Rent Increases for an inherited tenant

[James Herbert]

We purchased a bundle of foreclosures from the bank. We inherited tenants and the current rents are month to month and have not been raised in years. (8-10 years) some Tenant’s have leases to prove some don’t, the stories are consistent across all and the houses are not to close to each other. We are believing them on the rents. To bring rents to market we have to go up 40-60%. My question is do we do this in one big increase? we will loose some tenants, one in particular we would like to see them find a better fit for themselves. Others we want to stay. Or do we have graduated increases over the next 2 years. I have my opinion but want to leave the door wide open for comments.

[Thomas S.]

Graduated increases are a major mistake. What it does is postpone the inevitable and create tension over a longer period of time. In the end all you will achieve is to lose money.

The right business decision is to put every tenant to full market and clean house. There is no reason to hold on to any tenant that can not or will not pay full market rent. Ultimatly it will only come out of your pocket.

Depending on how many units you have you time the rent increases every month or two to allow you  to fill vacancies in stages. I would put the ones you believe will stay up to full market rents first to maximise your returns.