Rental Increase of 100 dollars
Homeowner · Philadelphia, PA · Member since 2015 · 70 posts · 24 votes
Hi! I inherited tenants paying 600. For an 800 sq ft 1 bed apartment in an ok area of Philadelphia. I pay water/sewer, trash, public lighting, and gas. I kept that rate for 10 months Its renewal time. I lost 9 grand on the apartment according to my accountant because its rented below market value. Can I go up 100?
Hello @Cheryl Daniels, have you done a rent comparison in the area your property is located to determine the amount of the rent increase. I am a buy and hold investor in Philly. One bedrooms about your size in decent neighborhoods rent in the range of $625 to $675. Depending on where your property is located and the current shape of the property (last time property was refreshed with paint, updated appliances, cosmetic fixes, etc.) a $700 dollar a month rent may not be warranted. If a tenant can rent a place that is newly renovated with new appliances, etc., for $700 or stay in your place that needs some TLC, which option would you take. Sometimes apartment rent below market rate for a reason.
I had a situation similar to yours. I purchased a property last year with tenants in place. A duplex. One unit was renting for $425 per month. Incredibly below market rate (market is $625-$675). The tenant was a 70 year old women who had been in the apartment since 1990. The first floor tenant's rent was $100 higher but still under market as well. Of course a rent increase was in order. However, the previous owner hadn't touched the apartments in years (not even a fresh coat of paint...he had inherited the property and the tenants) and everything needed to be replaced. In order to avoid putting a hardship on the tenants, and because they were living in conditions that in my opinion did not warrant a up to market increase. I increased each rent by $25. Within the year the tenant vacated the one unit that was renting at $450. I immediately renovated and modernized the unit. I put an ad for rent on Craigslist on a Thursday. Friday I got a call for a showing...showed it Friday evening and Saturday morning the prospective tenant submitted a rental application. Tuesday I had a tenant paying $650 per month. I could have gotten more, but I did not provide a refrigerator nor is there a washer/dryer in the unit.
As landlords I understand that we want to get the maximum amount of rent we can, we need to cover our expenses and return a profit. But we need to keep in mind that tenants pay us for a service and our first priority is to ensure the customer is being given a quality product.
I don't think that Philadelphia is raising the refuse fee. The other stuff tends to show up as notices inside the bills. And like you said, it gets into the local news. The utilities might also have to file a proposed increase with the PA PUC before it can take effect.
@Cheryl Daniels What are the comparable rents for an apartment of that size? I would start there.
As long as you are ok with the fact that raising the rent may also result in a temporary vacancy while you turn the unit over then I say go for it.
@Cheryl Daniels Tenants don't care about your bills or costs, so I wouldn't go there. But, if you could do the sub-metering, that would really help.
Otherwise, as others have said, you need to think from the tenant's perspective. They will pitch a fit and go look at the ads to see what they can get for the same amount or less than the rent increase. If the increase looks fair, they'll stay and usually get over it pretty quickly.
Also, not all tenants have the money to move. That can keep them from leaving for a while, too, although they might be uncooperative to deal with.
Good points. The increase has to seem fair and to address the possibility of being uncooperative, I'd have to offer something... (fresh paint; although as a tenant, I'd be annoyed by the inconveniences) Thank you!
Well, if you've increased their rent, but it's still below market, you've already given them something. So, I'd let them know that, but not offer anything more. Tenants who are the "complainers," can smell weakness like a shark LOL. If you give them an inch, they'll never stop whining. I'd just keep reminding them their rent is still under market, but if they're unhappy, you'd be willing to let them just give you 30 days notice to move. We called that the "happy clause" (between ourselves, of course).
You say it in a nice, understanding way. " I'd hate for you to feel you had to stay if you're not happy here." But, let that be your mantra, instead of trying to figure out what else to give them to make them happy, because they probably never have been, and never will be.
And if they start naming things that will make them happy, that you don't want to do - like install light-blocking curtains, or hardwood flooring or whatever (been there), your other mantra is, "I'm sorry, but that's not in the budget." "But, if you're not happy here, I completely understand, and I'll let you move with just 30 days notice." In a nice, sweet but firm way.
@Cheryl Daniels If your rents are below market rent, then by all means increase the rent. Depending on the number of units your apartment have, you could start small (implement the $100 increase in 2-4 units) and raise the rent in the other units gradually but let the tenants know ahead of time.
Thanks. I learned that I should give 60 days notice to increase.
If as a landlord you have come in and are starting to maintain better then the previous owner the rent increase may be received a bit better. That is at least what I heard from my tenants when I took over the last place. They had expectations I would fix things that the previous landlord did not fix. You don't always get more when you pay more, utilities increase due to cost without giving you any better service. While you may feel bad about an increase without doing something there are times when it is necessary due to your costs. Your turnover unit will tell you what's market and then adjust for condition of the not updated unit.
Painting inconveniences the tenant but some improvements you can do without disturbing the tenant too much include updating a fridge, toilet or vanity. I had one tenant who had a really old and loud fridge she was happy to see replaced. Old high volume toilets changed out helps you too although not every tenant will appreciate it.
Thanks. Had not considered the point about utilities. I can note minor improvements to their unit. And gotta get the turnover unit ready.
@Cheryl Daniels What are the comparable rents for an apartment of that size? I would start there.
As long as you are ok with the fact that raising the rent may also result in a temporary vacancy while you turn the unit over then I say go for it.
Trying to determine if I'm ok with vacancy at this point.