Raising Rent?

Question

Ok so we are looking at a property where the current rent being charged is $325 per month. The going average for the area is $500-$550. Without using a property manager, purchase the property we would want to raise the rent to the average for the area. Can you tell me what the best processes you have found to be successful at this? Gradual increases? Instant increase?

Any help you can give would be greatly appreciated.

Thanks in advance!

Brian Levredge · Answer

Some of what you can do may be dictated by law as well. If there is a rent control ordinance, you will be limited to a certain percentage increase every 12 months. The other thing to look at is the demand for units in the area where your property is. If it's in a desirable location, you will be able to get away with larger rent increases than something that is off the beaten path (depending on who your target market is). If you were to increase rent by 10% annually, it would take you five years to get to market. If you are confident you could quickly re rent the unit, you may be better off giving them a big rent raise if it's legal. If you can get it rented within a month or so, you will come out ahead compared to your current situation.

Michael Rossi · Answer

If you want to keep the current tenants, raise it gradually. If not, then raise it all at once and the tenant will almost certainly leave. Mike

Mark N.A · Answer

Does your tenant have a lease? You cannot raise the rent in the middle of the lease. And how long has the tenant been there? Are they good tenants? Will you have to come in and paint and replace carpets and such? Or is the property turn-key rentable? Personally, I will do most anything within reason to keep a long-term good tenant. But you are losing serious money with your below-market rent. It's all a judgement call depending on certain variables.

Michael Dombrowski · Answer

We are prepared for eventual moveouts. One of the tenants is a hoarder and we want in regardless because of the potential fix it needs.

James H. · Answer

They will not care about your reasons. They will either accept it or leave. Wouldn't you?

Lynn McGeein · Answer

Michael, I know for my Section 8 tenant there are actual rules involved in raising rent. You have to fill out their report 3 months before lease would renew, it asks for statement of reason, and it says must be some improvement, not property tax increase, and you can only raise it 3% a year or something, so for me, not worth the hassle. Also, make sure you're ready for vacancy and turnover costs initially that may cost more than the increased rent you're getting as if they are on a fixed income, they might not be able to cover it. I plan on raising mine to market once my tenant leaves or the same year I have to do any major improvement to the place, but okay for now as I like no turnover costs and someone who pays on time every month.

Michael Dombrowski · Answer

What is a good reason to raise the rent on a tenant that a tenant would understand? My mother inherited a four family rental unit and it is about $100.00 under market rent. Other four families in the neighborhood are $650.00 and my mothers is $550.00 due to old ownership. Rent has no increased in years. We even added Central Air units, updated electrical in which other comparable in the area do not have. Our current tenants are obviously low income or gov subsidized. Any increase will affect them differently. I propose to my mother to increase it $15.00 or $20.00 each year until she is near or just below market value. What are some good reasons to raise rent that tenants wont get upset about? Taxes, inflation, etc.... I am assuming that tenants do not know that Inflation has not effected the US economy recently and that property taxes here in Wisconsin are going to go down due to Scott Walker and his pro business stance. Thoughts.

Christopher Henning · Answer

Michael Rossi · Answer

For example, when I took over one apartment building last January, one of the tenants (a nurse) had been there 25 YEARS! Her rent was 28% below market. The previous landlord liked the tenant so much that a condition of the sale is that I wouldn't raise her rent for a year. When the year was up, I only raised her rent about a third of the difference between her old rent and market rent. Next year, I'll raise it another third. Mike

Mark N.A · Answer

Yeah, well, I just finished suing four college tenants and eight co-signing parents over $4000 worth of damages so it probably evens things out.