Raising Rent - Different monthly rates for inherited duplex tenants

Rental Property Investor · Champaign, IL · Member since 2024 · 10 posts · 13 votes

Hi All, We plan to present the binder method to our inherited duplex tenants. Each unit currently pays the same amount ($1350). Question is if we have a conversation with each tenant about what they feel is a fair rent and one says $1375 and the other says $1400, and $1400 is our target - should we accept separate rent amounts? We do want to offer flexibility, our goal is to keep the tenants so if increasing only $25 a month the first year keeps them we are open to it. I believe they likely will talk, they share a back deck and am concerned the different rates may negatively impact the relationship if that scenario played out. Thanks in advance for any advice!

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Gino BarbaroPro Member

Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes

@Tasha Smith

I would never engage the residents by asking them what fair rent is. Do we pull into a gas station and the attendant asks us what is fair? The price is posted, and it's the same with almost every other business.

I would go online and do a rent comp analysis on what current market rents for your type unit are getting, and if you're afraid of losing them, then you can give them a discount.

If a tenant has a larger space, more amenities, a parking space, then you can add additional rent. But, if the units and amenities are basically the same, then when the rent agreement comes due, propose the same rent structure.

As landlords, we need to continue to keep rents in alignment with the market. Some years, rents actually do go down, and we need to give concessions. And some months they go up, as your expenses do.

Please don't make the mistake I made in one of my units. I didn't raise rents for a few years.When it came time to renew, rent was 900, and market rent was around 1400. There is no way that resident can afford a 500 jump, and I ended up losing thousands of dollars.

Real estate is a business, collecting a future stream of revenue, and you need to be in control of the revenue and expenses

Gino

Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
2y
Quote from @Tasha Smith:

Hi All, We plan to present the binder method to our inherited duplex tenants. Each unit currently pays the same amount ($1350). Question is if we have a conversation with each tenant about what they feel is a fair rent and one says $1375 and the other says $1400, and $1400 is our target - should we accept separate rent amounts? We do want to offer flexibility, our goal is to keep the tenants so if increasing only $25 a month the first year keeps them we are open to it. I believe they likely will talk, they share a back deck and am concerned the different rates may negatively impact the relationship if that scenario played out. Thanks in advance for any advice!

I would raise both the same amount. If you're going to do it in that fashion, I'd pick the smaller amount for both; one tenant will appreciate the fact that you didn't raise it as high as they suggested, and the other one will think it's fair. There have been some famous scientific studies that showed people were far more likely to want someone else knocked down to size than for themselves to be lifted higher if they perceived a situation was unfair. If you do it that way, the $1400 tenant is going to become bitter in short order.
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Justin Moy
Investor · Kansas City, MO · Member since 2020 · 400 posts · 278 votes
2y
I'd give them both the same rate unless there is a reason one would be different. These can be lease terms like charging a bit more for a month to month term or charging more for a more desirable unit. Maybe one unit that has a better view or easier access to an amenity...etc.
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Gino BarbaroPro Member
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Tasha Smith
I would never engage the residents by asking them what fair rent is. Do we pull into a gas station and the attendant asks us what is fair? The price is posted, and it's the same with almost every other business.
I would go online and do a rent comp analysis on what current market rents for your type unit are getting, and if you're afraid of losing them, then you can give them a discount.
If a tenant has a larger space, more amenities, a parking space, then you can add additional rent. But, if the units and amenities are basically the same, then when the rent agreement comes due, propose the same rent structure.
As landlords, we need to continue to keep rents in alignment with the market. Some years, rents actually do go down, and we need to give concessions. And some months they go up, as your expenses do.
Please don't make the mistake I made in one of my units. I didn't raise rents for a few years.When it came time to renew, rent was 900, and market rent was around 1400. There is no way that resident can afford a 500 jump, and I ended up losing thousands of dollars.
Real estate is a business, collecting a future stream of revenue, and you need to be in control of the revenue and expenses
Gino
Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
5 Reply
Greg Kasmer
Rental Property Investor · Philadelphia, PA · Member since 2021 · 778 posts · 504 votes
2y
@Tasha Smith - I agree with Gino. The missing element/data point here is the market rents in the area and how your units compare to the market. If market rents are $1800 per unit, then it's an entirely different conversation. (i.e. I would set a "glide path" to increase rents every 6 months to get closer to the market). However, if you're rental rates are close to the market rates my suggestion would be to set them at $1375 and then bump them up next year upon renewal another 2-4%. $25/month over the course of the year is only $250 and you'll likely lose that amount in turnover costs if one decides to move out.
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Joshua ChristensenPro Member
Real Estate Broker · Albuquerque, NM · Member since 2015 · 285 posts · 232 votes
2y
I agree with @Gino Barbaro and @Greg Kasmer. They make valid points.
The units are the units. You're running a business. Be quitible and fair. As soon as you start discussing your business practice and strategies with your customers (tenants), then all bets are off and you run the risk of Fair Housing violations. What you do for one, you do for all without exception.
Post notices and set expectations. You run the business NOT them. Be Friend-ly - NOT their Friend. You are their landlord.
Make all of your decisions based on solid market driven metrics.
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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
2y
@Tasha Smith I would try to do the same rent for inherently similar units. If one unit is superior you could then charge more.
I just bought a 6 unit property with rents that are grossly under market. ($550 when it should be $1400).
To avoid a situation where everyone moves out at once I sent a notice of rent increase to the unit that had the biggest discrepancy in the amount I needed to reach. I immediately received an email questioning my decision and why I had only raised the rent on the one unit. At this point in my response I outlined what actual market rents were for similar properties.
I would not ASK the tenants what is fair. When I do it I prefer informing them what current market rents are and then just give my new rate.
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Julia Lyrberg
Lender · TX · Member since 2024 · 308 posts · 197 votes
1y
It's probably best not to engage in negotiations with the tenants. Instead, inform them of the current market rent and explain where you're setting the new rate based on that. This keeps things simple and avoids any potential issues between tenants if they were to discuss different rent amounts. Transparency about market rates can help them understand the change.
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Robert Rixer
Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes
1y
Give someone an inch and they'll take a mile. It's your property, you set the rates. It's fine to justify the rate increase with comps. But you need to take the emotional aspect out of it otherwise you'll get eaten alive in the long run.
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Christopher Robert Noland
Investor · Seattle, WA · Member since 2023 · 87 posts · 44 votes
1y
How bad do you want them to move out? Some people will leave because you want to raise it $25 out of principle and the longer it’s empty the longer raising the rent was pointless. If the tenants are long term paying tenants leave them be. You will not last long if you feel you need to squeeze every dime out of every tenant.
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Tasha Smith
OP
Rental Property Investor · Champaign, IL · Member since 2024 · 10 posts · 13 votes
1y
Appreciate everyones feedback that took time to read our situation and provide thoughtful responses!

@Christopher Robert Noland There's a difference between honoring your investment goals/ the current market and "squeezing every penny out of someone." We look forward to providing safe and supportive places for people to live and reaching our goals as we do it.
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