Rentals in Scottsdale>Question Details

Sandy, Renter in Scottsdale, AZ

I have a rental home in 85254 , the tenants want to extend the lease for another 2 years at the same cost. Is that ok or should I increase the rent?

Asked by Sandy, Scottsdale, AZ Wed Dec 8, 2010

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Sandy
A good renter and zero vacancy rate are your two best friends. If the renter is good and paying on time and caring for your home and you have a zero vacancy period for two years you'll save. Taxes have actually gone down in many homes based on new assessments so things look good at this time. I would write in the lease that the second year dependent on tenants remain in good standing and smile! It's a win win
Cheers
Laura Myers
Keller Williams AZ Realty
Select Realty Group
1 vote Thank Flag Link Sat Dec 18, 2010
Hi Sandy,

Do you have a good tenant? Listen odds have it(without knowing about your home) that you could probably get more in rent but if your fortunate enough to have a good renter and they have been good over the past couple years, why ruin a good thing for a little more money. Talk to your renter, find out their upcoming year goals and renew the lease for one year at a time if you think the market is going to change. If you had not had any issues and they have been good, I would renew the lease and be thankful you have a good renter.

If you would like a free copy of the landlord/tenant act please go to http://www.INSTANTRENTERS.COM.

I hope this helps out.


Jason Grandon
1 vote Thank Flag Link Wed Dec 8, 2010
It's a decision you will have to make for yourself. It has its pros and cons. On the up side, you will be guaranteed a rental income for 2 years with no chance of a vacancy. And you will not have to go through the stress of finding a new tenant, qualifying the tenant, preparing the rental unit for a new tenant, etc, for at least two years. That can be a significant savings in both terms of time and money depending on the rental market and the laws in your area and as a rental agent I have been able to negotiate some very good discounts based on a two year lease.

On the other hand, anyone who believes we are not experiencing an inflationary period econonmically has not been to the grocery store lately. So you need to cover yourself in the event the price of things goes up. What do you, the landlord, pay as far as utilities, heat, hot water, electricity, water, sewer, trash removal, and taxes? How likely is it that the cost of those items will increase over the next two years and by how much? How much of a financial hit can you take in exchange for the promise of guaranteed payment and decreased effort? I like the idea of a cost of living increase, but I am not sure the national statistics includes all the costs associated with owning a property. Still, you have to use something as a bench mark.

If you use a professional financial planner or CPA you may want to discuss it with them. Or, if you are a member of your local real estate investor's association, there may be some guidance you could get from your fellow investors. In any case I would recommend building in a reasonable increase each year to account for any increase in costs.
1 vote Thank Flag Link Wed Dec 8, 2010
Sandy, that is up to you.

Here are a few things to consider:

1) How long has the tenant been there?
2) Are they paying rent on time?
3) Are you going to re-run their credit check and background check?
4) Are you comfortable with a 2 year lease?

Options:

1) Extend the lease for 1 year and look at rental values then
2) Extend the lease for 2 years with a COST OF LIVING INCREASE that meets the current inflation rate (example: 3% per year)

You can see what homes are renting for in the 85254 zip code by going to this website:

http://www.NorthValleyRentals.com

I hope this helps
1 vote Thank Flag Link Wed Dec 8, 2010
Sandy - you identify yourself as a renter - not a landlord.

In business all is fair. A rule of thumb is factor 2 month's vacancy and ask yourself over a 2 year period is it profitable to get 'market rent' if it means being vacant for a period.

That said there are other factors - like can the tenants actually afford more rent? (They may not) And will the market give more rent (It probably will in Scottsdale)

I live and work in Scottsdale and the rental homes available are very low. People pay between 1400 - 2200 for a 3BR to 4BR depending on North or South and other factors.

As many people in outlying suburbs lose their homes to short sale and foreclosures many high quality renters are entering the tenant pool and relocating closer to the city center. This trend is pushing up rents.

SO while your tenants may not be able to afford more rent, someone probably will, and they will probably pay more within 2 months. If you figure you are getting 1400 now and you could get 1600 - is it worth losing 2800 to get the better rate long term.
0 votes Thank Flag Link Wed Dec 8, 2010
Hi Sandy, I guess it - depends? Are they a good tenant. Are you making a desirable profit (or just covering costs?). If you are satisfied with the answers to both of those questions, then perhaps the stability of a 2 year contract would be good. You don't have to worry about turnover in 12 months and the resulting possibility of lossing rent because you don't find a new tenant immediately. The other possibility might be to guarantee the tenant an increase of no more than 3% after 12 months. Make it a % number that will not scare them off but give you a small increase to cover your costs. If your goal is to sell the property in 2 years, keeping a good tenant would be a sound strategy. Hope this helps. Michael 480-452-4494.
0 votes Thank Flag Link Wed Dec 8, 2010
Dear Sandy:

I know this must be a tough decision on your part. You run the risk of losing a good tenant by raising the rent. Yes, you want to get the "fair market" for your rent in your area of Scottsdale. However, you must weight this increased rent against the move out and move in repairs, cleaning and preparation in addition to the costs to rent the home to a new tenant, including time idle with no rent coming in.

Spread the numbers, ask a Realtor what your home would rent for and for the average time on the market for other homes similar to yours. Many people are not looking to move in December, so keep that in mind.

May I wish you the best with your decision.

Jeff Masich, Realtor
http://JeffMasich.com
HomeSmart
Scottsdale
0 votes Thank Flag Link Wed Dec 8, 2010
If your at or close to current market rent rates and the tenants pay on time renew for 1 year. If the rentals rate go up next year you can increase the rates. Keep in mind tenants that pay on time and do not cause any problems are keepers, even at lower rental rates in my opinion.
Web Reference: http://www.vizarealty.com
0 votes Thank Flag Link Wed Dec 8, 2010
I could not have answered this question any better than what Suzanne did. She hit the topic right on the money. I specialize in the Scottsdale and 85254 area. So if you decide to make any other decisions about your rental I would be happy to assist you. Good Luck and keep in mind those inflation costs Suzanne spoke of that may or may not happen in the next 2 years.
0 votes Thank Flag Link Wed Dec 8, 2010
Is this property a long term investment or is there a possibility you will want to sell it ?
Is the current rent in line with rent for similar properties? If you want to sell it as an investment remember investors look at the rental income.
If it is difficult to find tenants and these tenants pay on time , you might want to consider two year lease but you might want to consider asking for higher amount in the second year.
0 votes Thank Flag Link Wed Dec 8, 2010
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