How often do you raise the rent on Tenants?

Question

I was wondering what other Landlords are doing about raising rents.  Do you only raise rents when your costs go up?  Do you raise them to be close to market rents?  Do you raise them yearly or rarely raise them?

I have had tenants for 3 years paying above $1250/mth and I am raising their rent $25/mth.  Of course they complained but brought up the point that their past 2 landlords never raised their rent in  the 5 and 9 years they rented.

Wanted to know what other landlords are doing.

Bill P. · Answer

I raise my rent 2.5% per year as stated in the lease that they sign. Of course, if market conditions change, I can forgive the raise to make me look benevolent. Otherwise, the rent raise was known before they moved in. My lessees usually stay for multiple years. This lack of vacancy is what allows me to do small steady increases as my vacancy rate is low (1 month every 4/5 years on average)

Stephen E. · Answer

In a rent controlled environment if you don't take the rent increases when they are allowed, they are forever lost to you. You only get to a market rent again when the unit turns over. I have one tenant paying above market rent, and I gave him a year without an increase for that reason. I have another on a two year lease, and as an incentive to sign that I committed to keep the rent level for the full two years. But the others get the rent increase that is allowed by law; in Ontario that is 1.6%, which is equal to the consumer price index, which means that even with this increase the real value of the rent is only keeping constant in today's dollars. Take no increase and in effect you experience a rent cut in real terms. This is a business and customers should pay a fair price. I can understand the reluctance to increase rents, but there is a middle ground. Small and regular increases are easier for a tenant to stomach than are irregular, large increases.

Travis Beehler · Answer

I try to avoid raising rents on tenant if they are making me a profit, are taking care of the property, and they are paying their rent in full and on time every month.

For example, I have one tenant who's been in my first rental for 3 years now, and I've only raised his rent $25 per month on a $995 place.  That was only because I was making $250 a month profit on him, but I had property taxes AND insurance raise up by around $40 a month two years in a row.  I ate the first year's $40 a month, but the second time, I decided to eat only partially.

The tenant is paying for the mortgage, taxes, property management, AND putting a decent amount of money in my pocket every month.  So, why would I risk him moving out by raising his rents?

Steve Babiak · Answer

I agree with what

@Bill Pohl posted, but my automatic escalator clause uses 8% for the increase; I explain that if it goes month to month and it becomes vacant, I will lose 1 month from that vacancy and 8% is roughly 1/12. And that allows me latitude for a zero or smaller than 8% increase; which makes me look good :)

Now, there is another way to get more rent in an increase, and that is to find out something that the tenant really wants - and to give that feature to the tenant in exchange for a rent increase. The tenant might want a pet, or central air, or a setback thermostat, or a ceiling fan,  or some appliance. And if they are willing to pay and they stay - that is a win-win deal.

Curtis Bidwell · Answer

This is a tough discussion because $ = emotions.  Take the emotion out of the equation and you have a business to run and costs to cover.  The market tells you what the rents should be.  Therefore, I generally increase rents annually to cover those cost increases, knowing that my tenants are not going to move somewhere else of equal quality for any less.  Sometimes my tenants complain a bit but they generally understand.  Seldom-to-never do they actually move. In fact, I include a statement in my "increase letter" that lets them know they need to give proper notice if they plan on relocating in the near future.  (It kind of takes the rug out from under their potential threat.)

In a SFR the value is what the market bears.  In a multi-plex the value is in the income it produces.  I am not willing to subsidize my tenants lifestyle by absorbing the cost of the home, and thereby sacrificing equity.  An extra $25/mo is only a few lattes for them but $300/year to you multiplied by # of units.  Your taxes, insurance and water bill go up every year (sometimes even during a recession!).  Do a cost analysis and charge accordingly - consistent with what the market bears.

David Roberts · Answer

I have a rental which was my primary residence.  Converted it in late 2010 to a rental when I moved into a newer home at half price (thanks Mr. Market).  Anyway, a the time I decided to just find a tenant to cover my 15-year fixed mortgage.  I started off the rent about 150 under market (didn't realize it at the time), didn't raise rent on them for 2 years, then raised it only 20 a month each of the last 2 years.  Same tenant, and they're good ones (pay on time or early always for 4 years).  I was cash flow negative 20-60 a month all of this time.

Now that I am trying to make myself a rental business, I'm looking at it like a business.  I still cash flow now after just refinancing out to 30 years, at about 312 a month (and anything over 300 i find acceptable).  But, I should be getting 200 more a month in rent.  This is a lot to leave on the table.  I'm about 17% under market value right now.

I don't want to lose my tenants, but I don't want to lose that much money either LOL.  The lease isn't up until April of 2016, and I don't plan to raise the rent until then, but I am thinking to try to get it up $110 more from where it is now (but still about 100/mo under market), and am thinking of writing a letter to them when there's about 6 months left in the lease to break the news to them.

I would also be willing to offer to raise it $30 every quarter over a year as a grandfather method, and lock it in an additional  year if they agree to it.

It's that, or I've also thought of taking it to market value (but again this is 200 more a month which is a big increase) and offering to remodel their kitchen.  They are a simple type of tenant though and probably don't care if anything in the house is updated or not.

I hate raising rent on people.  I hate watching my own bills creep up and know how it feels.  But, it's a business, and I feel like I have to get while the getting is good.  Just don't know the best way to go about it. Maybe there is no good way.

Gabe G. · Answer

I am a newbie landlord. just about 2 years.

With that said my plan is to leave rent stead on good quality tenants until they move out.

When they move out, i will adjust with market on new tenants.

If i have decent tenants that are paying on time, to me its not worth rocking the boat, for a 5-8 percent increase. Obviously if i had  tenant staying 10 years, then maybe.

but for the average person maybe renting a home for 2-4 years, no.

Keep the rent steady, and have less vacancy . In my opinion

Steve Garner · Answer

I consider it unit by unit.  If they call for repairs or pest control consistently then I will raise their rents and explain that it is a function of increased cost which they are aware of.  If they never call me and are taking care of the property then I do not raise until they move.  If they stay over 2 or 3 years and my rent is substantially below market then I'll increase a little and ask them to sign a 2 or 3 year lease to lock them in for a longer time.  If they balk on the longer term, I'll explain that rent could increase yearly if cost continue to rise.

Fred Heller · Answer

I think most people would prefer to keep rents stable to keep known good tenants in the property. You have to consider costs like potential vacancies, marketing costs, leasing commissions, make-ready costs, etc.

But here in Houston we have the issue of rapidly escalating property values, leading to rapidly escalating property taxes. And if it's a rental property, you lose the homestead exemption tax cap which holds appraised value increases at 10% a year for homesteads.

When you see the property taxes double, you have to make a move or it will eat up your profits.

Eric M. · Answer

I agree with most of the others. I'll aim for market rate, generally.Good tenants that create few headaches might get an extra year or so below market rate, but not substantially. Problem tenants may be faced with a rent increase earlier than others, and I will typically try to get slightly above market for any new tenant, assuming I can do so.At the end of the day, the market is the number one factor, with slight "nudges" one way or the other based on the above factors.

How often do you raise the rent on Tenants?

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