Plan for Increasing Rents?

Question

I just bought a 4-plex and rents are all over the place. I'd like to get them a little more uniform and up to market rates. Purchase price was 600,000. Each unit is 3 bed, 2.5 bath, about 1630sq ft plus an attached 2 car garage. Definitely some of the nicest units in town. Currently, the rents are $1200, $1225, $1350, and $1550. I'd like to get everyone to at least $1500. My plan is to immediately move the three lower units to $1400, then in 6mos move to $1450, then a year from now, bump them to $1500 (leaving the one at $1550). At that point, I want to re-evaluate the market and determine if we're happy with that, or if there should be some small increases after. Does this seem like a good plan?

We're in a small town in Southern Illinois. Not many open places to rent - generally, if you have something available, it seems to fill up pretty quick.

How do you all handle increases on an ongoing basis? Do you leave rent alone if you have good tenants, or do you typically do a 2-3% increase each year?

Thank you!

We're in a small town in Southern Illinois. Not many open places to rent - generally, if you have something available, it seems to fill up pretty quick.

How do you all handle increases on an ongoing basis? Do you leave rent alone if you have good tenants, or do you typically do a 2-3% increase each year?

Thank you!

Angel G. · Answer

Hi Joe! First off congrats on the purchase of a 4-plex property! I like where you're going with your thought process and analysis. The way that I've always approached this depends on where I'm at with the numbers that I crunched when entering into the purchase. For example, if I bought this type of property and knew that my rents were below average for the local market, then my first phased approach would be to get aggressively try and get those rents up to where they need to be.

I would take any and all opportunities on any turnover or vacancies in the units to help increase the rents. I've purchased properties in the past that have had some very long term, great track record/solid tenants. In this case, again my own approach, I'll very slowly raise their rents to a rate that works with my numbers. Case in point, I purchased a duplex property and had two very great tenants that were living in their units for over 15+ years. I knew coming into the deal that I wanted to keep these tenants but also get my rents up. So what did I do? I communicated with them, shared what the plan was going to be when we renewed their lease, and wanted to ensure that they knew how much I appreciated their long term tenancy in the property.

TLDR: If I have great tenants in the property, I try not to aggressively increase rents; I capitalize on vacancies/turnovers to do that.