Rent severely under market value

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Rent severely under market value

Andrei Stegger jr
Member since 2018 · 10 posts · 3 votes

Hello everyone, 

I've recently inherited 17 properties:

14 rented average rent $600

3 houses vacant

Section 8 payment standards average $1353

What would be the best way to increase rent? because current rental income is barely covering repairs, and other major cost associated with owning a rental property are needed that i cant afford.

Would it be a bad idea to almost double the rent?

Because most rent has not been increased in the last 15 years and is severely under market value.

The 14 rented houses follow as 12 3 bed 1 bath and 2 2 bed 1 bath.

The cheapest rent i found locally was a 1 bed 1 bath for $850

I am in the Fort Worth area.

Any advice would be greatly appreciated

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James Hunt
Investor · Cleveland, OH · Member since 2016 · 96 posts · 27 votes
7y
@Andrei Stegger jr I believe you can request a rent update from section 8
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  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    7y

    I dont know the tenant law in your state so check those before you do anything.  

    The one word of caution is that is you double rent without doubling services many many people will leave. This may be what you want, but you might find yourself with a lot of vacancies.  

    Might be better to raise rent slowly or one unit at a time unless you are ok with empty units. 

    Be sure to give the appropriate notice to each tenant.

    1Reply
  • Andrei Stegger jr
    OP
    Member since 2018 · 10 posts · 3 votes
    7y

    This is a quote on Texas rent increase laws say

    "Texas' laws on raising rent depend on the type of lease. For example, if a tenant has a month-to-month lease, then either party must give a 30-day advance notice of any proposed changes, including a rent increase, according to the State Bar of Texas. If a tenant does not clearly terminate the lease, then that inaction can be presumed to be acceptance of the new rent."

    Also, I was thinking the same thing. I was considering 1-2 units at a time. If they leave then i can do a small rehab and rent back out closer to market value to increase cashflow. The more cashflow increases the more increase notices i can send out considering the cashflow increase would be more than we are making now. thoughts?

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y
    @Andrei Stegger jr we don't have all the information necessary to tell you exactly what to do. I recommend you not raise the rent on your existing tenants because they probably can't afford it. Instead, I recommend you get them out as soon as your law into the current lease allows, clean them up, and then rent them at market rate with tenants you have screened in selected. You may have to stagger them to avoid vacancies in all your properties at once.
    The DIY Landlord Book4.7248 Reviews
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  • Dylan Hargrove
    Dallas/Fort Worth · Member since 2017 · 22 posts · 5 votes
    7y

    @Andrei Stegger jr I'm in Fort Worth and I can promise you if you have 12 3 bed homes being rented for that cheap then they are indeed well below market value...

    That being said if this is your first experience with property management, I would recommend reaching out to some property management companies who are professionals and can handle the legal and tenant concerns. Once they are rented out again you may drop the property mgmt company and assume the role yourself once the ball is rolling.

    If it were me... that is too much of a mess to try to handle myself. And if you just want to get rid of some of the properties, feel free to let me know hah!

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I would remove one tennat at a time do a lipstick reno and get it re-rented at full market. It's a slow process but with a small team you should be able to easily do a unit in a couple of weeks or less.

    I would advise you also upgrade your tenant base as you turn them over by not re-renting to section 8.

    1Reply
  • Andrei Stegger jr
    OP
    Member since 2018 · 10 posts · 3 votes
    7y

    @Nathan Gesner Thank you for the reply. Yes, that is something im working on. Also, these houses are severely out dated so im currently working on a way to fund a few rehabs to get the ball rolling.

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  • Andrei Stegger jr
    OP
    Member since 2018 · 10 posts · 3 votes
    7y

    @Dylan Hargrove @Thomas S. Thank you both for replying. They definitely are well below market value, but in their current conditions I don't really feel comfortable with renting the vacant ones back out. Also, Im not sure if we can take on another tenancy loss. 

    So im currently working on getting funding for a few rehabs as i stated in the last post. I think it'd be best to rehab the ones vacant, maybe a low budget rehab (refinishing drywall, siding, kitchen, bath) im new to this in the rehabbing aspect. We always have done the work ourselves, but all we know is patch jobs. I want to move away from that and actually do nice low budget rehabs using contractors. But at the same time im not sure what a low budget tenant grade rehab would actually cost. So im trying to do as much networking as i can do here in the fort worth area. 

    Also if you are familiar with the Fort worth area, a good amount of our properties are in the 76105 area code. A piece of advice that i got from a local property manager is if i want to maximize cashflow, rent out to section 8. He said with houses in that zip code that would be the best route considering i can still maintain my own tenant criteria. I'm not too sure on that though.

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  • James Hunt
    Investor · Cleveland, OH · Member since 2016 · 96 posts · 27 votes
    7y
    @Andrei Stegger jr I believe you can request a rent update from section 8
    2Reply
  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    @Andrei Stegger jr I would suggest you start with a good assessment of who is living in your units. Get new rental applications from them, just do document who is there, where they work, etc. Find out how many bedrooms each of their vouchers are for. If they are in units that have more bedrooms that HUD identified for them, you won't be as successful in raising the rents. If they are in the same bedroom size as their voucher, it is not a problem to increase the rent to market rent. I would only do it when the tenants have income though. This means if you have a tenant who is "between jobs" it would be better to wait until they are working so submit your rent increase request.

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  • Kyle MccawBusiness Member
    Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
    7y

    Raise the rent on a few at a time. Start making some gravy.

    McCaw Property Management4.4905 Reviews
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  • Mario CarrilloPro Member
    Rental Property Investor · Fort Worth, TX · Member since 2018 · 6 posts · 1 vote
    7y

    I’m in the Fort Worth market myself,

    I’m just now going thru a similar process myself in the Keller area.

    I acquired 4 properties with under market rent. 800 for 3-1 properties.

    Tenants are month to month, so I raised the rent on the first one with required notice and as expaected tenant moved out as I raised rent to 1300.00.

    Once that tenant moved out, I renovated the home, showed it to a couple other tenants, they fell in love with it and decided to move to the freshly renovated unit immediately at a rent of $1850/ month.

    A third tenant I have now asked me if I’m going to renovate the second one and when would be ready, accepting the new rent increase and all. I will have it ready by the 15th of the month.

    She just signed a new lease contract for 1750.00.

    I plan on doing the sam thing to the other two.

    I am a contractor here in the area, if you need help I can help and you can see what I have done.

    1Reply
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