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Should I Raise Rent
I am hoping I can get a little help as this is my first investment property. My current tenant is up for a lease renewal soon. My property manager sent me an e-mail asking if I would like to renew for month-to-month, 12-months, or 18-months, etc. If so, they asked if I would like the rent to remain the same, or increase it.
The tenant was late a few times in the first year, but I always received the monthly rent plus any late fees. They did not have any complaints or issues through the first year. I am satisfied with the rent amount that I am receiving, but I hear that you should bump rent up a little each year even if it's only $5. I do not want to set a standard that rent will remain the same forever if this ends up being a tenant that stays for years. Yet, I do not want to run off a decent tenant over a $5 (or any amount) increase. I hope the BP community can help. Thanks in advance!
#2 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
1) Never increase rent $5, it’s not worth the hassle, especially if tenant has autopay set up.
2) Your pm should be telling you want market rent is. That’s their job.
3) If you are below market rent you raise it to that. You don’t want to get caught below market when your city/state decides to implement rent control mid-lease and trap you below market forever.
4) I’ve never raised rent less than $25 (already at or above market.) or $50-100 (5%) if even slightly below market. Nobody is moving over $25 or even $50/mo. Can you imagine taking the time to find a new place, pay the despair, set up utilities, arrange for a moving truck/company, packing and unpacking everything, changing addresses everywhere, etc etc etc. To save $25-$50/mo? If they move they were moving anyway.
TLDR: ask the PM what market rent is. If you’re at or near mwrket increase rent $25-$50 (assuming $1,000-$2,000/mo rent) (call it a minimum of 2%.). If you’re below, raise it up, to at least within a few 10’s of dollars of market. They aren’t moving to pay the same. Good luck.
Ps. I charge 10% more for MTM and 5% more for 2 years. (I don’t see the sense in 18 months.). That 5% more starting day 1 is the same as a 10% increase after a year but feels better to most tenants.
#3 Managing Your Property Contributor
I agree with Bill on talking to your PM-they should be telling you what they think market rent is. A tenant is unlikely to move for $20 a month.
Hi Keon, I agree with Theresa and Bill as well. Finding out what market rent is the first step into knowing if raising rent makes sense.
I can understand your concern of not wanting to lose your tenant due to a rent increase. Especially if you consider your tenants great. I have great tenants and recently raised their rent due to market demands and expenses. I was only able to do this because I had the numbers to support (similar housing rents, increase in expenses) that it was a reasonable raise in rent.
Most tenants will understand the rent increase if you have some numbers to justify it. Moving to save a few $20-40/month doesn't make sense if housing similar to yours also charge the same or very similar in price to your rent price.
Great insight Bill. Thanks.
I agree with multiple posts about PM should tell you what market rent is and the rent should be based on market rent. I also agree always raise rent by minimum of $25 except for rarities such as 1st year of covid.
However, I will turn around the statement “A tenant is unlikely to move for $20 a month.” to “it would be a shame to lose an outstanding tenant for $20/month”. The reality is when a tenant is placed, the unit has just been tenant flipped. After being occupied a year even with a good tenant it is not in the same move-in condition as a unit that is on the rental market. In addition tenant flips take work and have costs. placing a new tenant takes work and has risks. Vacancies result in lost income. There is a lot of good, smart financial reasons to keep great tenants.
I let my best tenants (always pay on time, unit looks owner occupied, no tenant drama) pay a little less than market rent. The average tenants (pay on time, unit is well kept but not to level it can pass for owner occupied, virtually no tenant drama) pay market rent. The below average tenant (late more than once, a little hard on the unit, or too much tenant drama) pay above market rent in hopes they give notice and move out.
Good luck
Don't listen to people on here that say "Always raise the rent", they don't know what they are talking about. Raising the rent depends on multiple factors but most of all is market trends. We are currently lowering some of our tenants rents because rents a rapidly decreasing.
Quote from @Adam Bartomeo:
Don't listen to people on here that say "Always raise the rent", they don't know what they are talking about. Raising the rent depends on multiple factors but most of all is market trends. We are currently lowering some of our tenants rents because rents a rapidly decreasing.
I agree there may be times to lower the rent, but in my cities, county and generally state I have found that to be rare Other parts of the country have different economic, real estate and supply & demand situations.
Ultimately it is the market, laws & condition that determine what rent is appropriate and what the community will accept. Every market is different.
We’ve found a great way to raise rent is:
- Determine market rent
- Share the proof with the tenant (they can see it on Zillow anyways)
- Tell the tenant, given your rent is $x and market rent is $y, what do you think if a fair increase?
- Often, they may volunteer a higher amount than you were hoping for.
- Those that respond “$0” or something ridiculous, you can request income documentation from them to justify.
