Is my property manager right?

General Landlording & Rental Properties
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Is my property manager right?

Daniel Selnes
Member since 2020 · 3 posts · 2 votes

I have one property in California rented through a property manager.  My tenant has been renting for 2 1/2 years.  I raised the rent by 3% after one year, and now asked the property manager to raise the rent again by about 3% in six months. That will be the 2 year anniversary of the last rent increase.  The property manager warns me that I might loose the tenant if I do this, and that my house is not so easy to rent out.  So I will be looking at prepping the house and loosing a few months rent.

I'm new on the forum, and don't really consider myself a landlord.  I rely on the property manager's advice.  But in this case I'd appreciate some advice from the forum on whether it is reasonable to raise rent annually by the rate of inflation.  I think that is easier than having someone in the house for a long time, ans then try raising rent by 10% after 5 years.

The tenant always pays the rent on time.

Any thoughts?

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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
6y
Originally posted by @Daniel Selnes:

I have one property in California rented through a property manager.  My tenant has been renting for 2 1/2 years.  I raised the rent by 3% after one year, and now asked the property manager to raise the rent again by about 3% in six months. That will be the 2 year anniversary of the last rent increase.  The property manager warns me that I might loose the tenant if I do this, and that my house is not so easy to rent out.  So I will be looking at prepping the house and loosing a few months rent.

I'm new on the forum, and don't really consider myself a landlord.  I rely on the property manager's advice.  But in this case I'd appreciate some advice from the forum on whether it is reasonable to raise rent annually by the rate of inflation.  I think that is easier than having someone in the house for a long time, ans then try raising rent by 10% after 5 years.

The tenant always pays the rent on time.

Any thoughts?

 By your own admission you're not experienced in the rental business, your property manager is. Listen to your property manager's advise. Otherwise what are you paying them for?

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  • Brandon Cooper
    Rental Property Investor · Winston Salem, NC · Member since 2019 · 63 posts · 54 votes
    6y

    @Daniel Selnes personally i wouldnt raise the rent. Having a good tenant who pays on time is invaluable. Is 3% really worth that?

    0Reply
  • Mark Fries
    Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @Daniel Selnes

    3% is nominal I would not mess around with possibly losing the tenant over such a small dollar amount. Let's say you apply the increase and they move out then you're dealing with a turn over and loss of rent for possibly 2 or 3 months... All over a measly 3%...

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @Daniel Selnes:

    I have one property in California rented through a property manager.  My tenant has been renting for 2 1/2 years.  I raised the rent by 3% after one year, and now asked the property manager to raise the rent again by about 3% in six months. That will be the 2 year anniversary of the last rent increase.  The property manager warns me that I might loose the tenant if I do this, and that my house is not so easy to rent out.  So I will be looking at prepping the house and loosing a few months rent.

    I'm new on the forum, and don't really consider myself a landlord.  I rely on the property manager's advice.  But in this case I'd appreciate some advice from the forum on whether it is reasonable to raise rent annually by the rate of inflation.  I think that is easier than having someone in the house for a long time, ans then try raising rent by 10% after 5 years.

    The tenant always pays the rent on time.

    Any thoughts?

     By your own admission you're not experienced in the rental business, your property manager is. Listen to your property manager's advise. Otherwise what are you paying them for?

    4Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y

    Rents vary by location...could be a 3% increase in one location, 6% in another, and -3% somewhere else.  The PM should know the market with a high degree of accuracy.

    1Reply
  • Account Closed
    Investor · Mills River, NC · Member since 2019 · 37 posts · 68 votes
    6y

    @Daniel Selnes

    You should look at comps and see what they're charging. It's something your PM should already be doing and hopefully is, but it could be worth your own investigation.

    1Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    @Daniel Selnes If I am reading your post correctly and you are talking 3% per year increase I would thank the PM,  and have them raise the rent regardless. 3% is barely keeping up.

    2Reply
  • David Avetisyan
    Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes
    6y

    I personally wouldn’t be able to answer your question until I knew a lot more about the property, such as:

    1. What city is it located in?

    2. What condition it the property and unit in?

    3. Is it a single family home?

    4. Is the property under ‘rental control?’

    5. How long have the tenants been occupying the property?

    To your success!

    0Reply
  • David de Luna
    Rental Property Investor · NorCal · Member since 2018 · 399 posts · 222 votes
    6y

    Do some research on the rent - deep research. If the numbers come out that a higher rent is in order, have a conversation with your PM about it. At the end of the day, if it's a toss-up after he explains WHY it will be difficult to refill the vacancy, you'd better side with him and leave it alone. Do the math, cuz I have - a desire for a 3% increase in rent will take a VERY long to time get to after it covers one month of vacancy loss. Sometimes you count your blessings - on-time rent - and leave it alone.

    0Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    6y

    @Daniel Selnes

    How much do you trust the PM? If he knows his stuff and is giving you good advice, you should take it, whereas if you don’t you should find a new PM.

    0Reply
  • David de Luna
    Rental Property Investor · NorCal · Member since 2018 · 399 posts · 222 votes
    6y

    ...

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    I would look at the comps and see what they are renting for.  If your rent is close, it isn't worth a month vacancy to increase the rent.  You could increase it a small amount ($20/month) and I doubt the tenant would really care as it isn't worth moving over that small amount.

    1Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    6y

    @Daniel Selnes At face value your proposed rent increase sounds reasonable, even low, for most of California. However, since none of us know your particular rental property or even what city you’re in, we can’t answer your question with any degree of accuracy.

    I’m assuming your property manager knows your property and local market though, so you’d have to give some weight to the advice they’re giving you. After all, they’re the local experts (or at least they should be). I’m sure if they thought you could raise rents they’d recommend you do it since most PM fees are based on a percentage of rent so a higher rent would mean more money for them.

