Thinking About Raising Rents – How Do You Handle It?

Question

Hey BP fam,

I’ve got a couple SFHs that are under market right now. Great tenants, long-term, pay on time, no headaches. The issue is my expenses have gone up and I’m basically leaving around $2,200 a month on the table by not raising rents.

Here’s where I’m stuck:

• I don’t want to lose good tenants.
• WA requires 60 days’ notice and we’re heading into fall/winter — worried about vacancy if they decide to move.
• On the other hand, I’ll eventually be retiring and need the extra income to cover expenses.

I don’t want to lose good tenants.

WA requires 60 days’ notice and we’re heading into fall/winter — worried about vacancy if they decide to move.

On the other hand, I’ll eventually be retiring and need the extra income to cover expenses.

So my question is — how do you all approach raising rents without pushing good tenants out? Do you raise gradually every year, do a bigger bump every few years, or just rip off the bandaid and set it to market?

Would love to hear how others handle it.

Thanks!

Stuart Udis · Answer

My leases all have annual rent increases. Since my leases almost always have a built-in annual renewal provision if notice isn't provided 60 days before the lease expires, I will normally reach out to my tenants 8 months into the lease thanking them for being good tenants and offer to waive the year 2 rent increase if they stay. I have good retention rates across my buildings, not sure how much of an impact this has but at minimum helps maintain good relations with my tenants. If its a building I know I will be selling soon, I will be more inclined to follow the lease rent increase provision between year 1 and 2. I will always abide by the lease increase if they stay into year 3 but no renegotiation is required since its already built into the lease.

Mike Grudzien · Answer

Start immediately with small, reasonable rent increases and plan that it will probably take several years (depending on how far, how long, that you have been asleep at the wheel) to get back to the average market rate in your area.....

Mike Grudzien · Answer

Landlords are notorious for avoiding raising rent.  This is a business, and raising rents is a discipline of the business.

Deborah Wodell · Answer

Raising rents with good tenants is always a balancing act. A gradual increase is usually easier for tenants to accept, especially if you give clear notice and explain rising costs. Sometimes even a partial bump toward market rent keeps them happy while still improving your cash flow. Have you thought about doing smaller annual increases instead of a big jump all at once?

Cory King · Answer

@Stanley Yeldell this can definitely be a tough conversation. When I've done this it's with ample notice. 6 months out, that way they have time to adjust and prepare. Depending on the condition of the property, doing a big jump may also require a significant amount of updating to bring something up to meet market value. If they're good tenants and you're patient a slow increase over time can also be efficient. I'm also a fan of lease options contracts. If your tenants have been solid, and you're open to it you could consider this strategy which can infuse capital up front and defer expenses to the tenants directly. Lots of options, curious which direction you'll end up going.

Jules Aton · Answer

This was always difficult for me because I am also very appreciative of my good long term tenants. I think a small increase each year over the next couple of years is probably more palatable and less likely to result in them leaving? The other thing I learned for the future is to include a small % increase every year written in the initial lease which generally keeps up with inflation as well as avoiding the uncomfortable conversation later. Best wishes.

Thinking About Raising Rents – How Do You Handle It?

Most Popular Reply