Get Rich Ed. PC#136 - Rent Increases

[Metra Ulloa]

I was listening to this podcast today and found his idea for introducing rent increases to the renter innovative and wanted to get this communities thoughts (pros/cons) on the idea. He basically says instead of sending a letting notifying the renter of the intended rent increase, give the renter control of how much they want to pay by offering them 3 options to chose from: 1. Month to month lease - highest $ amount (i.e. $1,125/month) 2. Annual lease - desired $ amount (i.e. $1,100/month) 3. 2 year lease - lease desired amount (i.e. $1,075/month) I would think to only offer this to a renter after the first year lease (vetting that they are good renters). What are your thoughts on this strategy? Does anyone employ this strategy? What are the pros and cons? Thanks!

[Robert Motch]

Assuming that $1,100 is market rent, I am ok with options 1 and 2. You are charging the tenant a premium for the flexibility of being month to month.

I do not like option 3 as it is written in your example. What if rents increase by 10% in the next 12 months? Now you are charging a slightly below market rent for the first year and a significantly below market rent for the second year. Also, your cost of doing business (taxes, insurance, etc) is going to increase 2-4% for inflation so why lock yourself into a 0% increase in revenue.

The way I would do option 3 is charge $1,100 (market) for the first year and some higher rent for the second year. 

Where I invest in SC, the rents are increasing so rapidly that some tenants are asking for 2 year leases but the only way I would sign one is if it provided for a higher rent in year 2.