    There must be a valid reason they’re telling you not to raise the rent. I’d at least consider they might be right, especially since you said you’re new and you rely on their advice. Ultimately it’s your property though. 

    2Reply
  • Daniel Selnes
    OP
    Member since 2020 · 3 posts · 2 votes
    6y
    Thanks all.  The property is single family 4 bedroom in Coastal San Diego.  The house is from the 70's and is in normal condition for its age.  It has a reverse floor plan (kitchen and living area on second story to take advantage of view, which is now somewhat obscured) 

    Current rent is 3,450. Rentmatic sets the average for a 4 bedroom in this neighborhood at
    3,933. I was thinking of raising to 3,600 which equates to 3%.  The last raise in will have been 2 years ago.  The PM is suggesting maybe raising to 3,500. (I do trust the pm -- I just do not understand why this house should be so hard to rent out)

    If the tenant leaves and I need to prep and it takes 2 months to rent at 3,600, it will take almost 5 years to recoup.  Then again, I don't expect the tenant to be here in 5 years anyway.  So I will need to take that hit sooner or later anyway.  
    0Reply
  • David de Luna
    Rental Property Investor · NorCal · Member since 2018 · 399 posts · 222 votes
    6y

    Maybe it's a decent gamble - if you lose, you bite the bullet on the 2 months lost rent, get the rehab done and get someone in at 3900. If you are peace with and are financially ready for a rehab today, then so what - raise the rent to 3600. If he stays, you bought some time, actually being PAID to wait. If you lose, well, you knew what you were going to do with the unit when he moved anyway...

    1Reply
  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    6y

    Listen to your PM. This reminds me of my clients who get pissed we raised rent 1% instead of 2.5%. Ok fine, let's do it your way, but don't say a word when you have a vacancy for ignoring our guidance. 

    [email protected]732-289-3823
    0Reply
  • Jamie Shah
    Rental Property Investor · San Ramon, CA · Member since 2017 · 35 posts · 12 votes
    6y

    Do you have other properties that your property manager manages and how long has he managed this property for you? What I'm trying to get at is, through your experience with the property manager, has he/she been proactive in managing your property, finding tenants, fixing issues/repairs, etc.? You need to gauge whether you trust your property manager to do the right thing or not. You cannot partly trust him/her. 

    If you believe your tenant will stay for 3-5 more years, there are other ways to increase rents. Offer them something in return (e.g. if you provide appliances and those are old - try to replace the stove or dishwasher), so it seems like a softer blow to the tenant. You want to find a way to reduce the possibility of turnover because that can cost you money that will typically take a while to recoup. BiggerPockets forums have numerous other tactics you can take to increase rent if you really want to raise rents. Good luck. 

    0Reply
  • Greg Morris
    Flipper/Rehabber · Spanish Fort, Ala · Member since 2019 · 97 posts · 88 votes
    6y

    Leave alone until they move out raise it 3 % afterwards.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    The PM is either an idiot or is trying to have a very easy time with his PM duties.  In 2019, San Diego had modest rent appreciation, but the last few months the rents have been increasing at a high rate.  I expect rents will increase 7 to 8% this year and have been using 4% in my pro forma. 

    3% increase for a 2 year span is below market increase.  It is likely with this increase the tenant is below market rent and Rentometer seems to concur.  

    I am sending out 2 rent increases this month and they are far more than 3% increase. 

    Good luck

    0Reply
  • Jack SmithPro Member
    Rental Property Investor · Massillon, OH · Member since 2017 · 215 posts · 168 votes
    6y

    1.) Learn your market to become a more intelligent investor.  

    2.) Ask your PM for comps to make an educated decision.  

    3.) You make the call, it's your property, and live with the results.  Be the boss of your investment!

    Every PM is biased by their work ethic and their agreement.  Everyone has their own motivations... which generally isn't to make or save us money!  If they get a commission with each new lease there's motivation to have regular turnover.  If they get a cut of rent-ready costs, they make even more money off you.  However, if the market rates are increasing you can get higher rents, they get higher commissions all around.  

    A 3% increase is a nuisance increase in this economy, I'd bet you're under renting at that pace.  With this conservative approach I'd assume you're probably below market to begin with and this would only put you further behind.  Greatly agree with other sentiments that your PM is playing it safe / lazy.  This kind of recommendation would make me suspect of the PM.    

    1Reply
  • George Munoz
    Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes
    6y
    Originally posted by @Daniel Selnes:

    I have one property in California rented through a property manager.  My tenant has been renting for 2 1/2 years.  I raised the rent by 3% after one year, and now asked the property manager to raise the rent again by about 3% in six months. That will be the 2 year anniversary of the last rent increase.  The property manager warns me that I might loose the tenant if I do this, and that my house is not so easy to rent out.  So I will be looking at prepping the house and loosing a few months rent.

    I'm new on the forum, and don't really consider myself a landlord.  I rely on the property manager's advice.  But in this case I'd appreciate some advice from the forum on whether it is reasonable to raise rent annually by the rate of inflation.  I think that is easier than having someone in the house for a long time, ans then try raising rent by 10% after 5 years.

    The tenant always pays the rent on time.

    Any thoughts?

     Keep. Unless you think that by do in it you don't mind losing tenants, you fix, ( force appreciation ) and then you could refi and use the money for another deal,  but if you are chill and have no intention of maximizing this asset.  keep it as is... 

    0Reply
  • Soh Tanaka
    Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
    6y

    You can call other property managers in the area and see if they will give you some advice. Also, ask your PM why they think the way they think.

    0Reply
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