How Did You/Do You Raise Rents On Small Multifamily

[Brandon Cravens]

I purchased a 9 unit multifamily in Tacoma last year. Almost all the units are below market rent, especially considering the recent improvements. The only unit that is not below market rent is the one that we just rented out this month at full market rent.

The previous landlord did not go up on rent for YEARS. Some people are 10 year plus residents, probably in part due to the cheap rent.

My property manager has suggested that I send out a letter at the beginning of March describing what the rental increase will be and that it will be effective April 1 and require a new one year lease (6 tenants are on month to month) his reasoning is that if we are to have vacancy it is best in the spring/summer. I agree with him.

How have y’all done this? Did you go up to full market rent or some portion thereof for existing tenants? Can anyone share with me a rental increase notification letter

[Douglass Benson]

I will be the contrarian here.  I invest in multi-family to both improve the community where my buildings are located at and to also improve my own financial position.  I purchase buildings all the time due to their being under performing assets.  If the previous owner didn't raise the rents in 10 years, that is why I now own the building.  

Send a letter to the tenants telling them that all vacancies will be turned over with an expectation of market rents for new tenants.  Publish what those rents are and indicate that you will be moving all rents to better align with the market.  Assuming that everyone is on a month to month lease, my first rent increase will bridge 50% of the gap between current and market rents.  For everyone that leaves, I now have units that I can turnover, bring up to speed and put back on the market at or above market rates.  Your new tenants should be the best of the best so you can set a precedent for who gets into your building.

For everyone that remains, three months later I will again bridge 50% of the gap between current and market rents.  For everyone that leaves, I now have units that I can turnover, bring up to speed and put back on the market at or above market rates.

Lather, Rinse, Repeat until the entire building is at market.  It is your asset, you owe it to yourself and to the rest of the community for it to be as valuable as it can be.