Lessons from a Small Landlord

Re-Lease Me: A landlord's guide to lease renewals

By Craig Roche  | August 29, 2013 - 10:43AM
image
Most market-rate leases in NYC are for one year. As their leases approach expiration, I’ve noticed that I see my tenants less frequently, presumably because they’re afraid that if they are too enthusiastic (or visible), I’ll nail them with a punitive rent increase.  Though this may be news to tenants, this isn’t how most small landlords operate.
 
The first question that I always ask myself is, “Do I want to renew your lease?"
 
There are lots of good reasons not to renew your lease even if you are a good tenant. Maybe I’m planning to sell the building, and the new buyer may want it to be vacant. Or maybe I need to do major renovations, and I can’t do them with a tenant in place.
 
In these cases, there isn’t much that you or I can do.  I’ll allow the tenants to stay on month-to-month leases, provided that they put up an additional deposit to guarantee that they’ll leave on time, which I’ll use to pay my lawyer if they don’t.  
 
I’ll also work hard to find them alternative apartments with landlords in my personal network (providing incredible references to the new owner for them), and sometimes I’ll forgive the last month if they’ve been very cooperative and flexible -- after all, if I can keep the apartment rented right up until closing on the sale of the building, I’ll do a lot better than if the renter moved out earlier in the process.
 
On the other hand, if I don’t offer to renew your lease, it sometimes means that I really want you out.  
 
Why I might not renew your lease 
 
  • You haven’t paid regularly, or have lost your job, and I suspect that you will blow through your savings quickly.  I don’t use guarantors, because my tenants tend to be older and more established. Plus, I feel that trying to collect from a guarantor is more trouble than it's worth. And if you don’t have a job and I have to sue you, it will show up on your credit, which many employers now check prior to making job offers, so it will be even harder for me to get paid. Bottom line: if you can’t afford to live in my building, please move before I have to evict you.
  • You are difficult to deal with.  My house is not a hotel, and I’m not your servant.  I’ve got a difficult job too, and if you aren’t prepared to deal with that, perhaps you should find a full-service building.  Likewise, if you are a wise-ass and start spouting talk about lawyers and tenants’ rights, I’ll raise your rent so high that you’ll get the message.   In my building, we’re a team, and if you don’t cooperate, I won’t either.
  • You aren’t taking care of the apartment, or are annoying to the other tenants.  Basically, if you clomp around, make a mess that attracts vermin, create floods, don’t recycle, or play music loudly, you aren’t worth keeping around. I work really hard to curate my tenants and ensure that everyone gets along, and I don’t want one bad tenant driving out the other good ones.

Figuring out the right rent increase

Once I’ve decided to renew your lease, the only questions are ‘how much’ and for ‘how long’. Unlike larger landlords, my goal is not to bleed your wallet dry, or to make you indifferent about staying versus moving.  Before I offer you a lease renewal, I’ve carefully considered the following factors:
 
Competitive rents in the neighborhood: I check with my small-landlord neighbors, visit open houses, look on Craigslist, follow the NYC Rent Guidelines Board, and talk to local brokers. Trust me – I know the market much better than you do, and my goal is to provide you with a good, but not great deal.
 
Inflation:  I generally start thinking about rent increases in the range of the actual inflation rate.  Note that the Consumer Price Index (CPI), which is what you hear about in the media, tends to underestimate the true rate of my cost inflation –- the CPI includes a lot of cool electronic gadgets like Ipads and computers that get cheaper and better each year, while everything else (e.g. my plumber) gets more expensive.
 
Taxes, renovations, and repairs:  Because I’m keeping my rents below market, I’ve got a fair amount of leeway in how much rent I can charge without having you threaten to go someplace cheaper.  If my taxes and expenses have gone up, or if I’ve renovated your apartment or provided new services, I’ll raise your rent a bit more than usual.
 
Your performance review:  I give discounts to really good tenants -- I really want them to stay.  I’d rather give a $50/month break on rent to a cooperative tenant than have to take days off from work dealing with a less helpful one.
 
A few negotiating tips
 
When it comes to negotiating with your landlord, renewing your lease isn’t like buying a banana at the supermarket –- you can negotiate.  Just bear in mind that if you are dealing with a small landlord like me, who keeps his rents low, you probably aren’t going to get very far asking for a further discount, and you may well encourage him to make a higher offer next year by trying.  
 
You might be able to sign a longer-term lease, however, or to get your landlord to commit in writing to additional upgrades, repairs, or painting.  In my case, my tenant and I agreed to split a Community Supported Agriculture farm-share subscription (we get a giant bag of vegetables each week and we rotate picking it up and parceling it out) and to give him a guaranteed renewal at a fixed price. 
 
I also installed in new hotel-style shower-bars and retractable clotheslines because I thought that they were a cost-effective way of improving the tenants’ apartments.
 
To give a concrete example: This year I determined that most small landlords were charging roughly 12-20% more than I was, notwithstanding the bloodsucker down the block who gets 30% more, but has a two-month vacancy every year when his tenants discover this and move.   I estimated that my costs had gone up roughly 2.5%, and that I’d added new services that cost .4% per year, and I’d added some features to the tenants’ apartments to make them nicer, the depreciation of which was worth roughly 1%/year.   So I asked for (and got) 4% increases from most tenants, and gave the best tenant a 1.5% discount off the list price. 
 
All tenants renewed. And now that the cycle of lease renewals is over, they've all come out of hiding, and all is well in our building.
 
Brick Underground articles occasionally include the expertise of, or information about, advertising partners when relevant to the story. We will never promote an advertiser's product without making the relationship clear to our readers.

topics:

landlords Lessons from a Small Landlord rentals renters renting
Follow Brick on Instagram
@brickunderground | #brickunderground