How much rent do you increase?

Question

I have a property in area of Gandolf Court, Murrieta, California 92563, current rent is $2095.  Just received a renewal inspection report from PM. The property inside out is in clean and neat condition with nothing needs for repair. The tenant is paying rent on time. So, I am very happy with this tenant over all.

According to Zillow, it is under rent for $500 and for Realtor it is under rent for $200.  Want to hear your advise on how much the rent should be increase for such a good tenant. Thanks in advance.

Michele Fischer · Answer

First off, I don't trust the Zillow market rent, I always look on Craigslist for comparable units offered for rent.  Second, your PM should be providing you with an analysis of market rent, they have access to what their other clients in the area are currently charging.

Once you have a solid market rent, your PM should let you decide how much to raise rent, unless you want to hand that over to them.  One of our PM's takes everyone up to full market rent, but we like the philosophy of raising it 50% of the gap.  So if the difference between current and market rent is truly $500, we would raise rent $250.

You don't want to stall out on making progress toward market rent, but we like to keep good tenants a bit below market rent both as a reward and as an incentive to stay since they won't find comparable units if they shop around.

Thomas S. · Answer

Research your market area and determine what the true rental rates are. If you are operating a business you would raise the rent to market. If the tenant decides to move you simply find a new tenant that is willing to pay market rents. You will then be set to maximise your returns. A tenant is required to pay on time and take good care of your property. A good tenant is one that pays full market rent on time and takes care of your property. You have a tenant not a good tenant.

Hobby landlords are generally afraid of tenant turn over and are more interested in not having to actually operating their business as opposed to maximising ROI.  Hobby landlords believe in the boogie man theory that raising rent to market is not worth the cost of tenant turn over. Not true if you are operating a business. Probably true if you are a hobby landlord.

Jo-Ann Lapin · Answer

As a landlord you should ask yourself first are these renter keepers ? Also so hard to pin point without knowing other market rents and vacancy in the area that verified.

Dick Rosen · Answer

This is actually something a good PM would have evaluated for you. As a PM myself, I pull all of the comps to come up with a market value. I then calculate a 3% increase to the tenant but make sure it does not exceed market rent. Only reason I would consider a bigger increase is if I really didn't care to keep the tenant.

Dan H. · Answer

I must be a hobby landlord.  I am not a true MF landlord (5+ units where value of property is set based on the profit).  I have SFR to quad.  Here is my process for setting rent but if the value of the property was set based on profit (5+ units) I would have more incentive to keep rents near market rent.

My properties are in a high rent areas; market rents for my units range from $1600 (2/1/1 in working class area) to ~$7K/month (STR 2/1/1 at beach) so realize the percentages.  If my market rent was only $1K/month the discounts would be less than for the rents that I charge.  Typically at market rent the empty unit is rented in a single showing often with a move in on the first day that unit is available (so my turn over costs are not high).

- Do a rent survey to determine market rent for your unit.  This means look at the available listings on the various rental sites (Zillow, hotpads, Realtor, etc.) and determine what market rent is for your unit.

- Upon tenant turn over charge market rent for the unit to the new tenants.  They are looking for a place to move.  They are expecting market rent and there is a risk taking a new tenant.  The new tenant has not yet demonstrated that they are a great tenant.

- Determine how good a tenant the current tenants are.  Rate them.  Are they clearly above average?  Do they always pay on time?  Do they keep the place looking like it is owner occupied?  Do they get along with neighbors?  Do they complain about things that they should not be complaining about?

- My top tenants I let the rent fall to ~$200/month below market.  I attempt to never fall more than this below market because at $200/month below market the tenants cannot move into as nice a place at same cost so they have financial incentive to stay but also tenant turn over is not that costly or laborious and at more than $200/month below market it makes more sense to spend a few hundred to turn the place over and take a chance on a new tenant.

- Tenants that are pretty good but not great I attempt to keep the rents at ~$100/month below market.

- OK tenants I keep close to market rent.

- Tenants I want to get rid of I place rent above market and let the tenants give me the notice.  It avoids the resentment from me evicting them.  The tenant simply believes that I do not know the market rent.

Realize no matter how well you screen the tenants you can get a poor tenant.  I recently had a tenant that complained about everything including kids playing, cats going into her yard, us repairing an oven instead of replacing, etc.  We mutually agreed to terminate the lease early and we were glad to get rid of them.   This implies that every tenant turn over has risk.  Great tenants are worth keeping.

Good luck

Andrew B. · Answer

You don't use Zillow estimates for anything. they can be off by 10% or 1000%. you can compare your property to other rentals posted on Zillow, craigslist, facebook, etc. you determine market rent by comparing it to those around you that are comparable.

Susan O. · Answer

You should be able to raise to some where around market rent.  Really do a thorough CMA of the rents in area first.  Make sure that in the area they're not going to expand rent control  Look up AB1506 in California a lot of tenant and tenants union groups are trying to expand rent control to single family houses, condos and post 1990s built properties

https://www.economist.com/blogs/economist-explains...

Expansion ab 1506

https://sf.curbed.com/2018/1/9/16871314/rent-contr...

http://www.tenantstogether.org

this is a group that is heavily funded by political movements trying to expand housing authorities that will lock rents in different areas.  they're first going to big cities like LA, SF, San Diego, then trickling into Long Beach, Pasadena,  it's not soon that they'll expand to inland areas like Murrieta it's been mentioned by city council before but pushed back because too many home owners.

Peter Sik · Answer

Thank you all. I don't mean to up raise up the rent $200-$500.  For this tenant, I am willing to go under market rent a bit.  The thing is, I don't live in that area. And I can only use internet to check the rent and I doubt how accurate the Zillow and Realtor are....

@Michele Fischer Thank you. You got that I think. I need to ask PM for the analysis of market rent. They should know the best.

Anthony Dooley · Answer

@Peter Sik I do not take anything from Zillow as fact. Zestimate values can be manipulated by the owner and are otherwise based on tax assessment, which is public record. Rent estimates do not take into consideration the desires or local tenants such as the perception of the area, schools, etc. Walkability is not a factor in my market, where nobody walks, they have cars.

Christopher Giannino · Answer

I'm not an experienced landlord so take what I say with a grain of salt but just thinking about it from a renters perspective...  If I received paperwork to re-new my lease and my rent went up by a couple hundred bucks, I wouldn't be too happy.  Therefore before automatically re-signing, I would look to see what other rentals are out there.  Is there anything cheaper?  Is there something the same price but offers more "bang for my buck?"  On the other hand, if my rent only went up $50 or $75 bucks and I was happy, I would just re-sign without any hesitation.  I wouldn't put forth the extra effort because an increase of $50 on a $2095 rent wouldn't be a hardship whereas a $500 increase on a $2095 rent might be.

At the end of the day, I really do think its market dependent.  Are there lots of rentals out there?  Are there lots of quality tenants out there looking for rentals?  What are other rentals like?  Are they comparable?  What are units of similar sizes renting for?

Hopefully, you find this helpful.  Best of luck!

How much rent do you increase?

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