Hello bigger pockets family

I have a problem 

My areas rents have increased far past my own mentality In assessing the values

I have properties in Decatur Ga

Zillow and rent ometer say that I should be charging 900-1300 on one property that I am renting for 700

And 900-1100 on a property that I am renting for 800

The props are in pretty good condition

Newly painted interiors some renovations done fair amount of amenities hot tub in the 800 prop

 Washer dryer in one 

And w/d hookups in he other 

I was thinking of going section 8

Although there are several things that scare me about that 

but I am willing to give it a try

All of my five units seem to be well below market by he others are about 100 below market each

So how do I raise the rents?

Get a prop manager to run and manage them since they seem to be able to maximize value?

Evict this crop of tenants and re rent at market rate?

It just seems like increasing rent by 200 on one tenant is just unfair 

But I have to do something 

I am

Losing thousands every year because of this

You need to develop a more professional approach to operating your business. First you must determine market rents. A range of $900 - $1300 and $900 - $1100 is in no way acceptable. Find out the actual market rents first.

Second I would highly recommend you stay away from section 8. Way too much management required and more headaches than you would be able to manage. If you are incapable of operating a business turn it over to a PM and concentrate on managing them. Managing a PM is as much work but does not involve tenants. No more emotional conflicts of conscience.

Third get it out of your head that "fair" has anything to do with operating a business. You make decisions based on making money. Being concerned about a tenants feelings or having compassion for them is a one way street. Tenants could care less about their landlord. 

No place in business for emotions, it's a business, operate it like one and you would not be in the position you are today. Clean house and move forward taking checks to the bank. That is the only reason to do what we do.

Most landlords raise rent at the end of a lease. Also, I, personally, would verify what rents currently are. If you're thinking about a PM, have them print out mls recent rentals of comps in your area. And vacancy rate. I believe in my market that some inferior properties rent for higher due to the quality of tenant...higher risk, higher reward. Not saying don't raise rent to market, especially if they are far below market, just recommending you balance your desire to get top rental rates with the risk of extended vacancy and lower quality tenants...and if you price above market in an area of ample supply that is what you will likely get.

If you try to raise rents by $200/month your tenants will flip. That is an unreasonable jump. Zillow is also not always accurate so check craigslist and call some for rent signs in your area to see what they are going for.  You can't usually raise rent on an existing lease unless it is month to month. If you have good tenants and want to keep I'd open a dialouge. Hey, your lease is coming up in X. We will be raising rent by Y (I recommend  not more than $50/m or so, people don't usually have a ton of wiggle room). Do you think you will be signing on for another year at that rate? If not, start advertising for the full market rate and let the current tenant know to start expecting showings 30 days from end of contract. If you don't like the tenants then tell them straight up its going to market rate as soon as their contract ends and they need to decide if they will be signing on again or not in the next X days.

My husband and I recently raised rents substantially on 2 of our rental homes. They were very undermarket, which of course was our fault. I wrote the tenants a letter about the rent increases explaining why, and gave 60 days notice for the increase (required in California due to the amount). We were prepared for the tenanats to give notice, but so far neither of them has done so. The rents are still below the current market rate, so it's still a good deal for them and a much better deal for us. I've learned my lesson. We will raise rents annually from now on. I've read on other posts about this topic that sometimes landlords will raise in $50 increments every 6 months to close the gap. If you go this route, I would definitely let the tenanats know what to expect. Good luck! 

you have my permission to raise the rent.. :)

Originally posted by @Deanna McCormick :

you have my permission to raise the rent.. :)

 Lol thanks Deanna truly I needed that

:-)

Originally posted by @Jennifer J. :

My husband and I recently raised rents substantially on 2 of our rental homes. They were very undermarket, which of course was our fault. I wrote the tenants a letter about the rent increases explaining why, and gave 60 days notice for the increase (required in California due to the amount). We were prepared for the tenanats to give notice, but so far neither of them has done so. The rents are still below the current market rate, so it's still a good deal for them and a much better deal for us. I've learned my lesson. We will raise rents annually from now on. I've read on other posts about this topic that sometimes landlords will raise in $50 increments every 6 months to close the gap. If you go this route, I would definitely let the tenanats know what to expect. Good luck! 

