I’ve a rental property and I’m tired of paying the mortgage. I’m taking a partial distribution on my retirement plan and will pay off the house next month. I’ll still be on the hook for taxes, repairs, insurance, and maintenance, (plus it will need a new roof soon). I’m thinking about lowering the rent $600/month for my tenants. Is there any downside to my plan?
Posted Sep 1, 2023, 12:43 AM UTC
I'm sure your tenants will appreciate it.
Don't know enough about finances to comment on if it will benefit you.
I think the only "downside" here is you being out an additional 600 bucks every month, but if it makes a bigger difference to them than it does you, fuck yeah
I don’t know their finances, but I’m pretty sure it would be a huge boon for them.
It’s a very noble thought. But as some folks have mentioned already - it’s up in the air how it’ll play out. Based on my experience, try to keep the rent at market rate. Give them a break if they ask, but not too much. Whatever you think you are “saving”, donate to your favorite causes and charities.
I should add - we had tenants who we rented to below market for decade+, but in hindsight it was a very bad idea. At some point it became untenable, and in the end all the ‘goodwill’ went out the window. Keep it a business relationship.
Can you expand upon that? How/why did it become untenable within a decade? Did they abuse the property? Did you fall into financial trouble down the line and regret renting below market rate?
I have to agree with this we had long-term tenants for 15 years and when they finally moved out there was $30,000 worth of repairs. We had hardly heard of people from them in that time. We kept the rent pretty much the same as it was when they first moved in because they were consistent and we wanted to give them a deal. We learned our lesson.
I wanna be ur tenant lol
Even though the individuals funding it aren't my favorite, I'm all for a new, properly planned and urbanized city in the outer bay. 55,000 acres is roughly 86 square miles, so not quite 2x SF proper. This new city could easily house more than a million residents. Make it happen!
If you plan on selling it might affect the price. We had our home/in-law unit for quite a few years and were able to set the rent at 30% of minimum wage. We stopped renting this last year because of Oakland's perpetual tenant rule (cannot set a lease term), required sublets, and inability to enforce lease provisions. We didn't like losing control over our home property.
I have a TODD to my son, so no selling!
Oh, for pity’s (or is it pities?) sake, who downvotes an honest question?
The answer is "for pity's sake"
Im confused. Reducing the rent for what?
The rental property. A single family residence.
Sorry, not sure why but I am not understanding. So you’re the landlord, and need to reduce the rent on a single family home because…?
Because when i pay off the mortgage, my expenses will have very much decreased. I can pass a chunk of the savings to my tenants.
Oh I understand. You’re saying that you will make less income so you will lower your income and pass it off to the tenants. I would think depreciation takes off a good chunk of your taxable income already. Plus only interest is deductible from your taxable income. If you were at the end of paying off your mortgage, the interest portion of your mortgage is minuscule… Consult your CPA before you tell the tenants of this clearance deal.
Be careful. I’ve had awful luck charging below market rent
People aren’t grateful for long. They take it for granted and are resentful and think the place is crappy due to low rent. They stop taking care of it.
They’re also trapped. If you have expensive repairs or a financial setback they won’t be able to pay higher rent. They can’t afford to move anywhere else. You might end up causing a lot of suffering all around despite your good intentions
I’ve done it twice and it was a slow motion train wreck both times. Never again!
Thank you! This is the kind of warning i wanted! I think i’ll still do it, but maybe a savings account for “just in case” might be in order!
Rather than drop the rent unsolicited, you may want to just refrain from raising the rent ever again, or drop the rent if your tenant faces hardship and asks for it (assuming they're a good tenant). An unsolicited drop is often received like "Wait...you could've charged me less? What else are you screwing me on?", while tenants are usually very grateful to not face rent increases and end up hundreds below market rent, or to have some flexibility if they lose their job or face unexpected expenses.
Another good idea! Thank you!
As a tenant with now under-market rent, I really appreciate my landlord not raising rent and I don't have rent control. I got a pandemic deal, and expected it would increase by now.
The fact my rent is still the same makes me care a lot more about being here, it feels more secure.
I generally care about being a good tenant, so maybe it doesn't matter much. But I've researched, bought parts for, and tried to fix various appliances before reaching out to the landlord to send in a pro - not sure I'd have put in that effort if I was getting juiced.
I like the idea of gifting them all a free month of rent at the end of the year (as that's when they might want to be spending holiday gifts, holiday travel, saving the money for the upcoming year, etc). Give them a heads up in November that you'd like to gift them December's rent because you appreciate that they're such good tenants, and put it in writing that it is a gift.
If you do need to raise the rent later, you might run into landlord/tenant laws that cap that amount it can be raised and you might need to give substantial notice, but a gift of a free month of rent isn't a change to the rental contract. In other words, the contract still stands, you just decided to pay their rent that month.
Also, thank you for being such a nice person!
My dad is a very kind man and feels great pride with how he treats his tenants. He kept the rent low for his last two tenants "because they have health issues."
Unfortunately, they both became ungrateful (even hostile) over time. One tenant ended up costing him over $10k in missed rent payments at the end and damages to the property. The other wasn't quite so bad, but at least $3k in repairs and left the place a dump.
Keep it at market rate and offer kindness in other ways (e.g. a discount at Christmas, not charging late fees for late payments, etc.).
