Rental Increase of 100 dollars

[Cheryl Daniels]

Hi! I inherited tenants paying 600. For an 800 sq ft 1 bed apartment in an ok area of Philadelphia.  I pay water/sewer, trash, public lighting, and gas. I kept that rate for 10 months  Its renewal time. I lost 9 grand on the apartment according to my accountant because its rented below market value. Can I go up 100?

[Paulette Midgette]

Hello @Cheryl Daniels, have you done a rent comparison in the area your property is located to determine the amount of the rent increase.  I am a buy and hold investor in Philly.  One bedrooms about your size in decent neighborhoods rent in the range of $625 to $675.  Depending on where your property is located and the current shape of the property (last time property was refreshed with paint, updated appliances, cosmetic fixes, etc.) a $700 dollar a month rent may not be warranted.  If a tenant can rent a place that is newly renovated with new appliances, etc., for $700 or stay in your place that needs some TLC, which option would you take.  Sometimes apartment rent below market rate for a reason. 

I had a situation similar to yours.  I purchased a property last year with tenants in place.  A duplex.  One unit was renting for $425 per month.  Incredibly below market rate (market is $625-$675). The tenant was a 70 year old women who had been in the apartment since 1990.  The first floor tenant's rent was  $100 higher but still under market as well.  Of course a rent increase was in order.  However, the previous owner hadn't touched the apartments in years (not even a fresh coat of paint...he had inherited the property and the tenants) and everything needed to be replaced.  In order to avoid putting a hardship on the tenants, and because they were living in conditions that in my opinion did not warrant a up to market increase.  I increased each rent by $25.  Within the year the tenant vacated the one unit that was renting at $450.  I immediately renovated and modernized the unit.  I put an ad for rent on Craigslist on a Thursday.  Friday I got a call for a showing...showed it Friday evening and Saturday morning the prospective tenant submitted a rental application.  Tuesday I had a tenant paying $650 per month.  I could  have gotten more, but I did not provide a refrigerator nor is there a washer/dryer in the unit.

As landlords I understand that we want to get the maximum amount of rent we can, we need to cover our expenses and return a profit.  But we need to keep in mind that tenants pay us for a service and our first priority is to ensure the customer is being given a quality product.