Raising rent on tenants after purchase of property -- good or bad idea?

[Chris Pasternak]

Title says it all. The additional details are that the top tenant has been there for 4 years and the bottom tenant has only lived there since August. I was wanting to raise the rent $50-$75 for the top unit (3 bed) and $25-$50 for the bottom unit (2 bed). The current rents are just too low.

Thanks all!

[Joel Owens]

The property needs to make sense with going in rents for the purchase price you are paying.

Wanting to raise rents is all good and well but do not depend on that to make the property work.

I have seen many buyers lose their shirt thinking they will just come in and do these big increases and then the cash will start flowing in. You usually never want to push above the bottom 50% of market rents especially with older units. The message you will send tenants is a new greedy landlord is charging top market rents but leaving me with this old rundown unit I have lived in for years.

At that point they will seek something the same as their old rent or cheaper or they will move to a brand new place where they would have to pay the uprent that you are trying to charge. The tenants leaves and now you have thousands and thousands of dollars to put in to get re-rented again plus lost income for month from the rehab and rent up. Say you do all that and get 50 extra a month but spent 3,000 in lost rent and repairs. It would take you about 4 to 5 years to see the benefit. This why the name of the game is to increase rents each year as much as you can without losing the tenant. You keep rents going up slightly to handle inflation but you are not "rent shocking" your tenants. Now a value add is cheap because you are paying low to begin with making the forced appreciation worth your time.

The biggest mistake I see people do though is pay a premium and say I am going to do this and this and this and then the property will be great. You have to buy right going in for the as-is condition of the property and then if everything you do doesn't pan out as expected you are still doing good reverting back to the condition and situation you bought it in.