I'm purchasing a property (over 20 units) with the rents extremely low ($650/month average) for the area. Average rents for the area are $800/month and the building is in a good location and is in good condition. I'd like to get rents close to $800/month asap without loosing a lot of the tenants. Most tenants are month-to-month.
Do I raise rents a bigger amount the first year ($100) and a smaller amount ($40-50) the 2nd year or raise it where they should be the 1st year ($150)? What have you found the be the best way to raise the rents without incurring a lot of vacancies?
@Steve Yoder - That's good if several are month to month as you can do rent raises quicker. I found the easiest way is to do incremental raises and do them to coincide with improvements done to the property.
I go in and hit any exterior repairs and maintenance hard in the first 30 days. Power wash buildings, trim trees, paint signs or doors, caulk windows, put down new mulch or pine straw, etc. This also gives me a chance to collect a first months rent and meet with tenants. If I have problem tenants or challenging tenants, I use non-renewal letters to get them out and then put the unit at market rate. The other units I then give notice for a rent increase. My guess is people at that price bracket couldn't absorb $150 all at once or even over a year. So I might start with a $25-$35 raise as soon as the place is cleaned up (so first 60 days), and put everyone on 6, 9 or 12 month leases. This will help give me some spacing on renewals so I can then test out different rates. Then when their renewal comes along, move them up $50 - $65 bucks or so. If I get a lot of people moving out at $65 at the 6 month renewals, then for the folks that did 9 months, when their renewals come up I might do $50 instead, or if I started at $50 and didn't get push back I would do $65.
I would also look at my cash flow goals, and how much work it is to turn a unit. If I have a good tenant in a unit that needs a full update, I might only do $25 increases each time with the hope I can keep them in the unit for another 2-3 years versus having to spend several thousand dollars. Now if I have a unit in good shape that might just need a deep clean and paint, I might push the renewal increase on that one a little more.
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