Raising rents in this environment ?

Question

I have two tenants with rents below market whose leases renew in July.  I had planned on a 4% increase before the pandemic.  I know taxes will go up increasing the need to raise their rates.  Am I wrong to feel guilty? Should I skip the rate increase? Thanks for your responses.

Michael Noto · Answer

@Adrian Moening Go forward as usual. If you skip this increase then you will be playing catch-up.

Anthony Wick · Answer

@Adrian Moening

I just raised rents on a couple units. My tenants were not affected by the pandemic. I don’t feel bad at all. Business is business. Property taxes always going up, so shall rents. I wonder if my city feels bad about raising my property taxes.

Nathan Gesner · Answer

You don't tell us how far below market you are. I would act differently based on that answer.

If your rents are more than 10% below market (based on current condition, not renovated), then you shouldn't limit yourself to a 4% increase. Give tenants notice now that you are bringing your properties up to market rates. Give them a list of a few comparable rentals to show how you determined the value. Then offer them the option of staying at the higher rate or moving out with 30 days notice.

If your rates are less than 10% below market and your tenants are good (no complaints or lease violations, pay on time every time, pass regular inspections, etc.) then I would consider keeping them with the 4% increase to reduce vacancy and other turnover costs.

I also don't recommend a "staggered" increase wherein you bump the rent a little bit over a longer period of time. That tends to create confusion and increase resentment. Either they can afford it or they can't. If your valuation is correct and you're professional about it, the tenants will realize it's cheaper to stay in place.

Adrian Moening · Answer

@Anthony Wick haha yea I wonder if they consult the forums before raising our taxes. Thanks

Dick Rosen · Answer

Business as usual for me here in Phoenix. National average rent rate appreciation was last reported at 8.3%, I've been using 8% as my starting point but do not exceed market rate for the

Orkeem Davis · Answer

I have a few units and some rental unit rents are increasing and some are not.  I will not raised rents were the tenants are already paying currently market value.  This is a business, but I try to be compassionate and understanding at the same time.

Ryan Spath · Answer

@Adrian Moening

Depends on what your market will allow? Have you noticed rents increasing when you do an analysis of your area? If they are as mentioned above 8% maximum increase is allowable. Regardless I would always increase $25 a year. We call them “nuisance increase” it gets you an extra $300 annually and helps keep you inline with market rent. This also trains your tenants to expect annual increases.

Good luck!

Scott Marsh · Answer

@Anthony Wick

No sir I haven’t and I don’t intend too. Thanks for asking.

Anthony Wick · Answer

@Adrian Moening

I should also add my tenants did ask why rent was going up. I explained to them what other units in the area were going for, and that my costs were also rising. I also said I liked having them as tenants and hoped they would stay, but understood that everybody needs to do what is best for them. They thanked me for the explanation and signed new 1 year leases. This does not mean rent will rise again next year. I analyze each units rents and the economics as each lease comes up.

Dana Winer · Answer

@Adrian Moening I think it absolutely depends on the situation. We have 9 doors and we analyze 3 things when determining if we will increase. 1. Has the tenant proactively reached out about a life changing event and have then been a great quality tenant. 2. What’s the market rent and how in line with it are we? 3. Have expenses dramatically increased? Covid has presented more analysis around point 1 but those 3 areas guide us. Typically, if the rent increase is justified due to home improvements, increased taxes and market rates (which they likely research as well) the tenants agree to the new rate.

Raising rents in this environment ?

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