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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  • Kesha Crichlow
    Brooklyn, NY · Member since 2017 · 2 posts · 1 vote
    7y

    @Richard Merkuris

    Depends on your state rental laws, not allowed in NYC

    1Reply
  • Ryan Deske
    Member since 2019 · 2 posts · 0 votes
    7y

    I purchased a three family property about a year ago and one of the rents is $250 below market value. What is the best way notify the tenant and should I do it all at once or over time? It is a long term tenant that has been great so far and is on a month to month lease. Thanks!

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  • Heath M.
    Rental Property Investor · Chattanooga, TN · Member since 2017 · 203 posts · 188 votes
    7y

    For a long term tenant that was a great tenant, I'd keep them slightly under market value.  I'd have the conversation of what market value is and where you want to take them.  I'd probably go in $50 increments or just do a $100 year 1 and then year 2 maybe $50.  Then keep it right at $100 below market value.  $1,200 a year less rent income is less than what it would cost you to replace them and then who knows what kind of tenant you'll get.  That's just my thoughts...  YMMV

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  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    Either you bring it to current value or keep it as is. If I was the tenant there for 10 years with little or none increase, the place is not updated I will be going to a place with all modern amenities and pay same rent. Every 6 month increase will get no support from most tenants.


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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    7y

    Often times there's another angle to this.

    The landlord believes that the rent is way below market, based on either research or their wild dreams. However, S/he doesn't want to really test that theory by implementing the rate all at once and risk losing the existing tenant. So they just keep raising it on some kind of schedule like this until they find the pain point. They're not at all confident that they can get that "market" rate, so they use the existing tenants as guinea pigs so they can have it both ways. 

    If I had a place with existing tenants on month to month, and I believed they were several hundred dollars lower than fair market rate (not "dream rate"), I'd give them fair notice that rents were increasing by several hundred dollars so they had time to either move or come to terms that they've been getting a bargain for a long time and now they'll be paying the fair rates; I don't see the point of giving away that much money by inching it at $25 every 6 months. That would take 4 years just to get to today's level, which means you'd never get there. It all depends on how confident the landlord is on his/her market analysis. 

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  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    If the rents are truly under the market give them proper notice and raise it to what you think is a fair price.  Get straight to the point. Rasing it every 6 months is shady and I would not like it if I was a tenant.  I always look at both sides of the coin. 

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  • Jeremy Jutkowitz
    Member since 2019 · 1 post · 0 votes
    7y

    @Richard Merkuris in 2.5 years, the market will likely be higher, and after all this you will still be behind.

    0Reply
  • Kari Watts
    Member since 2018 · 4 posts · 1 vote
    7y

    Hello,

    Raise your tenants rent every six months?!?!

    Is it justifiable? Are you upgrading their flooring and appliances?

    Are you keeping fresh paint ?

    Have you rid your unit/s of hideous bacteria and germ infested carpet and replaced it with something that resembles wood? 

    Are you installing a garbage disposal? Nicely kept garden maintenance?  Paid by you... Do you pay the utilities? 

    How much are you wanting to raise it by? Could you afford to have your rent / mortgage increased every six months? 

    If a landlord raised the rent like that I guarantee a high turnover and that makes a lot of extra work for you or the management company. Which means you'd be constantly screening new tenants and walking though formerly happy good nice tenants who also get their deposit back within 21 days. If you charge them more than a SMALL cleaning fee , going on the notion they havent caused any damage in such a short amount of time with in 21 days of their exit. Possibly spend a lot of time in small claims court. Sounds like you'd charge them for a hook in the wall.

    Ask your self if you really want to be that person.

    Being a landlord is not a faceless job. These are human beings you're dealing with. Its appalling to think you could live with yourself if you raised the rent every six months.  People like you need to be stopped.

    Good day

    0Reply
  • Kari Watts
    Member since 2018 · 4 posts · 1 vote
    7y
    Originally posted by @Richard Merkuris:

    @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

     You don't need to answer every person this way.

    You really are into torture . New at the biz , right?

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Richard Merkuris be careful of confirmation bias. This is when we ask a question to get feedback but in reality it’s just to get the answer we want to hear or only to find others who agree with us. Nothing wrong with getting confirmation as long as you are honestly considering the input of others that might run contrary to your current thinking. Weigh all the input but in the end do what you think is best of course!

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

    @Brian Gerlach

    Well Brain that is why I put the question out there to get input from other investors & to learn more. And every one has had a good point to make. But starting out I need that positive for the mean while as I upgrade the property's. It's just not about the money it's about survival at this moment and getting the property's to where they need to be at.

    Thanks for the reply.

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

    @Kari Watts

    Thanks for your input Kari but wow. You have judge me before you know me. If I was heartless like you think I could just say to all the tentants that you have 30 days to leave the property's & rehad the property's all at once & bring it all to market rent leave. Then those tentants could end up homeless like I am now so I appropriate everyone's opinion but don't Judge me before you know me

    Thanks & have a great day Kari

    0Reply
  • Hal Fitzgerald
    Chicago, IL · Member since 2019 · 91 posts · 21 votes
    7y

    It sounds too often. Raising rent within a reasonable range every year is feasible. I think most of your tenants can not accept it.

    0Reply
  • Deanna O.
    Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes
    7y

    Some people will always  be renters. 

    I would actually NOT stagger the rent increases. Renters talk amongst themsleves -- how would you feel if the landlord raised your rent, but not your neighbor's? 

    For "market rent"  make sure you are really comparing apples to apples. As brand new property owners their is the temptation to fall in love with our shiny new property, which can skew our perception of it's market value. In order to be a comp it truly needs to be comparable -- "just the same" but not in the same neighborhood, configuration, amenities, condition is not truly "the same". It might be better, might be worse.

    6 months MIGHT be OK, but I'd let the tenants know where you are headed. You could also do a hybrid -- "I was going to raise $100, but I know that is hard to adjust to, so you might say "$50 increase now, another in  yr" (that really does sound different, even though the numbers are the same).  Do check your state laws -- it's POSSIBLE that by you raising the rent your tenants may not have to give 30 days notice, & you could have a vacancy on short notice.

    Personally I err on the side of lower rent, but raise between tenants -- that's more stable. 

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ 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)

     Wrong? No assuming your property isn't in a rent controlled area. Now the real question is, is it market competitive?

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

    @James Wise

    Yes the property would of been with the repairs that was going to be done to the units, but it doesn't matter now because deal didn't go through cuz owner backed out.

    0Reply
  • Adrian StamerPro Member
    Real Estate Investor & Agent · Richmond, VA · Member since 2013 · 319 posts · 167 votes
    7y

    Sorry to hear the deal didn’t work out. I personally was in a similar situation this year with 18 units, while mostly vacant still has (or had) some tenants at around $225 under market rent. Previous owner self managed and was very old so wasn’t really on top of things

    My approach with the legacy tenants was get all the vacancies rehabbed and filled and then offer them $100 rent increase and a year lease (they had been month to month) or two months to vacate. While it didn’t absolutely maximize gross rents, I felt it was a fair compromise. 

    In this situation any tenant to leave would then require a $1-5k rehab on the unit, but with a cash out refi planned for the start of the year raising the rents $100-200 a unit easily recovers any outlay

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