How much should I charge the Rent?

30 Replies

So I bought my first property and this townhouse already has a tenant in it. They pay 976 and I want them to sign a new lease of 12 months for 1300. Is this a good thing? the townhouse has 3 bedroom and 1 bathroom and I'm thinking of adding another bathroom. My agent told me the people there have been living it good, so it would be wise to increase the monthly rent. I do trust my agent, but I also want opinions from the Bigger pockets community.

How did you come up with the $1300 number for rent?  Look at what the comparable properties rent for.  Also check if there is a limit on how much you can increase the rent and if they are currently month to month or under a lease.  If the latter, you need to wait until that lease expires.  If they are good tenants, raising the rent over $300 will probably cause them to leave.

As for adding another bathroom, wait until the unit is empty.  Doing a major reno like that when it is occupied is asking for trouble.  Also check out how much it would cost and how much extra rent you'd get as a result.

@Theresa Harris I got the price from the surround area using Zillow rentals where it’s around 1350-1400 now how would adding a bathroom raise the price? I get it’s more in value but how much would the rent go up?

I agree with Theresa. You have to decide whether you want to keep the tenant or not as there are pros and cons to both. Good tenants are worth their weight and gold. If they are a good tenant that a small increase to ensure they don't leave would be the right thing to do. This will also allow you to not have to spend money on the reno right away which is one less expense to worry about. However, if the property simply will not cashflow unless you increase rent by more than $300 than your best bet is to follow state law to notify the tenant of the need to vacate, conduct your renovation, and hope to get a great tenant at the increased rate.

@Dan Travieso makes sense. I bought the house for 59,000 so I'm confused on if I should even consider moving the price up of the rent. My agent says to do it. But I just don't know. I'm trying to use the BRRRR method.

Originally posted by @Fahadbin Alam :

@Theresa Harris I got the price from the surround area using Zillow rentals where it’s around 1350-1400 now how would adding a bathroom raise the price? I get it’s more in value but how much would the rent go up?

 Look at the rent for a 3 bed 2 bath and compare it to a 3 bed 1 bath.  When doing renos, you do them for a reason-repairs are needed or it will increase the rent or value of the home.  If it costs $10K to add a bathroom, but you will only get another $25/month in rent and it adds $5K to the price of the home, you don't do the reno.

Originally posted by @Fahadbin Alam :

@Dan Travieso makes sense. I bought the house for 59,000 so I'm confused on if I should even consider moving the price up of the rent. My agent says to do it. But I just don't know. I'm trying to use the BRRRR method.

 How much you paid for the house is independent of how much you charge for rent.  If the rent doesn't cover the expenses, then it is a bad deal and you shouldn't buy it.  Read up on your local laws or get a property manager to handle the property for you.

Hey There @Fahadbin Alam You are asking some really great questions!  First and foremost, does the current rent make sense to leave it?  The other thing you can do is, have an open conversation with the tenants and let them know that your goal is $1,300.  What is their current rent?  Increase the rent every year until you are at your goal.  Ultimately, if they are solid tenants who have been there for years and never skip a beat, I would not focus too strong on the rental raise.  I have tenants that have been in the same property for 8 years, I raise their rent every 2 years, and they know that so there is complete transparency.  Is your agent an investor themselves or giving you a general opinion?  Not that it is important, more just curious.

As far as adding a bathroom with the tenants in place, this can get a bit sticky and a headache for everyone involved.  Contractors trying to get into the place, tenant availability, tenants complaining that it is taking too long etc.  Unless you want to relocate them temporarily and let the contractors have full access, I would'ntfocus on this.  Does a bathroom raise that much rent?  I have a property that is 3/2 in Akron, OH and it is about $75 more than my 3/1 located two blocks away.  However, my 3/2 in Tampa is $200 more than my 3/1 in Tampa so it really does depend on the market and demand as well.  

Everyone above has some great opinions, I would definitely look at the bigger picture as well :)

@Mike Mocek I love your response! In all honesty I can leave it since my equity in the house would be about 600$ because insurance and taxes. The tenants pay 976 the 76 comes from sewage and water.

Would there be any other way to raise up the price for a house like that? I’d always thought the more things you add to the house the value able it would become. My prediction was that I boost the house from 59k as it is now and make it 80k so that when I refinance I can do that with another house.

Hey @Fahadbin Alam in my opinion, I would raise the rent to $1,000 for the next lease renewal.  Let the tenants know that your end goal is $1,300 and that next lease renewal it will be $1,150 and the one after that $1,300.  UI am not familiar with the water situation in the area of your rental, here in Toledo, a single-family home the tenant is fully responsible for.  Could you do the same on your lease?  I am interested to know how the water is handled there, if you want to PM me and share this with me.  In Toledo, the water bill stays in the name of the owner but the financial responsibility is of the tenants.  However, in a MFH where there is 1 meter and multi units, the owner is financially responsible.

In my opinion, just talk to your tenants.  If they say oh no, we cant afford that, than look to see how good of a tenant they are.  If they are good, than just keep them where they are.  Other things to look at:  If you raise the rent, will they fall behind?  If they say no and move out, what does turning the unit look like?  If you are looking at a $15k renovation, keeping them where they are for the next year while you build your residual may not be that bad.  So many different roads you can travel!

@Fahadbin Alam  Check rental comps on Zillow if you are doing it yourself.   several things to consider.   1. Don't renovate, add bath, with a tenant in the house.   Just wait until they leave.  2.  If you want them to stay just do a modest increase of 3-5%.   Do this every year.   They are not moving over a $40 increase. 

What we've done in the past for this kind of situation is to talk with the tenants and educate them on what the market rents are in the area and print out the rent analysis so that they themselves can go vet it online. 

Now, with that out of the way, we will then tell the tenant the new rate. Sure, some of the tenants will negotiate the rate, move out, or take the increase. 

As for adding a bathroom, you can do that after the tenant moves out unless the rent bump is solely based upon that $1,300 rate. Plus, it is best to make sure that you are not over upgrading by adding a new bathroom, so make sure there is a need for a 3/2 in your area. 

@Fahadbin Alam there are a few things you can do. Here is a quick list to make sure you’re pricing it accordingly:

- ask your agent to run comps on rentals (there is an option for that)

- check Zillow for rent zestimate

- network with other investors who invest in the area to get their insight

- have a property management company assist you with the rental pricing

I hope that helps!

another option is to raise rents every 3-6 months until you get to where you want. if you use this option i would suggest telling the tenant what the plan is so they dont get shocked by so many rent increases. let them know they are over 300 under market and that you dont plan on raising it all at once but that you will get there with small increases every 3 or 6 months. if like other say and they have been good tenants and you want to keep them maybe explain that and tell them that although market rent is 1300 they have been good tenants and you are going to raise it in increments but only to 1200 for now.

Everyone has offered great advice. I prefer to keep good tenants with gradual rent increases. A house that makes money is good but a tenant that takes care of your house is gold. Some rents are so low for some tenants that it will be hard for them to move to an area with similar homes with true market rents in the future.

@Fahadbin Alam

3/2 means 3 bedrooms and 1 bath.

Comp means comparable (rent). If I were you, I would find similar rental properties nearby, and ask what they charge for rent. You can call or just knock on door. I’ve done both, just to keep track of what the competition is charging.

@Fahadbin Alam , Regardless on how you go about adding a second bathroom, there is no way to incorporate a new facility without disrupting the existing bathroom.

If a plumber is promising that type of turn around, ask to speak to references on past projects of the same type or run the other way.

On the rental side, no tenant is going to stand for an almost $400 rent increase overnight.