Raising the rent What is the max on rent adjustment"?

Question

I am purchasing my first mixed use commercial property. Average rents are 6-7 one tenet is 4.  Once lease is up what would be accepted for a lease adjustment in price. would 5 be over the top?

Chris Virgil-Stone · Answer

@Thomas S. Below market rent isn't necessarily a bad business decision. I'll miss out on $600 in rent every year to avoid a turnover every 12 to 18 months. 1 month of vacancy, the make-ready costs and any additinal management fees for placing a new tenant would eat up the extra rent 3-4 times over.

Yes those tenants will also move eventually, but if you can increase your average tenancy from 12 months to 3 or 4 yrs you'd probably make out ahead. All of this being said, each market and type of rental (apartments/SFR) should be considered separately.

For the single family homes I own and manage  I have found that offering slightly below market rents (relative to quality of housing) keeps turnover minimal, overall saves me more money and is significantly less stressful. From my experience when I was a renter, those owners who went after every penny in rent also tended to defer maintenance so they can save as much as possible. I find it helpful to think of it similar to sustaining capital - you invest money back into your property replacing items like roofs,  furnaces, etc to keep your investment alive and healthy and keep maintenance to a minimum. Similarly by keeping a SLIGHTLY lower rent you're keeping your tenant maintenance to a minimum.

Darren Sager · Answer

Here in NJ generally speaking anything above 9.9% would allow the tenant to take you to court for an unconscionable raise in rent (unless justified).  Always check to see if where you have property has rent control and if so, what it allows you to raise the rent by.

Theresa Harris · Answer

@Jon Sirkin Assuming all are comparable in square footage and location, be careful how quickly you raise the rent.  Raising it by 25% may cause the tenant to leave and then you have a vacancy on your hand.

Thomas S. · Answer

Assuming it is legally allowed you would give notice to your tenant with plenty of advance notice that the rent will be increased to full market. This will allow plenty of time for your tenant to decide and if necessary make plans to move.

If you can not legally raise rent to full market you will need to inform the tenant that you will not be renewing their rent, again assuming you are legally allowed to non renew.

Keep in mind this is a business not a charity, supplementing a tenants rent to avoid a turnover is a clear indication of a inefficiently operated business. It is not a wise business decision. At some point in time every tenant will move. Now is the best time to have that happen since income wise you will benefit the most long term.

Never be afraid to manage your business. Charity or business, your choice.

Nick Rutkowski · Answer

@Jon Sirkin Depends on your market. What are rental rates in your area?  If it's in NYC you'll have to deal with rent control but in good ol Upstate - we don't deal with that nonsense.

Jon Sirkin · Answer

@Thomas S.

So to reply to all there is no rent control market is 600 to 700. Sqft is all pretty equal, business been there 15 years. I honestly don’t know why they are so low. I figure 410 to 500 was not a major move. I need to review the lease.  Then extend. the lease a few years for them. Having them move I don’t want. But there well under current market value.

Thank you every one I appreciate any feedback.

Raising the rent What is the max on rent adjustment"?

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