 Good stuff I like the transparency piece

Both tenants knew going in that the rents were below market and that I would eventually have to raise them

I like your approach 

I'm positive your tenants know that they are getting a deal. As long as you are polite and professional it should all be fine, unless some of your renters are whack jobs. 

Yea that's a big amount and if you were in NYC or California it would be ok and expected even. GA on the other hand is not the market that usually gets hundreds of dollars in rent increase like the other two locations. ...just inch it up like a few other folks recommended ...$40 to $50 every 6 to 12 months. You don't want to kick money out of your pockets raising it too high too fast.

Kudos,

Mary 

Do not trust Zillow, rentometer or any other automated system.  They are good for ball park numbers but that is it.

Check actual comparative listings.  Even call some of them to verify/get more info.

Annual increases even if only $10 is the way to go.  Forces you to look at actual market data (yearly) and helps tenants expectations for yearly increases.  Even if you didn't do yearly incremental increases but did one lump increase X years down the road, most tenants will not like that even though mathematically they are getting a better deal.  Annual increases is better on the tenants psyche and emotions.

Give good reasons for the rent increases in your notice. List out the competitive market rates, cite your increasing expenses, property taxes, etc.  Give them ample notice (60-90days, usually more than the law requires).  All of this goes a long way in the tenant / landlord relationship.  Of course address any property issues in a timely fashion, that is your end of the deal.

Increasing rent seems like a confrontation.  Therefore, on every lease I draft, I have a standard clause which states that the rent will increase by 5% on annual renewal.  I have them read the 8 page lease (lol) at their leisure by sending it to them a day before the sign date.  If the tenant I want to keep  bulk at a 5% increase, then I give them 4% increase.  

Assuming your leases are up or M2M there is absolutely no reason to supplement any tenants rent. It is counter to your primary goals in investing. If tenants are below market you are losing money, inching up rents in some way to coddle your tenants does not make any business scenes and is usually only done by landlords not wanting to engage in the hands on operation of their business. They would rather lose money that actually do the job of finding quality tenants willing to pay market rents.

What you should do is give 60 - 90 days notice to raise to full market rent. Ask that your tenants make a commitment to stay or go. If they give notice to terminate you have plenty of time to find new tenants.

If they refuse to commit tell them you will give notice to non renew so you can find new tenants. Do not let the tenants hold you at ransom.

@Steven Maduro I'll join in the "don't trust Zillow" singing medley, or, while we're at it...Rentometer.  It's nothing against them but they're using radiuses that are miles and often span different neighborhoods.  I don't know how Decatur works but where I invest I can't go one mile north and expect to get the same rents.  If I went one mile east I would expect to get more rent.  So I'd first look at listings that are for rent yourself on Zillow and Craigslist.  Maybe you assume they're a tiny bit high or track them over the course of a month to see which actually get rented.  Believe me, I wish I could trust a Zestimate, if I could I'd have a lot more equity in my primary residence.  But I can't, because it's an estimate and rarely indicative of true market value (high or low).  

As for what to do about it.  Well, you can't just randomly evict tenants for no reason just to raise the rent.  They (presumably) have a lease which you have to honor.  However, when the lease is up there's nothing "unfair" about raising the rent to $1300 from $700 if that's what you want to do.  It sounds heartless and mean but you do have to treat the property line a business.  If you can't or don't want to do that get a property management company.  They can figure out the market rent, handle communication with the tenants, etc.  A good property manager can also advise you on what upgrades (not repairs) will yield the ability to increase rent.      

Quick question, how does keeping a rent low effect a market or anything for that matter? Lets say you wanted to rent for a family member of yours and you’re intentionally charging them a lower amount. What impact does that leave, if any?

Originally posted by @Ibrahim Elzaim :

Quick question, how does keeping a rent low effect a market or anything for that matter? Lets say you wanted to rent for a family member of yours and you’re intentionally charging them a lower amount. What impact does that leave, if any?

