Triplex- Raise rents??

Question

Just bought my first triplex!

Currently the renters are paying $300 under market, and they are on month to month verbal agreements- no signed lease. The renters have been there for 3 years, and keep they're places very tidy. No kids, no pets. One lady even pays rent a week ahead.

So, I have a dilemma: I'd like to raise rents, but don't want them packing up and leaving right away, especially going into winter. Not trying to have vacant property through winter. Also, I will be living in one unit, so I have to see and interact with them probably daily. So, my thinking is this: wait until march then hike it up- if they leave, then oh well, I will have better luck finding tenants in spring. Or maybe, just hike it $100 starting in november, and have them sign a 6 mo lease- that way when I raise another 200 in 6 months its not such a shock.  But knowing that I'm losing basically $600 per month burns at me. What do you think BP Nation??

Hank Parater · Answer

Thanks for your responses. To clarify, the rent being paid by tenats is $600p/m, $500 p/m.

The market rents for the area are $850.

When I purchased, there were no leases in place. The previous owner just had verbals. But they paid, on time and consistently.

I think I will take @James Wise advise and wait until spring. The current rents offset my mortgage anyways. Since I will be living next to them, I want things to be smooth. By then I will have done maintenance and improvements at which time I will raise rents by $100. Then, do 6 month lease agreements that gradually raise $50 p/m every 6. That way they will know what's coming and to be prepared.

James Wise · Answer

I'd wait till Spring. Lots of investors get caught up in the thought that they are "loosing" $600 per month. You gotta play it smart. Odds are they won't pay that much more money for the same unit. So they leave in the winter. Takes you longer to rent it out, maybe you rent it for less money. You likely have a couple grand in turnover expenses etc.

Best to wait until the spring before dealing with all of that.

Account Closed · Answer

"In 2013, nearly half of renters were considered “cost-burdened,” meaning they spent more than 30% of their income on rent. More than a quarter of renters were considered severely cost-burdened, forking over more than half their income on rent."

http://www.forbes.com/sites/laurengensler/2015/06/24/rising-rent-cost-burden/

Account Closed · Answer

Better let them know in advance. Not everyone can easily absorb that much extra cost. Give them ample time to find something they can afford.

How about giving them their current rate on a lease for the next year, then raising it?

Account Closed · Answer

Especially when you decide to do it all at once and not incrementally.  It's not responsible.  He bought the triplex knowing it was tenanted and likely knowing what rent was paid.

Account Closed · Answer

I was agreeing with you.

Raising rents to keep up with inflation is of course legit. Raising to keep up with increased services is also legit. Raising just to keep up with the joneses, though, is a bit off.

Account Closed · Answer

Sorry @handyhank and @JohnH64, I'm still learning how to use BP forums.  Tried unsuccessfully to @ tag you.

EDIT: AND I STILL CAN'T FIGURE IT OUT

Account Closed · Answer

@Hank Parater, what is your primary concern: having two empty units in winter or putting out two responsible tenants before winter?  Seriously, on what side of that line do you fall?

I just bought a SFH with a tenant who'd been paying 350 biweekly.  The place could likely easily rent for 800.  We signed a two-year lease at 700/month (the property should still be cash flow positive) and included a clause that at the termination of the lease we could sign another lease for a minor increase or he could go month-to-month for 850.  The incentive is pretty clear.  If the tenants know that a rent increase is coming down the line, they can begin to save and make whatever decisions are necessary.

+1 to @John Hyatt for suggesting that you add value for whatever rental increase you suggest.  Just upping the rent to line your pockets with that precious $600 is pretty cold.

John Hyatt · Answer

It seems I misunderstood you, sorry for the harsh response. I do think you will be successful in real estate after all ;) lol!

John Hyatt · Answer

Hi Aaron,

I wasn't saying raise rents just because you can. I was asking what the market rents were and advising that I would add value to the property in anyway (I don't have the full story) to justify rents being raised in the tenants minds. Imagine being a tenant and someone comes in and raised the rent $100 because they can versus someone who comes in and improves the property and services and then raises rents, which would you prefer? That advice was only because he is living there. If you think it is cold to raise rents or prices then I don't think you will be successful in real estate. Everything is being raised on you...taxes, insurance, home warranty, food, gas, electric, water, etc and you think it's cold to request market rents?

Triplex- Raise rents??

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