Investor · Cambridge, Ontario · Member since 2016 · 25 posts · 5 votes
Just wanted to ask a question regarding rent increases. I have 2 buy and hold properties. My wife and I bought our 1st rental in 2010 and 2nd in 2014. We have always been of the mindset of keeping the property up to date by making upgrades through the coarse of the year for each property as we want to keep our tenants happy and show them that we do care for the property and to keep the property value increasing. Since we have stared renting our properties we have built a great tenant/landlord relationship. That being said we have never increased the rents, just curious to see what other investors would do. Increase rents? Or keep on going the way we have? I forgot to mention that each property has great cash flow. Thanks in advance for your comments.
Rent should always be at market. Why would you not charge the going rate every other business in the world does. Tenants expect rent to go up every year with the cost of living and at a bare minimum you should be raising your rent equal to the annual cost of living index. I see no direct correlation between how good my tenants are and what my rent rates are. My business does not operate on anything other than the bottom line and I do not believe in supplementing my tenants rent.
If you are concerned about keeping good tenants you would be far better off explaining smaller annual rent increases than a large adjustment every few years. You could wait till tenants leave to bring rent to market but that is simply poor business management.
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
10y
Congrats on good cash flowing and well maintained properties. My recommendation would be to price them at market rates and, if that involves an increase, include it at lease renewal. If you have good tenants and are concerned about vacancy or a tenant change due to an increase, you can stay at the lower end of the market range but should be within the market range.
Many times, if you keep rents low from complacency, your current return on your original investment looks fine but it does not look as good when you compare your return to the current value of the property.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y
Eddy Brasser Raising rents is part of the business - gotta do it if you want to protect your return.
Personally, we write it into our lease that rents increase every year. Even if I only raise it by $5, the important part is to establish that routine so everyone's conditioned to accept it as normal.
Lots of threads on BP about techniques to do so.
Investor · Mission Hills, KS · Member since 2015 · 59 posts · 11 votes
10y
I would agree with Justin R. Though how much is a complex question. I am pretty pleased with my renters and want them to stay, my properties are also rented at market rate but I usually take a middle ground
Investor · Mission Hills, KS · Member since 2015 · 59 posts · 11 votes
10y
Oops sorry didn't mean to post it yet, not sure how to update it on iPhone.
By middle ground I mean number between 0 and an average % rent increase in the neighborhood.
investor · McDonough, GA · Member since 2015 · 230 posts · 77 votes
10y
@Account Closed
My 1st tenant stayed for 2 yrs. Rents in my area went up a little but I didn't raise them. I probably would've kept it the same for many years because he was quiet, clean, and always paid on time. I think my rental is nice compared to others in my area. If rents went up several hundred per month in my area over a few years, I would raise rent. I wouldn't raise it up to where my competition was, but I think my house is nice enough to keep a tenant at a higher rent.
Rent should always be at market. Why would you not charge the going rate every other business in the world does. Tenants expect rent to go up every year with the cost of living and at a bare minimum you should be raising your rent equal to the annual cost of living index. I see no direct correlation between how good my tenants are and what my rent rates are. My business does not operate on anything other than the bottom line and I do not believe in supplementing my tenants rent.
If you are concerned about keeping good tenants you would be far better off explaining smaller annual rent increases than a large adjustment every few years. You could wait till tenants leave to bring rent to market but that is simply poor business management.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
@Account Closed if you've been steadily upkeeping and improving the property, there is no reason at all why you should shy away from raising rent. It isn't like rents in your area are dropping and you need to fear vacancy.
Post your three months notice tomorrow. Rent control this year in Ontario is a BLISTERING 2.0%, which I believe is the best number that we've seen in many years. Grab it before they lower it next year.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Oh, I forgot to mention. In Ontario your "last month's rent deposit" is due interest paid to the tenant every year. The interest on that deposit is equal to that year's guideline maximum rent increase. If you do not increase the rent by the maximum, you must pay your tenant the interest on that deposit equal to the max rent increase. If you DO increase the rent, the last month's deposit interest is withheld because it now boosts the deposit up to the new last month's rent value.
Campbell, CA · Member since 2015 · 290 posts · 27 votes
10y
Do you include the renovations in the cash flow analysis? It's great that you have a good relationship with your tenants and a good cash flow. I like the suggestions here and I think in a few months, you should let them know there's going to be a rent increase. I was going to say make sure you have a positive cash flow, when initially reading this post, but it's also important to not be below market-value. If they've been the same tenants since you first leased the properties, they'll probably understand.
Tega Cay, SC · Member since 2014 · 213 posts · 74 votes
10y
@Account Closed We put in our contract the rent raise at the end of the lease. I use this as a negotiation tool when lease is up and looks like I am helping them out, in reality if i loose a month of rent and have to get a new tenant i will loose way more then just an increase would get me then next year.
If you decide to raise rent you should keep to an amount that doest make the tenant want to look around and move out. I think 3-5% increase on properties that collect rent less then 1K will not cause much reason to shop around and cause you a vacancy.
Real Estate Investor · Kalamazoo, MI · Member since 2015 · 120 posts · 37 votes
10y
@Account Closed Thank you for asking that question because I feel the same way and I am moving struggling with the timing on raising rent. But i think I will take @Thomas S. advice and go with the yearly small increase and or, due to the updates you do frequently, use @Matt Geerts advise and give them a 3months notice and raise it depending on how much work you put in it. Good luck a thanks for sharing.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
@David Chwaszczewski be careful about regional differences. None of your advice is legally valid in Ontario. a) leases do not end in Ontario. b) Rent increases are controlled to match provincial price index, and even if PPI is huge, rent increase is capped at 2.5%.
