Increasing Rents Currently Below Market

[Edgar Z Whelan]

I have multiple rental properties way below market rents.  Some perhaps 30% to 50% below.

Since I do not have any mortgages I have ignored raising the rents for years. 

So my question is how to raise the rents to market prices? All at once or in increments? Suggestions ?

They are all m2m. And they all pay on time. Never have any turnover.

[Nathan Gesner]

This question comes up a lot, though you're probably in a worse position than others. On a $1,000 rental, 30% below market is costing you $3,600 a year. If you have four of those, you're losing $14,400 a year. If it's been five years, you've lost $72,000. I hope that shakes you.

When you let your rents get this far behind, your tenants will almost never be able to afford the necessary increases. If you do slow, incremental increases, they will eventually reach the breaking point and have to leave, or you will have to stop raising the rent to keep them. In both cases, you'll lose. There's also a good chance you'll have problems along the way with misunderstandings or missed increase payments, and your tenant is likely to build animosity towards you and your greedy ways. No matter what you do, it's very unlikely you can get current tenants up to market without serious problems.

My recommendation is to flip the switch. Notify your tenants you are terminating their lease, period. Get them out, clean up the rentals, and get them on the market at market rates. You should have no problem finding new renters that are happy to pay market, pay on time, and respect your rentals. Build a policy (whether in your lease or not) that says you will do one-year leases and renewals will include a minimum 3% increase. That increase rate will ensure you don't get too far behind market, then you can do larger increases during turnovers. And if the market slows or tanks, you can always waive the mandatory increase and look like a nice guy to the tenants.

It's your personal wealth on the line. That lost income could really come in handy when you want to retire, need to renovate your rentals, or have a personal emergency. Even if you never need it, there are plenty of charities that probably need it more than your tenants do.