I purchased an apartment building just before Covid hit in upstate NY. Rents are well below market and the plan was always to raise them but for obvious reasons I haven't yet. My market seems pretty tight so I if some leave I should be ok. Most tenants have been there 5+ years so I'd like to keep them is possible. Long story short anyone currently raising rents and would you in my situation?
I haven't raised any rents on current tenants since this whole thing started. I did have some tenants move out and then I raised the rent before re-renting it though. Fortunately, all of my tenants have been managing to pay the rent on time, even the ones who have been out of work due to COVID. And personally I want to keep it that way, so I won't be raising any rents for the time being.
Unfortunately, it's hard to give you good advice on what to do here because nobody knows exactly how it will play out. On one hand, you don't want to lose out on money by having your rents too low. But on the other hand, it sounds like you're fortunate to have all paying tenants and you might not want to risk rocking that boat.
What I can tell you is, the worst possible scenario is actually NOT you raising the rents and your tenants leaving and you having to re-rent the place. The worst possible scenario is you raising the rents and your tenants staying put and no longer paying rent (either because they can't or because they decide not to). If that happens, you're totally screwed because you'll have no rent money coming in and you won't be able to re-rent it or get them out due to the eviction moratoriums in place almost everywhere. So that's definitely something to take into consideration.
Absolutely! You’re still running a business. Make a business analysis and decision. If raising rents means people will leave and you will not be able to fill vacancies, then not a good idea. If raising rents to market rate means they pay, or you can get new tenants, then you raise the rents.
I raised rent on a few of my properties before Covid, but I wouldn't raise anything else during this time. You are running a business but there is something to be said for social responsibility and you don't have to choose between the two to be successful. I feel like it has worked out fine for my family and I to be successful investors and still care about the impact of the decisions we're making. Many states have orders to stop landlords from raising rent at this time anyway.
We are being selective. If we have a unit that's $100-$150 under market or more, we have been raising those rents. However, if a unit is already at or near market rent, we've just been renewing a year lease at the same price. Better to have a lease in place than risking a vacancy most times I think. You could also just do minimal increases if you want to keep the increases going. Something like $10-$20.
My taxes and insurance went up on all my properties, so why wouldn't I raise rent?
@Kyle J. Thanks for the reply Kyle. Your right on the worst case scenario. That’s one of my fears. No rent and no way to re-rent it. NY for now is in better shape then most states so hopefully the moratorium will be lifted soon.
I gave notice to two tenants that rents were going up with lease renewal. Where they are there is a cap and one is going up to the max ($35) and the other is less. My expenses have gone up and both are fine with it. Another I already increased rent when I had a turnover this spring (no cap, so I was able to up it to market value.
I check property tax and insurance cost on a property and if the total remains about the same, I don't raise the rent. I'll go up those costs go up.
All my properties are currently under market price, and they still cash flowing plenty and remain attractive to tenants.
I agree with Cory. Having a good tenant is gold and losing them because of a raise in rent is not worth the resulting vacancy and unknown new tenant. I try and keep my rents as stable as possible based on increases of taxes and insurance. My general game plan is to price slightly under market and stay fully rented.
@Anthony Wick I hear you Anthony (good name!). I had 1 tenant leave right at the start of this. I did a light rehab and rented a 1 bedroom for the same price as a current 2 bedroom, in 6 days! So seems like a no brainer, just a little gun shy due to the madness. Thanks for the reply!
@Samantha Dowd I get what your saying and I do agree. It easier to be a hard a#s on paper. Then again it’s hard to say if any of them have been effected financially during this. Thanks for the reply!
@Ethan Jacobsen Thanks Ethan. I had a similar thought. Some are extremely below market others are close. My thought was I am already doing far more for them then the previously owner and they’re month to month so increase $50-100 but offer a year lease along with the increase.
@Joe Splitrock Exactly! Thanks Joe.
I suppose I should mention that raising rents every single renewal is not our policy. We analyze the market and our costs every time a renewal comes up. I raised one tenant this month and didn’t raise another. Both decisions were sound and right and were based on the market, not just on the tenant.
Btw; there are lots of good tenants out there. Keeping rent the same just because somebody is a good tenant is poor business, and lazy.
I just raised rents and do every year.
Rents are trending up where I am. Largely because there are few rentals. I'm not raising rent because I'm already prices on the high side, but I wouldn't hesitate to raise rent due to covid. If they are struggling they are probably already on their way out.
@Larry Zucker Can’t say I don’t agree with you and Cory’s stance. It’s cash flowing nicely and there is absolutely something to be said for stable, paying tenants that give very little grief. It’s tough though running the numbers are market rate, man do they look good. Then again pigs get slaughtered :).
@Anthony Wick Well said! Not to mention I purchased the place to fix up and raise the rents to a competitive market rate. The tenants who want to stay will have a reasonable rent with a much nicer property. Your right leaving the rents and property as is and underwhelming is not why I got in to this. Thanks again for the insight.
@Bernard H. Good point. Maybe I’m over thinking it. Thanks!
@Eric James . Thanks Eric! There is something to be said for a tight rental market.
Yes, on new tenants coming in and on one tenant that was renewing their lease.
I am not raising rents, but my rents are more towards "market" before Covid. At this point, keeping tenants is the priority. You should be fine raising rents if they are below market. Whenever I buy a building, I usually lose some tenants.
I'm getting ready to lower my rent...potentially. My property only has two units and I allowed them to roommate up. I'm expecting to lower rent about $200 to $400 but may not have to if I can find them the right roommate. Hope that helps.
Question, where are you upstate?
Sticky situation I would do it On a case by scenario. We didn’t raise rents in our tenants this year in our units priced close to mkt rent. I feel like things are going to get bad after July. In an effort to make us look less heartless. We will just increase it by 8% in 2021 vs the standard 4% we would have raised it in 2020.