Due to these rules, you will never recover a lost year of potential rent increase, so your best bet is to find a way to make paying the extra rent appear to be good value to them.
Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
10y
@Account Closed I would do what @Matt Geerts said and give them a 90 day notice of rent increase on the prescribed form for the maximum increase allowed this year.
If we had lax rules on increasing rent, I would think more into whether I wanted to increase rents or not. However, in Ontario, you can only increase rents by a small amount per year. The guideline increase is 2% in 2016. It was 1.6% in 2015. If you didn't increase rents in 2015, you can't increase them by 3.6% in 2016. You can still only increase rents in 2016 by 2%, no matter how many years it has been since you last raised rents. Because of this, I would increase the rents by the guideline amount every year, unless you find that you end up charging a lot more than you could otherwise rent it for.
Of course, if a tenant moves out and you re-rent it, you can charge whatever rent you want. Also, how old are your rental properties? Most properties built in the 90's or later are not subject to caps on the annual rent increase.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
@Luc Boiron Oh yeah! Being a poor landlord I didn't even consider that people might be renting out houses that are twenty years newer than both my rental and my own home.
I believe that any unit first occupied for residential purposes in November 1991 or later are not rent controlled. Double check the RTA.
Investor · Bellevue PA · Member since 2016 · 52 posts · 10 votes
10y
@Account Closed
Hi Eddy
We look at two factors when we increase a current tenant's rent - time in the unit and how does the unit compare to the market. For the time factor, we do not increase a new tenant's rent for the first two years and after that we will increase rent by 3-5% annually until the we hit the market rate. When a unit turns over, we go in and update the unit and then put the unit up for lease at the current market rate.
Rent should always be at market. Why would you not charge the going rate every other business in the world does. Tenants expect rent to go up every year with the cost of living and at a bare minimum you should be raising your rent equal to the annual cost of living index. I see no direct correlation between how good my tenants are and what my rent rates are. My business does not operate on anything other than the bottom line and I do not believe in supplementing my tenants rent.
If you are concerned about keeping good tenants you would be far better off explaining smaller annual rent increases than a large adjustment every few years. You could wait till tenants leave to bring rent to market but that is simply poor business management.
Not sure if you invest in Ontario mainly but we can only increase rents in accordance with the CPI increase, in most cases your rents will be below market with any long term tenants after about 2-3 years. Specifically in Cambridge market, I rented out my duplex last year and average rents have climbed 50-100 for similar units. I can only increase mine by 28$ legally
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
10y
A good illustration of how a regional perspective can change everything. I would look at your allowed increase and see where that puts you in relation to market rent.
If it is 2% and a 2 % increase scares away your tenant they were probably leaving anyway.
Specialist · Orlando, FL · Member since 2015 · 183 posts · 83 votes
10y
Although I agree that ideally you'd like to be increasing rents annually as allowed, and charging the market rate... but if I have good tenants, who are going above and beyond what I expect from them, I'm not increasing their rent to make a few extra bucks per month if I'm already cash flowing nicely and they're making my life easier by not bothering me with little things... my time is more valuable than that.
My point is, although this is a business, and you want to make it cut & dry, and remove all emotion... the reality is emotion does get involved, and keeping each other happy goes a long way... Not just in real estate investing, but in all businesses.
Bottom line is you want to make as much money for as little time invested. If I'm cash flowing nicely, without having to do anything but cash cheques, I'm not risking anything to disrupt that.
Specialist · Orlando, FL · Member since 2015 · 183 posts · 83 votes
10y
just adding to my previous post, everything I mentioned is assuming you're at least within the ballpark of fair market rent. If you're not then I agree that an increase is justified.
Investor · Cambridge, Ontario · Member since 2016 · 25 posts · 5 votes
10y
Hey Giuseppe, what you are saying is very true about the value of my time can 20 to 30 dollars really be worth it especially since having great tenants who pretty well make my small portfolio run on auto pilot. Someone in the comments above asked me if I factored in my maintenance into my rents and the answer is yes. This for me has always kind of been at the forefront of conversation. I think I should increase the rent but also keep the core values intact to keep the great tenants I currently have and create a larger portfolio which I intend to do.
A good illustration of how a regional perspective can change everything. I would look at your allowed increase and see where that puts you in relation to market rent.
If it is 2% and a 2 % increase scares away your tenant they were probably leaving anyway.
I love this point!
Besides this, if someone moves out due to a rent increase that is not putting you out of line with the market, you won't have any vacancy because you'll refill the spot during their 60 day notice period. Then you're free to set the rent however you'd like.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
10y
The biggest rent increases for us come when there is a tenant turnover and we would typically clean, paint, repair and upgrade at that time. This past year we raised some rents by $260/mo.
We've had long term tenants, as long as 30 years and their rents are typically not raised every year, but that creates a position where they get further and further behind versus market rents.
Costs go up every year for taxes, insurance, maintenance, utilities, etc. When we raise rents I try to explain that in terms of costs going up and upgrades that we made. But typically we try not to raise rents drastically on existing tenants. At one place this year the condo fee went up $35. I only raised the rent $10, but explained to the tenant that the condo fee had risen by much more.
One time I bought a rental with an existing tenant, that the owner had never raised the rent in many years. When the tenant's lease expired I raised the rent $200, from $550 to $750 for a 3 bedroom place. The tenant threw a fit. Angrily called me and even had somebody else call me also. I explained that even at $750, the rent was still well below market rent, and that to reassure them selves they didn't have to take my word for it, go look at other places and if you find a better, cheaper place feel free to move. After a couple weeks the tenant came back to me a signed anew lease. I was vindicated, their rent was STILL below market and they found that to be true. btw, they stayed for 3 more years then bought a home of their own.