted 4 months ago #
jambalaya - Member

Find out the market rent, depends where the property is. In my experience of the South East market rent is about 2.5% to 3% of current property value. That does not include landlord paying bills like heating, tenants pay bills and council tax.

I am not surprised they are good tenants, they are paying half the market rent, no ?

Posted 4 months ago #
iDave - Member

Or.....

"we feel bad as our landlord is subsidising us being here. The rent is lower than it should be and he pays for our gas, so we have the heating on all day. It seems only fair that we pay a little extra each month, which wouldn't be difficult for us. What should we do?..."

Posted 4 months ago #
duckman - Member

2 TJ. As said bird in the hand etc...

Posted 4 months ago #
aracer - Member

We make a small profit - maybe a bit over £1000 a year which is 3% return on what we have invested but 1% on the value. ( the value has gone up a lot since buying)

So in the long term you've made a lot more than 3% a year on your initial investment?

Posted 4 months ago #
poly - Member

TJ,

If only been in 1 yr and you put it up they will assume this will happen every year and may be more likely to leave (now or at end of yr2).

How much were you thinking of increasing it by? Anything more than inflation would be cheeky unless you can really justify it.

The other thing to consider is giving them plenty of warning. If you put up rent with effect from next month that can screw up their budgeting if they are not rolling in cash - but if you tell them that you will need to put up rent in 3 or 6 months time that at least gives them a chance to prepare.

Beware if you claim it is simply because fuel costs have risen - there is some sign that they are starting to fall again and I doubt you would be so quick to put the price down!

Posted 4 months ago #
TandemJeremy - Member

half the market rent, no ?

No- maybe £50 a month below market rent but I think its outrageously expensive. Its £500 a month ( including heating and hot water but not elec and council tax) for a very nice studio flat in a great location. Worth around £100 000- £120 000

Posted 4 months ago #
mcboo - Member

Oh the stress of maintaining one's ethical purity in an unkind world. The price of Hummus in Edinburgh is simply a scandal.

Posted 4 months ago #
bellerophon - Member

moral dilemma

not really; but you know where you heart is at

Posted 4 months ago #
hora - Member

A few things..

TJ your own situation (hopefully not) could change. I think you should ask for market rate.

After all, do you really know this couple? What they spend the money on etc etc? Do they give to charity?
Its a business transaction. Keep emotion out of this.

What if there was a big bill from the management company for repairs to the building? It'd soon wipe out any nominal profit. What if your boiler blows because (human error/accidently didn't check) the bar pressure was allowed to drop- after all, its not their boiler.

You need to put something by for those unexpected bills IMO.

Posted 4 months ago #
vinnyeh - Member

I'd stick with 1), for the following reasons (obviously this is highly personal, and not recommended best practice):

- You've said in the past that this flat is your pension. I'm in the same boat, and I don't consider rent from my flat to be income to be used/spent for day to day living, although your view may differ- as long as I break even in the long term I'm happy. Obviously this won't make me rich.

- You've revealed some sympathy for the couple's situation- be nice, it's a hard world, they're working and saving hard, give them a break, but let them know what you've done- that if something breaks and needs replacing you might need to put the rent up to cover the cost.

Otherwise 2) would be the sensible option- you don't want to spark a break in occupancy, however brief.
After they leave, do the work you want to, and move to market rent.

Posted 4 months ago #
Stoner - Member

We're all rentiers now, as George Orwell might have said

Posted 4 months ago #
jambalaya - Member

£500 a month is 6k pa or 6% of the property value, that's double the rental return I mentioned. I rented a place out for 3% return which is about the market norm, you are getting double that (less of course the utilities you mention). Either way you are doing very nicely it would seem.

Posted 4 months ago #
TooTall - Member

Capitalist pigdog!
Property is theft!
Workers unite and throw off the shackles that bind - landlords are all scum! Milking those too poor to buy and consigning them to a life of debt!

Well someone has to don't they? This is a TJ post after all

Posted 4 months ago #