Raising Rent on rental property

[Jamar Lockwood]

Hi BP

I'm in the process of purchasing a rental property in Cleveland Heights, OH. The tenant is currently paying below market rent. Their current lease says I can terminate lease with 60 day notice. Am I able to raise the rent to market rent with a new lease? Tenant currently pays $950, market rent is $1150. Thanks for your help.

[Andrew Gingerich]

I wouldn't recommend "ripping the band-aid off". In doing so you have just identified yourself as a "my new rich and jerk-face landlord" in the conversations that your tenant has with her/himself and others. Of course, neither of which is true. Most landlords own 1-5 properties and are not rich or jerks, rather building something slowly over time. We provide a service to paying customers. But instead of making this emotional discussion let's do the math.

Raise the rent 20% and risk a great tenant walking for no other reason than they have established you as a jerk landlord. Even if the market rents are fair after the increase they may choose to leave simply because of the precedent you have set. 

But now you are going to buy them a new fridge to keep them there? The fridge costs you 400-600 bucks? That's the same amount you would lose if you fazed in a rent increase over several months. Or quarters. Did the existing fridge work fine before? Chances are they don't want a new fridge but and would prefer more modest rent increases. We have gained nothing here. Instead, your time of getting a new fridge installed and disposing of a new one is wasted. 

Having a great tenant walk and a vacancy for 30 days while you find a new one will cost you 950 bucks in rent plus turnover costs, which are never considered when we talk about vacancy. Are these costs worth the roughly 400 bucks you would lose in a phased in rent increase? 

I agree with @Nathan Gesner for 1. but 2-3 are strategies that I would not implement in my business. Let the math guide you.