Raising rents to market

3 Replies

If your rents are below market (say 10+%) and you’re doing a value add, do would you bring the them up to market in one move or spread it out over a couple of years?

What would affect your decision? Would you act differently if rents were ~10% below market versus ~30% below market? Incorporate as improvements are made or wait until the improvement plan is completed? New tenants vs existing tenants? Other?

Do it all at once.

They can either afford to live there or they can't. If you spread out the increases, you only delay the inevitable problems and you rob yourself of profit.

If you have an existing Tenant that is excellent (one year of rental history, always pays on time, maintains home and has passed actual inspections, etc.) then I would still increase rent to market but maybe give them a discount. Even in this situation, I would recommend no more than a 5-10% discount. If they are smart and you are a good Landlord, they will understand the value and stay.

A 10% discount is equal to a month of free rent. That's a pretty hefty loss for a business. I think 5% is fair to you and the Tenant.

I typically let my clients know the pros and cons to each: raise quickly and you risk the tenant vacating, leaving you with a rehab and a vacancy period.  Go over a year or two and have a higher likelihood of keeping the tenant but nothing is guaranteed.  From what I've seen, the 2-year strategy works better for our market, Memphis, TN.  

Another way is to contact the tenant and let them know what market rent is and that your plan is to increase to that amount.  HOWEVER, if they agree to an 18/24 month lease, you can save them some on the rent by not increasing all the way.