- Don’t be afraid to share with them how much your property taxes & Insurance increased and that YOU cannot afford to absorb them.
ALWAYS get an increase or something of value annually when rents are increasing or tenants will start thinking they should never have an increase, making future increases that much more difficult to negotiate.
Quote from @Bill B.:
1) Never increase rent $5, it’s not worth the hassle, especially if tenant has autopay set up.
2) Your pm should be telling you want market rent is. That’s their job.
3) If you are below market rent you raise it to that. You don’t want to get caught below market when your city/state decides to implement rent control mid-lease and trap you below market forever.
4) I’ve never raised rent less than $25 (already at or above market.) or $50-100 (5%) if even slightly below market. Nobody is moving over $25 or even $50/mo. Can you imagine taking the time to find a new place, pay the despair, set up utilities, arrange for a moving truck/company, packing and unpacking everything, changing addresses everywhere, etc etc etc. To save $25-$50/mo? If they move they were moving anyway.TLDR: ask the PM what market rent is. If you’re at or near mwrket increase rent $25-$50 (assuming $1,000-$2,000/mo rent) (call it a minimum of 2%.). If you’re below, raise it up, to at least within a few 10’s of dollars of market. They aren’t moving to pay the same. Good luck.
Ps. I charge 10% more for MTM and 5% more for 2 years. (I don’t see the sense in 18 months.). That 5% more starting day 1 is the same as a 10% increase after a year but feels better to most tenants.
Thank you for the advice! I responded to my PM to ask what is the current rates for that particular area. I hope to hear back soon.
Quote from @Theresa Harris:
I agree with Bill on talking to your PM-they should be telling you what they think market rent is. A tenant is unlikely to move for $20 a month.
I hope they won't! Thanks!
Quote from @Daniel Molina:
Hi Keon, I agree with Theresa and Bill as well. Finding out what market rent is the first step into knowing if raising rent makes sense.
I can understand your concern of not wanting to lose your tenant due to a rent increase. Especially if you consider your tenants great. I have great tenants and recently raised their rent due to market demands and expenses. I was only able to do this because I had the numbers to support (similar housing rents, increase in expenses) that it was a reasonable raise in rent.
Most tenants will understand the rent increase if you have some numbers to justify it. Moving to save a few $20-40/month doesn't make sense if housing similar to yours also charge the same or very similar in price to your rent price.
Yes, that makes sense. I responded to my PM to give me a better idea of current rates. I appreciate your input!
Quote from @Adam Bartomeo:
Don't listen to people on here that say "Always raise the rent", they don't know what they are talking about. Raising the rent depends on multiple factors but most of all is market trends. We are currently lowering some of our tenants rents because rents a rapidly decreasing.
Thanks for responding! I am taking it all in as I am new to this part of the process. I definitely do not want to run a tenant away if I don't have to.
Quote from @Charles Perkins:
Quote from @Adam Bartomeo:
Don't listen to people on here that say "Always raise the rent", they don't know what they are talking about. Raising the rent depends on multiple factors but most of all is market trends. We are currently lowering some of our tenants rents because rents a rapidly decreasing.
I agree there may be times to lower the rent, but in my cities, county and generally state I have found that to be rare Other parts of the country have different economic, real estate and supply & demand situations.
Ultimately it is the market, laws & condition that determine what rent is appropriate and what the community will accept. Every market is different.
Agreed... I am waiting to hear back from my PM to make the best informed decision on this!
Quote from @Michael Smythe:
We’ve found a great way to raise rent is:
- Determine market rent
- Share the proof with the tenant (they can see it on Zillow anyways)
- Tell the tenant, given your rent is $x and market rent is $y, what do you think if a fair increase?
- Often, they may volunteer a higher amount than you were hoping for.
- Those that respond “$0” or something ridiculous, you can request income documentation from them to justify.
- Don’t be afraid to share with them how much your property taxes & Insurance increased and that YOU cannot afford to absorb them.
ALWAYS get an increase or something of value annually when rents are increasing or tenants will start thinking they should never have an increase, making future increases that much more difficult to negotiate.
Thanks for the info!!
@Keon Shoulars I raise rent to a small extent or larger extent depending on the tenant and market every year. If they're already around market rent, I would say $25-50 is fair. If they are a little below $50-100 and if they were way below $100-150. If the tenant is kind of bad, then maybe a little to that. If the tenant is great, I try be at those levels or below. You really want to keep great tenants even if they are a little below market. If I recall correctly, I did have one tenant move out due to a reasonable rent increase.
Now if the rents are already above AND tenants are good, the most you should be raising is 25 and might be better just to keep as it is. Your PM needs to know what the market rent is and if they don't, you'll need a new PM.