I don't know but I will say that my neighbor who also is a landlord and rents the house next door to one of my rentals 

He is renting cod 1100

And I am renting for 800

And he says that I am messing up the market 

That is not the first time I heard that

Also on my Decatur prop 

Most houses are renting at about 850-1000

Even section 8 told me that 900 is a good value (currently im renting 700 on that Decatur prop)

My other duplex 

Is 625 

With washer dryers

The house down the block identical is 795

I don't have mortgages so I can still maintain profitability 

But lately I am realizing that I am slowing my growth

So that is one way if you can't do improvements like you want to because you aren't flush with cash that can harm the mRke t 

Not sure how else since comps are so erratic when it comes to rentals 

So I am really sure hat I am  

@Steven Maduro I think it mite be time to get a PM. You could probably pay for 2 if your rents are really that far under rented. Remember that's no guarantee tho. You still need to manage the pm and I just fired one that wouldn't raise rent. She was my manager for 10 years. I tried several times to get her to raise rents. She just wouldn't do it. I fired her and the company she worked for followed suit. The new pm told a tenant we were going to raise the rent and he gave his notice. ( he's M2M). About 2 weeks later he said he decided to stay. ( I think he found out what current rent was). We told him he could stay and raised his rent $150 a month. Another tenant gave notice as well. She also stayed. She's under a lease so her rent will go up too. Out of 5 units I have raised rents on 3 up to market. It's taken 5 months. We have gone up from 150 to 350 dollars on these units and I still have 2 more to go. Rents went up drastically in this area and my pm wouldn't accept the change. Ultimately it's my fault. I let her keep the rents too low too long. The last property she advertised at $585 a month. She rented it for $558. That was the last straw. I fired her. There's 2 lessons here. First just because you have a pm you still have to watch/ manage your investment. You need to know rents, tenants etc. second when it's time to switch pm's you need to do it and move on. On another note I picked up on something else. You said you were hampering your growth with under market rents. Then you said all your rentals were paid for. The reality is paying your rentals off is hampering your growth far more than a couple hundred dollars a month in missed rent RR

have raised rentsThen you said all your rentals were paid for. The reality is paying your rentals off is hampering your growth far more than a couple hundred dollars a month in missed rent RR

All very good points and insights 

I think I am like your old pm

It's hard for. Me to make the shift

But about that other piece

Yeah I hear you

But I bought these props around 2011-2012. There wasn't a lot of opm out there but if you had cash you could get deals

I was lucky to buy them cash and now they are worth about four times what I paid for them 

But still I do see the value in leveraging 

I am working on getting financing for a prop but it's hard 

I will probably have to do an owner occupant to get started 

I couldn't last year to save my life 

I've spoken to several bankers and have finally come up with a strategy that I would like to try next year 

Until then raise rents 

 Thanks for your insights 

I've tried  heloc denied

Equity lines denied 

Hard money denied 

Quicken almost said yes but my accountant deducts too aggressively 

I think I did a major renovation that year so it showed on paper that i only earned 13k

So on paper I don't make enough to buy a property

Since then I have added another rent to the roll

And no renovations last year so hopefully income will be adequate

My credit score is high enough but according to some lenders 

There are factors that are hurting me 

Debt to income

Among others things 

@Steven Maduro as a late starter I quickly found out in order to grow I would need to use leverage. As my portfolio grew ( all is out of state) it occurred to me that as a landlord you are nothing more than a glorified manager. You manage pm's. You manage banker's. You manage insurance people. You manage money and when you get bigger you manage leverage. As time went on I have learned how to borrow money. It's all part of the management game. For instance I wanted to buy another property using a conventional loan. My primary was on a 15 year fixed loan. Payment was 1500 a month. Before I started looking for this new house I refinanced my primary to a 30 year conventional loan. New payment was 800 a month. Then I refinanced my car from 5 to 8 years. Payment went from 550 to 350 a month. Then I went house hunting. It ended up the payment on the new house is 890 a month. I would never have qualified with the higher car and house payments. This way I have 2 houses at a 190 dollar a month increase in payments and I still make a 550 a month car payment that will pay the car off at the same time as the original loan. Since the second house is to be used as a second home I used a low down payment to purchase it. That left me with enough money to make a down payment on a 37 unit mini storage facility. This one is owner carry. End result is I had enough money for a down payment on one house (30k). I turned it into 1 house and 37 storage units. It's all management. It took about 9 months. I also use Some portfolio loans that take into account the profitability of the new property and worry less about DTI. Learning to manage leverage and money is critical for a landlord. RR