Is it wrong to raise rents on existing tenants every 6 months

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Is it wrong to raise rents on existing tenants every 6 months

Richard Merkuris
Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes

Is it wrong to raise rents on existing tenants after property has been purchased every 6 months tell rent is to rent level in area? (increments of $25 which would be a total of 2years in all to reach)

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Jeff S.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
7y

That would be just annoying. If you were to do that I'd tell them upfront what your plan is.

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  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    7y

    If they are on a month to month lease, and there is no local laws like rent control, then I don’t see why you can’t do this.  Might be smarter though to bring it up to market all at once.

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    7y

    That would be just annoying. If you were to do that I'd tell them upfront what your plan is.

    9Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y
    Check with your state codes. Most only allow rent increases annually. Is there a specific reason you are torturing them over time as opposed to simply raising it directly to full market. Doing it in one step is far less irritating.
    1Reply
  • Andrew Bondarchuk
    Investor · Valrico, FL · Member since 2015 · 80 posts · 27 votes
    7y

    I would prefer to know what my rent is going to be all in so I can budget for it. If I received a notice at regular intervals of an increase with no estimate of when that would end I would probably look for another place to live.

    9Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    Once a year is more typical.  If I was a tenant and my rent went up every 6 months, I'd be annoyed.

    7Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    7y

    If market is $100 higher and you’re thinking 4 x $25 raises over 2 years. 

    You could make more money at lower rent by simply raising the rent $75 ASAP and then not raising for another 2 years. 

    (6 months of $50 higher) (6 months of $25 higher) (6months if same as your plan) and (6 months lower than your plan) for a total of 6 months $50 higher. 

    2Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Bill Brandt

    Thanks but market value is higher. All 9 unites are long time tentants.

    2 bed is 250 below

    1 bed is 225 below

    House is 350 below

    So thinking 25 would be better 6mn time from so they could adjust there budgets and of coarse they would of been told what the plan is.

    1Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Andrew Bondarchuk

    Thanks but market value is higher. All 9 unites are long time tentants.

    2 bed is 250 below

    1 bed is 225 below

    House is 350 below

    So thinking 25 would be better 6mn time from so they could adjust there budgets and of coarse they would of been told what the plan is.

    0Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Jeff S.

    Thanks but market value is higher. All 9 unites are long time tentants.

    2 bed is 250 below

    1 bed is 225 below

    House is 350 below

    So thinking 25 would be better 6mn time from so they could adjust there budgets and of coarse they would of been told what the plan is.

    0Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Thomas S.

    Thanks but market value is higher. All 9 unites are long time tentants.

    2 bed is 250 below

    1 bed is 225 below

    House is 350 below

    So thinking 25 would be better 6mn time from so they could adjust there budgets and of coarse they would of been told what the plan is.

    Thanks again I'll check that out

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    @Richard Merkuris I think it's wrong but probably for different reasons. Either the people can afford the property or they can't. Either you want to make money or you don't. If the property is $100 below Market, you are giving away $1,200 a year. $200 below market and it's $2,400 a year. If your intent is to operate a charity, please contact me and I will provide you with a list of very deserving organizations that will make better use of that money than your tenant does.

    If a rental is below market, the best thing to do is to notify the tenant and either raise them or get them out so you can place a tenant that can afford the property. I recommend 60 days if it's going to be a large bump but there's nothing immoral about using the minimum notice required by law. If they are a really, really good tenant that you want to retain, then I see nothing wrong with keeping rent a little lower as an incentive for them to stay but I never recommend more than 10% below Market.

    It's like pulling a Band-Aid: get it done and over with and you'll be happier in the end.

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    3Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Nathan G.

    Oh I know I'd be loseing money but just starting I'd rather have the cash flow then an empty. And you are right once they move out it would go to the right leave.

    I've made some bad decisions in my life and trying to turn that around so baby steps work for me right now. By year 2½ had planned on having them all at right rent leave.

    2Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    7y

    Long term tenants are valuable. If it is penciling out you don’t have to do anything. When someone moves go to market. You see there is no size fits all. If you are at market your tenants will always be looking for a better deal. 

    If they are great tenants you can reward them. If they aren’t then it is your call. I’d go to market immediately with problem tenants regardless how long they are there.

    To me if a tenant pays on time and there isn’t drama they are good.

    5Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    @Richard Merkuris $100 a month is $1,200 a year. Unless these are really good tenants, I would risk the vacancy and get them up to market-rate. You are trying to make it easy on the tenants and costing yourself a lot of lost income in the process.

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    2Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    7y

    @Richard Merkuris

    Richard. You said $25 raise every 6 months would get you to market in 2 years. 4 raise times $25 is $100. 

    If they are really $250 below you’re looking at 5 years of raises every 6 months (10 x $25) I don’t think you’re going to keep tenants with that many raises in a row. Plus by then you’ll be below market again. 

