Raising Rent on Inherited Tenants

[Alan Francis]

Hello BP,

I currently own two 4 unit buildings.  Both buildings came with inherited tenants, and lower than market rental rates.  My initial intention was to clean up units and raise rents as tenants move out, but I haven't had much unit turn over. 

The rents range from $600 to $750 per unit and I'd say that in general the rents are at least 10% - 15% ($75 - $100 / unit) under market. I'm trying to avoid a drastic price hike fearing most the tenants will walk. Most have been in place a long time, don't cause trouble, and pay on time. I'm thinking they've been there so long because of the attractive rental rates. Also, those units were the tenants have been the longest will need the most work to bring back online once they leave.  

I feel like I'm caught in a catch 22. I'm leaving allot of money on the table monthly and annually, but if I try to recapture the lost dollars too quickly I expect I'll  be forcing out quality tenants and face updating costs and vacancy.  On the same note I did experience a pretty substantial tax and insurance hike this last year so I absolutely need to do something.

The last Podcast with Bruce Peterson had me thinking. He was able to raise rents up a couple hundred dollars in a few years. 

If this where your situation what would your strategy be. I'm thinking of doing a $25 increase on rents this year across the board and trying the same next year. Thoughts? 

Let me know BP Community!

Thanks in advance.