Raising Rent for inherited below market rental

5 Replies

My wife and I recently purchased a 3 flat in Chicago. We have done some major remodeling to our unit (now a duplex to the basement) and also the top floor unit. When we bought we inherited a lease for the 2 bedroom, 1 bath with ample storage and an enclosed back porch. Many realtors have informed us, and I have confirmed, that $875 for a 2 bedroom in our area is far below market and almost laughable (we had no issue renting out the top unit at $850). My wife and I love the 2nd floor tenant as they are great and quite easy to get along. We are hoping to raise the rent to $975 for the current tenant when the lease expires in March (still below market and we should be able to get 1100). My question is what is the best way to go about this while still being respectful and not incurring any backlash? We are thinking of having the discussion soon to give ample time to set up a move if this were to happen. 

Probably thinking too much....

Jason

We normally raise rent to the midpoint between current and market rent, so think your $975 is right in ling.  You may want to draw up the new lease with the new amount and say that since you will be making some changes (assume there are other language changes) you are giving them a preview of what they can expect in March.  I would normally only notify tenants a few months in advance, like early Janaury, but it would be good to let them know before Christmastime in case they want to scale back.  And it may be the elephant in the room with them wondering what changes they can expect.  Since rent is not going to market, I woudl not expect backlash or a move out.  They may start looking at other options but likely won't find much comaprable.

If the rent is that high in your area, then you definitely should be able to get a decent class of tenants. Let me ask you this; are you a rental property owner to make friends, or to make money? You can, and should, be raising rents to fair market value. That doesn't make you mean, or a jerk, or a slumlord. It makes you a business person. 

I did the same when I inherited tenants. I talked to them in person, and said; "You've been great tenants for the short period of time I've owned the property. We would love to keep you as tenants, but I'm sure you know your rent is well below market value. The new rent will be ($$$$$) if you'd like to renew your lease. Please let me know as soon as possible what you decide. I'll let you guys talk about it before you make a decision". In my case, the rent went up $100 a month, so not nearly as much as yours should. But, I wasn't about to give up that $1,200 in income for the year just because the tenants are nice people. 

Originally posted by @Anthony Wick :

If the rent is that high in your area, then you definitely should be able to get a decent class of tenants. Let me ask you this; are you a rental property owner to make friends, or to make money? You can, and should, be raising rents to fair market value. That doesn't make you mean, or a jerk, or a slumlord. It makes you a business person. 

I did the same when I inherited tenants. I talked to them in person, and said; "You've been great tenants for the short period of time I've owned the property. We would love to keep you as tenants, but I'm sure you know your rent is well below market value. The new rent will be ($$$$$) if you'd like to renew your lease. Please let me know as soon as possible what you decide. I'll let you guys talk about it before you make a decision". In my case, the rent went up $100 a month, so not nearly as much as yours should. But, I wasn't about to give up that $1,200 in income for the year just because the tenants are nice people. 

 in Chicago that's less than section 8  pricing.. and about right for the south side or lowest value areas.

Also, as a follow up, I really dislike it when landlords are keeping rents down in my area. I understand it's an individual business, but if most going rates are say $1,100 for a 2/1, then it kills me when I see competitive properties advertised at $900. Of course, these are also the properties I've been targeting to purchase, hoping that the landlord is a mom and pop shop that hasn't raised rents in years and wants out.