Totally. So true
Yeah my partner is acting as landlord for his father’s property and his dad has never raised the rent on his tenants in years so they’re all pay well below market now. If my partner raises the rent, he knows they will be struggling and likely have to leave so he feels guilt about this. But he also has had issues with them not reporting repair problems and even still paying rent during the pandemic. They were able to get pandemic assistance, but it was a huge hassle. Raising the rent to market would greatly help with their taxes still but he just doesn’t have the heart to kick the family out. If you struggle at all with business decisions vs heart decisions.. it might be tough when you have to make the best choice for yourself
it's sad all around. I bet the family living there doesn't know what a sacrifice is being made. They probably think of the house as a shithole and don't have any interest in taking care of it. They probably think of the landlord as a money grubbing tightwad slumlord. I've seen people lose their property over this, neither the tenant or the landlord benefits if the bank repos and they become homeless anyway.
I think you’re a very kind landlord for even considering lowering rent. I’ve only had one of those and I still think of them often and how compassionate and flexible they were. From a financial outlook, perhaps choosing to not raise the rent for the foreseeable future is gracious enough.
That is a good thought. There are two tenants and they have a roommate. I know one of the tenants is in a rough spot health wise. They’re good people, though.
If you want to be generous then donate to the best charity in your area. The money will likely be used to greater effect than a rent reduction and you won't be negatively impacting the value of your property. You will get a charitable tax deduction as well.
Strongly disagree with this. Impacting lives directly is so much better than outsourcing it to charity program administrators.
I think that would be very kind. Everyone always jumps on the idea for being bad business sense, but at the end of the day, being human matters.
Even if somehow it turned out badly down the road, well, you can't control the future or other people, but I don't think you'd be on your death bed going "why did I waste my life being humane to people I knew were struggling when I could have made a few thousand extra dollars"
If you are writing off rental expenses on your income taxes, you have to charge market rate in order for it to qualify as a rental property.
https://www.irs.gov/publications/p527#en_US_2022_publink1000219152
You my dude are describing the non-capitalist solution to housing.
If your tenants ever move can I be the first on the wait-list?! You seem amazing!
You are a very kind person. Maybe a better use of this $600 could be donating to a charity ?
If you have a good tenant and can lower the rent, do it. I wouldn't listen very much to people saying it will end poorly. They sound like made up stories. Tenants that realize they are getting a reasonable deal fix things on their own and do routine painting themselves. Goodwill in general builds community and boy do we need that these days.
I would say this - for you sake - set the extra aside and save it. From unexpected emergencies, to long term care in retirement, you never know what the future will hold. Sure you cut them some slack, but will anyone do the same for you in a hypothetical future? You don’t want to be the person who gave to everyone else and then is left without for yourself.
I have another idea. Could you use the extra $ to make the property more enjoyable to live in? For example, could you hire a gardener or improve the yard in some way? Maybe w a grill or new decking?
Or, have the exterior professionally cleaned, especially the windows!? I lived in a rental that I loved, but it was in the second floor, and the windows were sooo dirty, especially after wildfires. I thought several times about asking the landlord to have them washed, but I didn’t want to be the squeaky wheel when it was a non-essential item.
Or, as an alternative, if your tenant pays utilities now, maybe you can split utilities with them, or cover a standard utility fee, that’s not usage based, like garbage for example.
All of these changes make life better as a renter without getting into the dynamics of lowering rent!
That was my thought too, take the $ and use it to improve the rental.
I'd vote HVAC if it doesn't have one- it's going to be a necessity in the coming years
I really like that idea, but does it require a lot of construction? If so, landlord might be on the hook for paying for tenants' hotel rooms during the installation, and they might also need to check with their insurer/make sure tenants have renters' insurance. OP should make sure they aren't liable if something owned by the tenants is damaged or stolen in the process.
Or maybe talk it through with the tenants to A) make sure that's something they'd be interested in, and B) see if there's a month when they'll mostly be out of town anyhow.
You won’t be able to pay for your new roof
Wish more landlords had the OP’s attitude. I own a rental house in west SJ. Rent is reasonable, $2,500 for a 2 bed/2 bath. Have good tenants who are teachers. Could probably get $3,000, but it’s enough money for me and helps them out a bit. Plus, I don’t have to deal with getting new tenants if I raise the rent too high. Not being greedy isn’t that hard.
Saving $500/month is helping them more than a bit - that's really good of you. :)
I'm in the same boat as OP, my tenant is in a rough spot, health wise, so my wife and I told him to not worry about rent until his retirement/pension kicks in next year. In exchange, he promised to hire a contractor to re-do the deck, since he enjoys spending time there, we didn't even ask for this, but considering the circumstances he felt it was the right thing to do on his part.
I'm a teacher and trying to live closer to my school in San Jose.
Do it only if you assume that your deed will go unappreciated, unrecognized, undeserved. Otherwise build your stockpile of assets because you never know if YOU or a loved one needs it. If you want to later, you can just gift the accumulated assets to them. Keep it in municipal bonds. California general obligation bonds, short duration, to be specific.
I’m not a tax pro, but it might be viewed as a gift to your tenants. The gift tax thresholds are super high, so even if so, probably not a big deal. But if you’re close to those limits, you might owe gift tax on the 600. Again, not a tax pro, talk to a real tax pro, not reddit to be sure.
It’s the opposite. Giving gifts as a landlord may actually be tax deductible, since a rental property is a business. But it’s limited to $25 per individual per year so not really a factor in this case.
Assuming the project is subject to rent control, if vacancy control ever comes back you won't be able to recoup this.
People are mentioning the downside of charging below market or making a reduction in rent, so I won't repeat them.
If you don't go that route then upgrading the building in a noticeable way (HVAC, better energy-efficient windows, upgrading kitchen or bathrooms if it's overdue) and not upping their rent for a few years is a better long-term plan. The tenants get a nice place that stays within their budget, they have an incentive to keep it nice, and you're taking care of your property.