Raising rent

[Pearce G.]

I keep finding these buy/hold opportunities where the seller or my agent tells me something like this:  'The current tenants are only paying $650, because they have been there a long time, but in this neighborhood, you could get $800 or more!'  And the property is priced so that it cash flows at $800, but not necessarily at $650.

Okay, so what is a new owner supposed to do?  Jack up the rent and risk losing a good tenant (or turning them into a bad tenant), or continue to subsidize their rent?

That question has been asked before, but I was wondering what others have to say about putting in automatic annual increases even if its a fairly nominal amount, say $10 a month or 1% per year.  Just so the tenant doesn't get too accustomed to going multiple years without a rent increase, only to be socked with a sharp increase when the (new) owner has to play catch-up.

[Steve Vaughan]

I usually ask the current owner/seller to send a rent increase notice prior to closing.  Makes them the bad guy and it's their fault rents are under after all.

Do not pay for $800 rents on $600 property.  Pay for what is currently coming in.

As far as ongoing, I do nuisance raises every year.  No one leaves for $25-$35ish per month.  I also send a Loyalty Discount Addendum that gives them a $10 discount for paying on-time as they have been.  Also guarantees no raises for 12 months and says I am proud of and appreciate them.

My coin.  Cheers!