Great tenants, should I raise Rent?

Question

Hello BP Family!

I have great tenants in the East Orange NJ area. I inherited these tenants and raised the rent from 1k to 1200 when I intially took over the property. I used the BP rent estimate and the floor that is 1200 has three bedroom and the lowest three bedroom is 1500 in the area where as the highest is 1800. Should I raise the rent or keep it the same?

Thanks in advance for the help BP Family.

Theresa Harris · Answer

When was the last time you raised the rent?  You should be doing this annually so they get used to it.  How much have your costs gone up since you last raised the rent?

Christopher Wall · Answer

That's a great idea, definitely didn't think about that. I appreciate the advice. My rent for a 3 bedroom is at 1200 . the lowest in east orange is 1500 and the highest is 1800. What do you think is a good raise point?

Daniel B. · Answer

@Christopher Wall

Yes.  I do this with a lot of great tenants.  I like to look up the rent estimate on Zillow and assuming it is higher than current rent or the rent you want to raise it to, take a screen shot.  Send it to the tenants and tell them you need to raise the rent, but because they have been great tenants you want to keep it below market value (what Zillow says is market).

I also bring up that if last year was a tax assessment year explain taxes also went up, or of this year is an assessment year you expect taxes to go up.  They feel appreciated because you are trying to keep rent below market value but understand your expenses are going up.

Christopher Wall · Answer

How much would you raise the rents? I'm thinking of investing in Austin In the new few years. Hows the market out there for growth?

Eliott Elias · Answer

Evaluate whats it going to cost you to bring the place back to rent ready condition and compare it to how much more cash flow it will bring you. You really should be raising rents considering yours are significantly under market. Chances are your tenants are going to stay if all your competition is above $1500

Christopher Wall · Answer

I raised the rent when I first purchased the house , two years ago. I didn't do the 2-2.5% increase that was suggested by Kevin. Im planning to raise the rent by 50 dollars for a 3 bedroom and 25 dollars for the one bedroom and give them a 60 day notice.

Christopher Wall · Answer

Good morning Kevin,

Hope all is well. You too poised a ton of good points. East orange doesn't have rent control but I wouldn't want to apply market value rent to my apartment right away. I would do it over a period of time. I plan to give them a notice on May 1st that on July 1st the rent for the first floor will raise by 50 dollars and that the third floor rent ( 1 bedroom) will raise by 25 dollars.  Every year I will raise the rent until it is at market value. Those are my thoughts, let me know what you think.

I also plan at looking at houses/condos in the near future. Lets talk soon!

Christopher Wall · Answer

Good morning Ryan,

I appreciate the list to consider and have been thinking about some of the questions you poised. I plan to give the tenants a 60 day notice on May 1st that on July 1st the rent will increase by 50 for the first floor (3bedrooms) and 25 for the third floor (1 bedroom). I figured that an automatic jump to market value would be too much and thought that this increase wouldn't be such a shock.

Kevin Manafi · Answer

Hi @Christopher Wall, this is a question that comes down to you and your landlording style. Of course, we all want more rent per month, but it comes down to your goals and what you are comfortable with (as well as rent control laws if those apply).

It seems like the rents on that unit are well below market value, so if there are no rent control laws in that municipality preventing you from making that huge increase, it would probably be in your best interest to get new tenants in there to bring your rents up to market. If the current tenant accepts the increase and you are OK with them staying, then great--but for the most part, raising rents by that much at once will cause most tenants to seek an alternative.

For the most part, I encourage all landlords to always continue with their standard rent increases yearly to keep with inflation and the CPI (2.5-5%, whatever is allowable) so that situations like this don't occur where the rents end up hundreds below where they should be.

Ryan Rutoskey · Answer

Christopher, I think that this is one of those situations where if you evaluate all sides of this question and it seems like it will work out then I don't see a problem. Here is definitely some of things I would consider.

1.How much do you want to raise rent?/Does it matter to you if the current tenants leave or do you like them enough that you would prefer the long term stability of them staying?

2.If you did raise rent and they stayed would that relationship fray because it may become more difficult for them to afford it? Or are you confident in the quality of your space that you can find new renters swiftly.

I think considering those thoughts. Most importantly as long as you can keep it rented with quality tenants I think you raising the rent should not be an issue especially with inflation and the current cost of living.

Great tenants, should I raise Rent?

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