What tactics should I use to increase the rent without loosing the tenant.

Question

So, I found a multiunit house and a single-family house both attached to each other, both owned by a church that put them up for sale. all units are already rented but lower than the market value. The single family house is rented for 1100 but supposed to be at 1300/month (my realtor told me so), and the other tenants in the multiunit property each pays 850 which supposed to be at 900/month. Another thing is that the least that they signed says that landlord will be responsible for trash, swere "basic fee" (not sure what that means) and lawn mowing. I really feels I need to increase the rent but the tenants are nice and clean and not sure how should I approach this. Their lease will be ending in 8 month from now.

Ned J. · Answer

Issue #1... the current lease wont end for 8 months. You are putting the cart before the horse. You cant do anything until the lease is up, so you are a good 5-6 months early to be worrying much about it. I'd take the 4-5 months to research the market and look at as many comps as you can. Pretend to be a tenant and look at all the rental sites to see what's out there, what's included in the rent and what's not. Make sure to compares apples to apples for the current condition of your unit. Only then will you get a real idea on what your unit will pull. Then its weight an increase and how much at one time vs the cost of turnover. You need to run the numbers and rough scenarios on how long it will take to rent, how much rehab etc etc. Turnover costs $$$...sometimes a lot of $$....and can eat that bump in rent for a LONG time.

Michael Smythe · Answer

@Amer SwidWe’ve found the best way to raise rent is: Determine market rentShare the proof with the tenantTell the tenant, given your rent is $x and market rent is $y, what do you think if a fair increase?Often, they may volunteer a higher amount than you were hoping for. Those that respond “$0” or something ridiculous, you can request income documentation from them to justify.Don’t be afraid to share with them how much your property taxes & Insurance increased and that YOU cannot afford to absorb them. ALWAYS get an increase or something of value annually or tenants will start thinking they should never have an increase, making future increases that much more difficult to negotiate.

Logan Laperriere · Answer

I completely agree with @Ned J. You cannot raise the rent until the current lease period ends. If you do move forward with the property reach out to the current tenants a few months prior to their lease ending. Ask them if they would like to stay, if they would like anything fixed with the unit, and then tell them that the new rent amount will be $900. The single family for $1100 I would do something similar. I would not raise them up $200 at once. The first year maybe raise it $100. Consider that if they move out you will have costs associated with rehabbing the unit, and have no rental income for 1-2 months. 1-2 months of lost income would be $2600 (at $1300), you only stand to gain $2400 a year by raising their rent by $200 a month. Verify that the numbers your agent said are correct. The rent estimator tool does a great job at finding comparable rental units in the area. Make your offer based on the current rental income. If the deal makes since at the current numbers your ROI will be even greater once at market rent rates. Good Luck!

Bill B. · Answer

Ask a real property manager not your realtor how much they would charge for rent and how long it would take to find a tenant to pay that. You understand that booting a tenant paying $850 to get $900 is a horrible idea. If it takes you only 1 month to find a new tenant and you spend nothing on cleaning/turnover/advertising, it will take 17 months to break even. God forbid you find out that $850 was market rent and you end up taking 2 months to find someone else to pay $850/mo. On the other property. IF the PM says they can get $1,300 in less than a month you raise the $1,100 to $1200 minimum since you can get $1,200 by having the PM rent it out for $1,300 and keeping 8%. They aren’t going through the hassle of moving over $100 if the replacement will truly cost them $1,300. But you need a property manager’s opinion, not a realtor’s. Regardless. $100 or $200/mo should not be life changing or deal making numbers. If they are, this isn’t the deal for you. Good luck.

Sean McKee · Answer

I’m not sure how many units there are total. The multi-family units that are $50 dollars off market are the easiest. Just raise them $25 each for a couple years. Those aren’t that far off. The single family home is harder. Run the comps to double check that you stand a reasonable chance of getting $200 more a month. That one is starting to get far off from market rents, so it might be best to bite the bullet and just increase the rent. There’s a chance they will leave, but you’ll loose a lot by keeping them at that rate. You could try and do $75 increases every year. That might be low enough for them not to immediately leave.