What's a fair amount to raise rent?

Question

Darren Sager · Answer

@Sol G. I would first have a talk with your tenants and let them know that your cost of the home was not what the previous owner's was, and that it's your full intention to bring the units up to market value.  Now everyone else who responded so far doesn't have property in NJ.  So let me be the first to say I would not raise it more than 9% per year because if you do, the tenants can take you to court and say your raise was unconscionable.  You can argue your cost basis is higher and your right to an ROI however since NJ seems to be more tenant friendly in the court system I wouldn't go above that %.

Darren Sager · Answer

@Deanna McCormick wish it was as easy as you say here in NJ.  Speaker of the house Tip O'Neil once said "All politics is local".  Same thing with real estate investing.  What you can do here is much different than what you can do in other states.

Mark A. · Answer

Plan your increase so that if the tenant moves out it is in a season that would be easy to rent the unit. You don't want them moving out in mid-winter when nobody else wants to move in...

Thomas S. · Answer

Did you invest as a business to make money or as a hobby.

Market rent is what every tenant should be paying. Those that do not pay market rent are either renting from a hobby landlord that places no priority on profits or they are long term tenants in a rent controlled environment.

If you wish to supplement your tenants rent by charging below market and avoid the responsibilities of actually operating a business you are investing as a hobby.

Raise them straight to market, find new financially qualified tenants if necessary, and get down to business.

Deanna McCormick · Answer

So if you are limited to raising to market rate because of NJ tenant's rights then Personally I would give notice to vacate, lease termination non-renewal and have them move out.

New tenants, pay the new market rate,, You'll have to figure what you'll be losing with the limited amount you are able to raise rent on current tenant..to figure out that out....

Better to move on and start fresh and get it up to the potential the property can make.

If you want you could always just offer month to month renewal until you are set to make the change to a new tenant.

Matthew Olszak · Answer

Respectfully, I'm against the method of gradual increases - they can either afford the rent where it should be or they can't and I don't want to lose money for 3 months just to reach month 4 and have them move because its now too much. A tenant should be able to normalize the rent within 2 months if they can truly afford the increase, otherwise they'll just be burning through savings to pay it until that runs out and you then have an eviction case on your hands.

Matthew Olszak · Answer

@sol g. Why not raise it to market rent, or very close, all at once? If they can't afford it, they'll have to move, and that's just a hard truth of the industry.

I usually work with the tenants so they can plan out how to pay the increase or move over a couple months, but the end result is that market rate needs to be paid by them or they need to move so I can get someone else in who will pay it.

Filipe Pereira · Answer

Hi @Sol G. take this with a grain of salt, because I think it varies from market to market depending on vacancy rates. For example, a city environment will get re rented much faster if the tenant moves out. That being said, when I purchased my property last September, I had a tenant that was $150-200 below market rents. This tenant wasn't all that clean, organized or great at paying their (albeit low) rent on time. As a way to encourage their exit, I increased their rent significantly over the first 6 months. If you are talking about $50-$75 below FMR I would do it in stages. Maybe every 3/5 months or so you can increase it by $20-30. Just make sure you are upfront with your tenants regarding your plans so they don't think you are punishing them. Hope this helps you.

Chris Bounds · Answer

Fair is market value. If you're running a business, which rental properties are mini-businesses, you must get rent to market value asap.

When we inherit a tenant on a M2M lease and are considering keeping them, we require them to fill out an application just like a new tenant. If they still qualify, then we'll have them sign a lease agreement. We do consider incremental rent increases over a short period of time.

Judy Parker · Answer

@Sol G. What town is your residential investment property located?  Did you check with the local Building Department (or check the town website, under Real Estate Ordinances) to determine whether the municipality has rent control and/or vacancy decontrol laws?  You must do that first, before raising any residential rents, or you will end up getting yourself in a lot of legal trouble.

Further, with or without Rent Control laws, if you raise the residential rent too high, the Tenant will take the Landlord to court and sue for Constructive Eviction.

Tread carefully......

What's a fair amount to raise rent?

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