How do you raise rent without feeling like a scumbag?

Question

Hi everyone!  I'm so thrilled to be a member of BP!!!  So I live in a quaint tourist town in the Poconos and just purchased a my first rental property across from my house with 5x Tenants who've been there for years and are paying far below the market rent for this area.  They are currently on a month-to-month since the previous owner never bothered to renew their leases over the years.  My partner (wisely?) think we should just jack the rent to the current market levels which would be $300 to 400 higher than what they are currently paying, but I feel terribly guilty doing so since the tenants seem like good people without a ton of money and I don't want to turn their lives upside down.  I also lived in rentals in NYC for 26 years, so I definitely know what that feels like.  Love your opinions!  Thanks!

Account Closed · Answer

@Todd Morris the short answer is that you are running a business. Because of inflation, increased property taxes, higher insurance costs, etc, every year you don’t raise the rent, you are losing money.  You don’t have to be a jerk about it, but as your expenses increase, so does the rent.

If you aren’t comfortable making those decisions, then being a rental property owner may not be the right choice.

Dawn Brenengen · Answer

I would raise it, but slowly.  I pretty much always do $25 - $50/year increases to help keep the home at market rents (rents range from 1100-1600), but it's not so much at a time that it either incites them to move or causes too much stress on the tenant. How much is rent to begin with?  300-400 isn't too much if the rents are 4000+ already, but it's a 50% increase if they are only $800 to start with.

Todd Morris · Answer

Thanks, Guys.  I appreciate your opinions!

John Banaski · Answer

@Todd Morris, considering your own experience, how would YOU like to learn about a rent increase?  Personally, I’d take the opportunity to meet with all of them, visit the property, leave a personal note on their door (maybe) a week before you do this, and take the time to get to know them and renew a lease and tell them the situation and bring rent comps for the area and their rental history to show the difference in what they pay.  Explain that to make improvements to the property requires a little increase and take into consideration their income, time in residence, and try to make improvements that can reduce the overhead.  Maybe low flow toilets and new low flow shower heads, LED lights, rainwater capture system and cistern to use that for landscape watering.  There are ways to do that without having to go $400/mo immediately.  Incremental increase every year or two, but lock them in with that understanding that if they want a nice place to live, it needs CAPEX to do so.