Raising rents on long term renters
Hey guys I am gonna be getting 4 properties that are grossly under market rent and want to get you option on how you would raise rents.
Units are renting for 600-700-750 and 900
$900 in on a lease so I can’t do anything about that one but others are month to month.
The three properties are long term renters that pay on time. But rents should be 1000-1200 for each unit according to what it should be.
I’m thinking of letting them all know once we have the properties that they get 30days notice that rents will increase to $1000.
My concern is how would you do it without coming off like a jerk? They know they have been getting a good deal, I would like to keep them as renters but rents are way to low.
What’s your thoughts?
- Contractor/Investor/Consultant
- West Valley Phoenix
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Don't worry about the 'nice guy' thing too much...sure you don't have to be a jerk, but they are taking advantage of you in the current situation and they know it..no wonder they are 'great tenants'. Raise their rents to market and see if they are still that great.....
I would raise the rents incrementally instead of all at once, that will lessen the shock..but just do it.
You are running a business, not a charity.
A few thoughts; if you raise rents all at once without any improvements to the property, are you prepared to have vacancies. The cost of the vacancy is not just lost rent, but all the improvements as well. If they have been long term tenants, the rehab could be $5000 or more. I agree with @Bruce Woodruff raise the rents incrementally.
@Bruce Woodruff I’m buying the properties so it they haven’t taken advantage of me. But I agree it’s business.
as previously mentioned, it will depend on your plans....
do you need to force appreciation as fast as possible?
are you financially prepared to have X% of vacancy/turnover? if yes, are you financially prepared for the total rehab cost to turn units into market rate?
IF you need to have immediate cash flow, then do incremental increases at like 5-10% and the higher the rent raise the more willing to make improvements that will be desired(new carpet, wood floors, new tile, new appliance,etc)
IMHO, the ethical landlord/investor attitude in that situation should be to add value to bring the asset to current market condition and pricing but also try and retain the tenants with some sort of win/win new lease that's a more realistic discount or with enough value added that the current tenants would be willing to pay FMV and still feel like they are getting a good deal.
Good luck!
From the tenants perspective nothing you can do it going to make it seem like you aren't a jerk raising the rents from $600-750 up to $1000. You are likely to get vacancies, so prepare for that along with costs to update the units (eg paint, new flooring, etc). If the tenants have been there for a long time, most are likely at the end of their life expectancy.