Raising rents in an occupied property

Portland, Oregon
General Landlording & Rental Properties
3yFollow

Raising rents in an occupied property

Patrick ZepedaPro Member
Investor · Portland, OR · Member since 2021 · 21 posts · 10 votes

Hi all,

I am looking at purchasing a quadplex where current rents are $500 - $600 per unit and the market rents are about ~$800 per unit. How do you raise rents to market rates with them still occupying the units? My initial thought was to renegotiate the rate at the end of the lease depending on the quality of the renter, or have them vacate, rehab and rent for more. The other caviat here is that there is tenants paying month-to-month. How would you best approach this situation?

Many thanks!

0Reply
50 views

7 Replies

Jump to latestLatest
  • Tom Fontoura-Sutliff
    Member since 2021 · 13 posts · 5 votes
    3y

    Hi Patrick,

    It sounds like you have a good idea of what to do here. First, you need to abide by any leases that are in place, so you most likely couldn't raise rents on those who have an existing lease until their end date is reached. For those occupants who are month-to-month you would need to send them a certified letter of intention to raise rents on specified date or give them 30/60 notice if they don't agree. Obviously, you need to follow any rent control laws in your municipality. For those who agree to the rate hike, I would encourage you to have them sign your version of your lease so they understand your rules/conditions even if you choose to keep them month-to-month. 

    0Reply
  • Account Closed
    Portland, OR · Member since 2016 · 21 posts · 0 votes
    3y

    What sort of renegotiating leverage do you have that gets you to market?

    I believe 2023 rent cap in Portland is around 14%, so if the property is subject to the cap, then you're looking at something like a $77 increase as max allowable. Why would the residents agree to something higher?

    If you want leverage, you'll probably need to review the leases, look for violations (people living there who aren't listed, pets, etc) and then go to them with the pitch that you'll update the lease so they can keep doing what they want to do, but it's at market rate, or you'll enforce the lease as drawn up, and they'll be looking at a $77 increase.

    Another option is cash for keys.

    Another option would be that you can serve a no-fault eviction if you need to do repairs/renovations (look up SB 608 and make sure it applies).

    0Reply
  • Kurt Lane
    Property Manager · Portland, OR · Member since 2020 · 50 posts · 39 votes
    3y

    Hey @Patrick Zepeda,

    You'll want to make sure you have a good handle on Portland and Oregon requirements for rent increase notices, maximum allowable rent increases, lease terminations, and Portland's Mandatory Rental Relocation Assistance before proceeding. 

    In Oregon landlords are required to give 90 days notice (technically 94 including days for mailing the notice) for a rent increase or lease renewal offer. Those notices have to be physically mailed and I'd recommend using the Multifamily NW forms. The maximum allowable rent increase in Portland is 9.9% per year. You can issue one rent increase every 12 months. If, for example, you have a lease up for renewal in September you'll issue your notices mid-to-late May. If you have units that rent well below market rates just understand that it's going to be a multi-year project to bring them up to market w/ the current tenants. If it's after the first year of occupancy, you need to have a qualifying reason to terminate a lease

    If you do decide to renovate the units, that is a qualifying reason (per SB 608 as Chase mentions), but that process also requires 90 days and is subject to Mandatory Rental Relocation Assistance if the property is in City of Portland. Assuming these are one-bedroom units the RRA would be $2900/unit. Details can be found at https://www.portland.gov/phb/r...

    Just make sure you're accounting for these timelines and potential future costs when weighing the potential performance of the property you're looking at.


    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Patrick Zepeda:

    Any time you need to bump rent more than 20%, I recommend moving the tenants out, sprucing up the units, and renting to new people at the higher rate. Big increases on existing renters may cause animosity, result in their inability to fit the new rate in their budget, or cause other problems.

    The DIY Landlord Book4.7247 Reviews
    WebsiteView Page
    0Reply
  • Alan AsriantsBusiness Member
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y

    I would first acquire the property, introduce yourself to the tenants and get to know their habits and how they pay and take care of the place. 
    Let a month go by (especially because they are m2m and you can change lease at any time) and see what you think of them and how they pay. If they are giving you trouble or have poor habits that could cause the property to deteriorate, I would not renew their lease. 
    if you find that the tenants are good and you would want them to stay, I would lightly let them know that you would love for them to stay, but unfortunately at the price you bought the home at, you cannot afford to make your payments. Let them know that you would be happy to renew their lease for a year. this would give them a bit of security knowing that you wont just randomly pull the plug on them. 

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 591 Reviews
    View Page
    0Reply
  • Patrick ZepedaPro Member
    OP
    Investor · Portland, OR · Member since 2021 · 21 posts · 10 votes
    3y

    Thank you for the great responses! @Tom Fontoura-Sutliff @Account Closed I made the mistake of setting Portland, OR, which is where I reside, as the location for this question. This would be for a property in Cleveland, OH, a more landlord-friendly state. But I see how important knowing the rent increase caps, notices and eviction laws are super important to know. Would my PM be the right person to contact for this?

    Again, appreciate all your input!
      

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Patrick Zepeda:

    Would my PM be the right person to contact for this?

    Of course! If one of my clients asked me, I would answer this without hesitation just like I did for you. A good PM has though these things through and/or performed them many times and will tell you exactly how they would handle it. They'll ask you to step aside so they can work unfettered, and they'll communicate regularly to ensure you're updated on the progress.

    Unfortunately, not all managers are created equal. Now that I've given you what I believe to be the right answer, ask your PM and compare his/her answer to mine. It's a good way to test them.


    The DIY Landlord Book4.7247 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free