Raising the Rent in Topeka, Kansas

[Joseph Sessel]

Hi Everyone,

This is my first post here. I am inspired by all of the investors who are taking their destinies into their own hands and sharing. I have been doing real estate investing for about 4 years now. I started with a HUD foreclosure in College Hill that I bought for $45k and had to live in for more than a year. I didn't know how to hang a picture on the wall with a hammer and a nail. Today, I have 10 units under management (9 that I own, 7 SFR/2 1BR Condos), and I am under contract for 5 condos that are occupied and rented under market value. My net income from real estate now exceeds my take home salary at a Fortune 500 company.

Today I want to talk about raising the rents.

When I first started renting houses, I wanted to get good tenants paying for my places. In order to assure that I generated interest in the marketplace, I priced my rentals competitively. My strategy paid off. For 4 years I have never had a house sit on the market for a month without being leased.

If a house is in high enough demand that there is never a moment of vacancy, it is probably underpriced. So, I have been raising rents.

Today, I have a house on the market for rent. I originally rented it for $1,000 per month. I had no problem renting it 18 months ago, and my tenants have taken good care of the place and paid rent on time in cash every month. When it came time to place the ad, I decided to offer the same house for $1,200. My market analysis was pretty high level: I shopped my competition on Craigslist and saw that there was no real competition in my price range for what I have to offer.

The result has been a feeding frenzy. The house I bought for $77,500 as a foreclosure and pay about $720 a month for will now net me $480 per month and within 24 hours of placing the ad I had 6 appointments and one offer to rent the place sight unseen.

The lessons for me are:

1) Know Your Market: The reason that I am raising rents now is that I understand my market in the current competitive landscape.

2) Know Your Property and Your Competition: I know what I have to offer. I also know what my competitors have to offer. If a prospective tenant looks at 5 houses in the $1,100 to $1,300 price range, I am confident that my house is the nicest/biggest/best out there.

3) Don't Manage by Fear: When you raise the rent of a stable property by $1, you raise your net income from it by $1 because there will be no corresponding increase in operating expenses. If you have Lessons 1 and 2 down, don't be afraid to get the most you can from your properties. The market price is the highest price the market can bear. The market will tell you if your estimate of your unit's value is wrong.

Please feel free to offer me feedback if this post isn't useful or if there are things that can be improved. There is always room for improvement, and I would like to contribute to the success of other investors through my experience.