Quote from @Kevin Sobilo:
@Richie Linnon, a few things to think about:
1. What do you think market for that unit it? It may seem crazy to you, but $750 might be market rent for a 3 bedroom in some places still.
2. How did you determine market rent? One mistake people make it looking at the highest asking prices for comparable properties. First off, some of those will eventually rent for LESS than asking price. Secondly, they may sit on the market longer to find a suitable tenant. Third, they may turnover more often because a tenant can find a better deal somewhere else.
So, when determining market rent, look carefully at the value proposition you offer a tenant. Turnover/Vacancy are VERY costly for a landlord. You can often make MORE money in the end charging a little less rent by reducing these things.
3. What do you know about the tenant's situation? Do you believe they can absorb some rent increases?
4. Are you wanting to rehab the unit to bring in more rent or is the unit in a condition you're satisfied with now?
My general approach to under-market rent is to do larger than normal incremental increases. My yearly increase is typically in the 1-3% range maybe up to 5% max. If a tenant is substantially under market, I may exceed that 5% mark but probably raise it by no more than maybe 10% max.
Tenants like most people often live paycheck to paycheck and budget their life around their income. So, they are not prepared to absorb large changes to their budget all at once. Most working people get small yearly raises which is why my yearly 1-3% raise is seamless for them. Even retirees get raises to their Social Security and usually pensions as well.
1/2) I rent from my brother in law right now a 3br/1b for $1,300 and that is considered very cheap for Connecticut. The cheapest 3br I can find on Zillow is 1,500$ and rentometer says for my zip code the market rent is $1,819
3) I just know he’s been there for 24 years and lives alone, he has two newer cars but I’m not aware of his income situation. I guess I will try and talk with him when I move in but I’m confident you can’t even rent a studio apartment in this zip code (06790) for $750
4) When I sit down with him upon closing I plan on asking him personally if there’s anything that should be brought to my attention that needs to be done that I may not have seen on the home inspection which I will absolutely repair. If he plans on moving out, I’m going to renovate the whole thing.
I just don’t know what the best move is. Thank you for your thorough input, I truly appreciate it.
