Raising rents 12% to market rents?

Question

I have heard general rent increase of 3-5% every year if tenants are renewing their lease. However, rents have gone up about 12% since last year in my area. Is it advisable to raise the rent to market rent (or slightly under rent since these are good tenants) or does traditional increase of 3-5% is more reasonable? Whats the recommendation if rents are going up significantly? Thanks for your input.

Thomas S. · Answer

I always advise raising rent to market every year if allowed. Some landlords seem to differentiate between good and bad tenants but to do so would be discrimination. You raise good tenants to market and get rid of bad tenants.

Good tenants, all tenants, expect to pay market so as much as a landlord may think they are making points with tenants by supplementing their rents tenants have zero loyalty to any landlord. It is a one way street. There is no value in charging under market rents.

Mom and pop landlords will of course disagree.

Thomas S. · Answer

Landlords operating at a distance have a very real financial disadvantage. Holding on to bad tenants becomes a financial necessity and is usually results in landlord burn out.

It pays to have a PM when a landlord can not make efficient business decisions due to distance.

Every % lost is not only out of pocket it reduces the value of your property. As your number of doors increase the scale makes maintaining market rent mandatory. For a small investor monthly income is not of primary importance.

Jeff B. · Answer

I did the 5% and a good friend went for the FMR - - he drew a move-out and I kept my tenants.  It's easier to keep a tenant that replace one.  Vacancies  are my Achilles heel as the property is 120 miles away, so I manage the vacancies, not the FMR.  So what if at YE there's a few hundred left unreaped?  It never amounts to even one months rent.

Adam Demchik · Answer

I would split the difference bu as Patrick said, at least let them know they are under market.  Keep in mind by not being at market you havent forced as much appreciation if that is something you are looking for.

Derrick E. · Answer

If they are good tenants then work with them and raise the rents gradually. Would it be worth it to lose them, have to deal with the turnover, and then get stuck with a bad tenant?

Raising rents 12% to market rents?

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