    2Reply
  • Sami Gren
    Rental Property Investor · NJ · Member since 2019 · 442 posts · 40 votes
    7y
    If they are good tenants and you to keep them, but on the other hand you still wanna raise, then you're doing the right thing. .. I would tell them that you really wanted to raise them $200 at once, but since you wanna be nice and give them opportunity to adjust their budget, you'll do it throughout the next 2 years. I do understand that is a "business", but I strongly believe that success comes along with the way you deal with people, and even though they are tenants, they are still human beings with feelings just like you, ans a $200 raise at once can get "any" person on your wrong side, and showing them that you're not All about Money and you're trying to respect their pocket will make then do the same and respect your pocket when it comea to paying rent on time etc. And don't forget turnover can cost you quite a bit......
    1Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Richard Merkuris:

    Is it wrong to raise rents on existing tenants after property has been purchased every 6 months tell rent is to rent level in area? (increments of $25 which would be a total of 2years in all to reach)

     Answering the question you asked, I don't think it's "wrong".  I'm not sure if you mean "wrong" to the tenant, "wrong" to you, or "wrong" in a legal sense.

    For the tenant, it's not wrong.  If you plan on raising the rent $100/month in $25 increments every 6 months, you're doing the tenants a favor.  If it is made clear upfront that the rent is going to be raised $100 (or $200) regardless, whether in one change, or over 4 changes over 2 years, they should be happy you're taking the gradual route.

    For you the landlord, it's not necessarily wrong.  You acquired rentals with tenants already in place, with cash already being generated.  None of us responding know your financial situation, but I'd guess many first-time RE investors aren't sitting on another box full of cash after buying their first investment.  I know I wasn't.  If you want to ensure you preserve the cashflow while you get your finances sturdy, avoiding vacancies and turnover costs is a necessary step.  If these units have been occupied for years, chances are you'll have to pay money to paint, replace flooring/carpet, and other things before new tenants can be installed at market rents.  I think gradual increases, with the occasional tenant moving out at each increase will prevent unnecessary vacancies and allow you to upgrade/turnover the units at a more financially manageable rate for you/a new investor.

    Legally, I can't say if it is wrong in your state.  As long as the tenants are month-to-month, it would seem to be okay.  You should definitely check with your state/city laws.

    Good luck with your first venture into REI, Richard!

    2Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    thanks Randy I'll do that & your the first to really understand where I was coming from. 

    1Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Sami Gren

    Thanks Sami

    0Reply
  • Sami Gren
    Rental Property Investor · NJ · Member since 2019 · 442 posts · 40 votes
    7y
    Originally posted by @Richard Merkuris:

    @Sami Gren

    Thanks Sami


    My pleasure, and I think what Randy said is exactly what I said, smart people think alike. you need to understand human nature is to try to show off knowledge, and after being on BP for a while you'll realize who really means to help you, and whos just showing knowledge. Quick tip: with no offense to Anyone, usually when people only answer questions but never share their doubts, I would hesitate to take their advice, because everyone even the most successful experienced investor can Always learn something new.....
    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    7y

    Can you do it sure but why not more, at least a minimum $50 a raise, they are not finding another place for that amount so where will they move? The downside of doing it your way is that it can turn into a long move out notice to the tenant where the landlord tenant relationship deteriorates.  The better plan might be to stagger the raises between units to allow you to manage turnover.  Also consider raising the worst tenants first.

    0Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Richard Merkuris:

    thanks Randy I'll do that & your the first to really understand where I was coming from. 

     There are many types of investors on Bigger Pockets.  Many are either veterans with decades of experience, or people with a lot of money looking to invest their excess funds in alternative investments of which RE is one of many.  There are also RE investors who are new or relative new to RE investment who do not have a lot of money; people for whom the decision to invest in RE is a MAJOR life decision with major ramifications riding on whether or not they succeed or fail.

    After you hang out in these forums long enough, you'll be able to figure out which poster belongs to which group.  No one is providing bad advice on purpose, but not everyone in each group inherently understands the motivations and situations of people in each of the other groups.  

    Not all advice is suitable for all investors.  Some advice is almost universal across groups, but a lot is not.  Remember that and don't be so quick to act upon any piece of advice you read here.  It's important to know from whom the advice is coming from.

    -Randy

    3Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Colleen F.

    Thanks I didn't think of doing it that way of staggering it. Thanks for the good idea.

    0Reply
  • Richard Merkuris
    OP
    Rental Property Investor · Omaha, NE · Member since 2019 · 51 posts · 8 votes
    7y

    @Randy E.

    Thanks Randy for the advice I'll keep that in mind.

    0Reply
  • Tomiyo Williams
    Alpharetta, GA · Member since 2011 · 9 posts · 4 votes
    7y

    @Jeff S. Agreed

    0Reply
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