Raising Rents faster than yearly?

Question

New investor with newly acquired 3 duplexes that are all renting below market. Curious on insight from experience on the best way to raise rents. Open to all thoughts as I get ready to send new leases. Looking to get rents from 500-850, which will be a little lower than the vacant unit will rent for. Thank you!

Eric Greenberg · Answer

Id first verify that you are legally allowed to raise rents at that rate. Id also think theres a high probability that your current tenants wont want to absorb a 70% rent increase. Id make sure you are ready for all your tenants to leave.

Ive found tenants from previous landlords dont always play as nicely with the ‘new landlord’ who raises rents abruptly. Just a word of caution that if they stay they could be sour towards you and if they are friendly with their neighbors make other tenants feel the same way.

Alex L. · Answer

Assuming no legal issues, and also assuming the inherited tenants are on a MTM lease at this point (if not, I'd wait until the lease expired and would continue with their tenancy under a MTM basis), I'll typically raise rents by $30-50 every six months to get closer to market rates. I also let the tenant know well in advance (3 months or more) when the increase will happen. That way it's not too jarring and is easier to digest and prepare for. You can certainly dump the cold water all at once and raise the rent to market rates all in one go, but I personally prefer not to.

I have one property that I'm getting from $550 to $750 using this method, and then once the tenant leaves I'll go in, do some updates, and rent it back out around $1k. The tenant may very well decide to stay though, and in that case, I'm comfortable allowing them to stay there below market with reasonable yearly increases for inflation and whatnot since the tenant in question is long term (2018), causes no issues, and rarely bothers me for anything. I've only had three issues to address during their entire tenancy -- replacing an old, faulty HWT ($650); having racoons removed from the attic ($200); and replacing an electrical breaker ($50). Nothing beats a tenant who doesn't bother you lol.

Dan H. · Answer

This question is very market specific.  In my market a $300/month increase for 2021 was a reasonable increase.  In other markets, not so much.

My rent philosophy is that I am ok letting good tenants get a little below market.  Turning a unit has costs.  Vacancy has costs.  Placing a new tenant has work and risk.  I also try to not raise the rent more than I hope the good tenants can afford, but this can sometimes lead to rents getting more than a little below market. I keep thinking there will be some years with modest market rent increase and I can close the gap, but in the last 8 years there has only been one such year (first year of covid).

Ok tenants, I keep at market rent.  Poor tenants I charge over market and they eventually get the clue and give notice.

Good luck

Eliott Elias · Answer

Expect vacancy, if the units are in bad shape you should second guess raising to market rents if you can not justify it.

Mohammed Rahman · Answer

Hey @Cory Clement - I agree, make sure to check your local laws before raising rents.

If there are no strict guidelines in place for rent increases, then you should notify tenants before there lease is up for renewal that rents will be updated to reflect market rent. This will give them enough time to decide what they'd like their next move to be.

Raising Rents faster than yearly?

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