New Investor - How to increase rents

[Christian Tallet]

I'm about to close on a 4 unit multifamily property. I'll be owner occupying one of the units. it consists of 2 two bedrooms and 2 one bedrooms and I'll live in one of the one bedroom. currently the rents for the 2 bedrooms are 560 and 580 and the 1 bedroom is 510. Looking at rentometer and HUD fair market rent, one bedrooms in the area average 580 to 600 and the 2 bedrooms are about 700. The property is in a nice neighborhood with mainly single family homes. The square footage is 700 and 950 so they're about average size. The only thing not going for them is it's not a large apartment complex with a pool, etc (which I've seen rents going for way more than 600 and 700). I'm just trying to figure out how much to increase the rents. I could just go up by 30 or 40 and most likely be able to keep the current tenants and make it take longer or I could just say this is the new rent (jump straight up to market rents) but id probably have to find new tenants. Any suggestions? Thanks everyone. -Christian

[Everett Fujii]

I wouldn't rely on rentometer and even HUD fair market rent.

You're on the right track by comparing your units to what is available near you.  

The amount you increase the rent by is going to reply a lot on the interior condition of the units (at least in my opinion).  How much work do the interior units need to get to current fair market rent?  If it's very little then you can be very aggressive with the rent increase.  If it's a lot, then you probably want to be a little more conservative unless you have specifically planned to repair/upgrade the units (including carrying costs since that would mean less income for a bit).  

I would continue to look at your competition.  Use things like realtor.com, zillow, etc.  Not for their estimates.  But to see what's listed for rent now.  That's going to give you an idea of what type of finish out potential tenants will expect.  Remember, most tenants will visit a couple of potential units (unless it's a super hot area with insanely low vacancy) so they will be comparing your unit to what else is out there.