Raising rents and feeling guilty??

General Landlording & Rental Properties
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Raising rents and feeling guilty??

Daniel D.
Member since 2019 · 125 posts · 56 votes

Hey Everyone, 

I hope i put this in the correct category. 

I generally do not do yearly rent increases on my properties if the tenant is clean, pays on time, and is overall a good tenant. I might raise 2% every 2-3 years if my taxes/costs/insurance goes up but most of the time I'm generous. Currently, I'm in a little dilemma where I have to raise the rent drastically for my deal to work. I purchased a 6 Unit property in New Jersey. 3 Units are at $900/mo 2 units are at $450/mo and 1 unit is $750/mo. My current monthly income on the property is $4,350.00. It needs to be at $11-12,000. 

The units are all 3 bedrooms 1 bath, and all in good condition. The rents for that type of apartment are currently around $2250/month. I need to raise them to at least $1850-$1950. The tenants that are paying $900 should not have any issues, but the 2 tenants i have that are at 450 and the one at $750 are going to have a heart attack when they see the new leases. 

I really feel bad for them, some of them are older couples, but i don't have a choice.. Just putting this out there to see what you would do in this type of situation. 


I will also offer to renovate their apartment, new kitchen, bathroom, flooring, and a paint job. 
 
PS

The building is not rent-controlled. 

Thanks

Dan

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Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
3y
Quote from @Daniel D.:

Rent needs to be raised because it is under market. Market rent doesn't care about what numbers you need to hit to be profitable. 

The tenants know they are vastly underpaying. They're not stupid. They knew this day would come. They either can or can't afford the market rent. Bribing them with a renovation isn't going to make them feel better or suddenly allow them to afford it.  

The reality is that you're probably going to lose all 6 tenants. Tell them all the new rent and when they all reply they can't afford it, give them the end date of their lease. Be fair, give them 90+ days and make it extremely clear that they need to start looking today, not day 89, as there will be no extension. 

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  • Daniel D.
    OP
    Member since 2019 · 125 posts · 56 votes
    3y
    Quote from @Malkia Ra:

    3 bedrooms and the highest rental is $900 a month?  Sheesh!  

    Your tenants are all well aware they're paying WAY BELOW market rate rent.  If you choose to renovate, do it because it's necessary, not because you want to soften the blow of a rent increase.  Take the emotion out of it and send each tenant a certified letter informing them of the increase.  Landlording is a business; you didn't get into this to be Mother Teresa.

    I understand this may be easier said than done; therefore in your case it's probably in your best interest to hire a property management company if you find yourself unable to separate your personal feelings from the business.


     In my case, i told them I am the property manager and NOT the owner. Everything I do is because I am hired to do so, including increasing your rent :)

    I find it much easier to act as a property manager and if they ask for the owner I give them an email and a phone # to contact. 

    0Reply
  • Daniel D.
    OP
    Member since 2019 · 125 posts · 56 votes
    3y
    Quote from @Jonathan R McLaughlin:

    Honestly, this isn't even an increase...it is a complete repositioning of a property from one type of rental to another, and that may be the best way to describe it. 


     Absolutely correct.

    0Reply
  • Amby Bhagtani
    Member since 2022 · 119 posts · 52 votes
    3y

    I had a tenant who was in studio for one of the duplexs I owned. He was paying 1100, I raised the rent on him by 600 dollars. More importantly I went through the data and walked him through the process along with nearby comps (with screenshots). He appreciated the fact that I did my due diligence. We both had a very civil conversation. All the most important to pick the right tenants !

    0Reply
  • Phil Moore
    Rental Property Investor · Oak Harbor, WA · Member since 2022 · 29 posts · 18 votes
    3y

     I’m curious as to what made you take the route of telling them that you’re the property manager and not the owner. I see your point that it’s easier to pass blame to an imaginary third party, but I’m not convinced that you need to shy away from running your business effectively and raising rents. That’s the name of the game. If you’ve done your due diligence, don’t be afraid to let them know that you’re the man behind the green curtain. 

    0Reply
  • Daniel D.
    OP
    Member since 2019 · 125 posts · 56 votes
    3y
    Quote from @Phil Moore:

     I’m curious as to what made you take the route of telling them that you’re the property manager and not the owner. I see your point that it’s easier to pass blame to an imaginary third party, but I’m not convinced that you need to shy away from running your business effectively and raising rents. That’s the name of the game. If you’ve done your due diligence, don’t be afraid to let them know that you’re the man behind the green curtain. 


     Phil


    I own a decent amount of rentals, and I found this to work very well for me. What happens when you get friendly with tenants? They start asking to pay late; they get comfortable, its harder to ask them to do something because you start feeling sympathy etc. Back in the day i used to tell them i was the owner and many of them took advantage of me being nice (maybe that was my problem). 

    Dan

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    Hire a PMC to protect you from yourself.

    You can't be successful in business operating as a charity.

    [email protected]248-209-6824
    Logical Property Management4.9459 Reviews
    WebsiteView Page
    1Reply
  • Daniel D.
    OP
    Member since 2019 · 125 posts · 56 votes
    3y

    I just wanted to update everyone here, 


    We were able to get 5 of the 6 tenants to vacate the building with Cash for Keys. The 1 tenant that was left agreed to the increase and signed a new lease. Renovations started and we will be getting market rents soon! 


    I appreciate everyone's feedback in this thread. 

    0Reply
  • Carlos Valencia
    Lender · 92703 · Member since 2022 · 326 posts · 538 votes
    3y

    First of all congratulations on your new investment property. Not a landlord myself yet but I can only imagine having that conversation with your tenant and not feeling bad. Especially if they are older folks. If I had to have that conversation I would approach it as delicately as possible so this can be a peaceful agreement of paying more or moving out. Last thing I would want is some type of retaliation. I think giving them as much notice as you can will help them out figure out what they are gonna do. One other option you can do is hire a property manager to have that conversation assuming you have a property management managing your property already. This way you have no emotional attachment and the property manager just does his job. Good luck with your new investment sounds like you got a good deal. 

    @Albert Bui @Matthew Kwan

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