Do you include a regular rent increase in your lease?
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
The DIY Landlord Book4.7247 Reviews
Do you include a regular rent increase in your lease?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ voteshonestly i have never raised the rent.. if the tenant is really great ( which we strive for) I would rather leave them alone then have a turn over.. And I have seen tenants of clients of mine leave when they tried to raise the rent by 20 bucks..
So probably not the best .. but for me its OK when they leave then I can adjust up if need be.. So i take the path of least resistance and if they whine and need it lowered a bit and they again have been model citizens i would be inclined to do that as well before I have to deal with a turn over.
So probably not the best .. but for me its OK when they leave then I can adjust up if need be.. So i take the path of least resistance and if they whine and need it lowered a bit and they again have been model citizens i would be inclined to do that as well before I have to deal with a turn over.
46 Replies
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
Originally posted by @Ola Dantis:
This is an interesting question!
For the smaller assets (residential): I rarely raise rents especially if the tenant is good.
For the largest assets (commercial): We normally do upon renewals.
It's a double edge sword because if you keep the rents too low then you are not with the market AND if you raise too high then you may lose tenants. Balance is key!
What is your experience with commercial? In my market, commercial rentals seem to sit vacant much longer than residential. This would create an incentive to keep rents lower and try to keep the tenant in place.
The DIY Landlord Book4.7247 Reviews - 5yDaniel SmythPro MemberRental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
@Nathan G.
My properties are well maintained. Increases go up every year from 3 to 5% depending on the market as I see it in the area, and if I have people waiting to move in at the new price.
New price for the units will be 10% usually, and I let complainers know before they leave.
I tell tenants that all of my properties have risen in rent. I ALSO tell them that when they leave, I will rent out that same residence at 10% more.
Its a polite, take it, or leave and thanks!
Its business!
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes5y
Originally posted by @Nathan Gesner:
Originally posted by @Ola Dantis:
This is an interesting question!
For the smaller assets (residential): I rarely raise rents especially if the tenant is good.
For the largest assets (commercial): We normally do upon renewals.
It's a double edge sword because if you keep the rents too low then you are not with the market AND if you raise too high then you may lose tenants. Balance is key!
What is your experience with commercial? In my market, commercial rentals seem to sit vacant much longer than residential. This would create an incentive to keep rents lower and try to keep the tenant in place.
For our large multifamily assets, our third-party management company tries to follow our business plan by instituting the 3% rate escalator every year. Now, with everything going right now, the property management isn't as aggressive with the rate increases.
Originally posted by @Nathan Gesner:
Originally posted by @Jill F.:
No. We fix up our properties to be the nicest in the neighborhood and price at the very top of the neighborhood market on turnovers. Currently we are raising the rents in our properties when property taxes are reassessed (every 3 years). I inherited a group of tenants with automatic rent raises but it was (not surprisingly) VERY unpopular. While rent increases are never popular, being able to point to a price increase to us, I think, takes the sting out a little bit. We also don't have rent control or capped increases to worry about here.
I manage 400 rentals with automatic increases and literally get no more than a few complaints each year. I encourage them to shop around for something comparable (there's rarely anything available) and then ask them to consider the cost of moving. It doesn't take long for them to realize a $32 monthly increase is the far better option. Most people appreciate knowing what the increase will be in advance and that it's small enough to easily swallow.
Hey Nathan, Are you doing this with lower income rentals? It would make my life easier to do this but I'm not sure my market will bear it. I think part of my problem is that the last maybe 5 years is the first time in DECADES that Akron has had any real appreciation in purchase and rent prices so tenants aren't use to rent increases. It was probably 2016 before we finally got close to back to the pre-2008 (2010 bottom) crash prices. The tenants I inherited were in $500/month apartments complaining bitterly about a flat $10 increase. After my renovations, I'm getting up to $650+ all utilities gas,electric, water, trash for those units which is high for this neighborhood (they're cool mid-century modern properties and nicely sited by a park) but right on the other side of the park is a large public housing project. $650 is slightly over the median for a one bedroom in the greater Akron area and I'm probably doing better than it seems because water/sewer/trash is tenant paid in these units and in Akron it's more often landlord paid. With my last purchase I have started trying to buy higher end properties in better neighborhoods. Do you have feeling if this automatic increase strategy will work at the very price sensitive bottom or would I be better off to try it in my nicer properties?
- Member since 2016 · 4 posts · 2 votes5y
@Jay Hinrichs that’s the reason why I haven’t left my landlord lol he never raised the rent
- Flipper/Rehabber · Atlanta, GA · Member since 2014 · 166 posts · 88 votes5y
My units all meet the 1% rule or better. I price my units at the top end of the market and do not raise rents unless my expenses increase significantly enough where I fall below the 1% rule. In my opinion its not worth increasing rents every year just to keep up with the market. Unless you did a major improvement to justify it. If you have a good tenant let them stay. They will be there for a long time and overtime will realize they have a good deal but in reality you had the better deal because 1 tenant could potentially pay off your property. Now if they move out then the next tenant will pay market until they move out and so on.
- Property Manager · Albany, OR · Member since 2016 · 58 posts · 23 votes5y
@Nathan G. I base it on the market and my tenants. I currently only own a duplex, but one side was rented out at the top of the market in 2019, and with covid the next year I did not do a rent increase. I dony intend to increase her rent unless the market changes. It doesn't make sense for me to increase a tenants rent if that tenant can leave for a better deal because the market doesn't support it. Then I might be stuck asking for LESS rent than what I'm currently getting. The other half of my duplex is a tenant who has been there for years before we even bought it. He is way under market, but his unit is super outdated and he does landscaping and is a great tenant. I did a $50 increase about 6 months into owning the property, and haven't increased since. I might do another increase in another year or so, but for now I'm making money and I'm happy charging less for not having to pay for landscapjng.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
I use the same procedure for all rentals, regardless of price. Like everything, it depends on your market and your procedures. It won't work for everyone.
The DIY Landlord Book4.7247 Reviews - Rental Property Investor · St Augustine, FL · Member since 2019 · 265 posts · 279 votes5y
@Nathan G. I send out new lease 60 days prior to expiration. In the past I have always raised rent by 2.5%. My taxes go up every year, my insurance goes up every year, my HOA goes up
Every year I have repairs every year. So yes you must raise your rent with each new lease, regardless of how great the tenant is. Save the extra money because sooner or later you will
Need it for a major repair. I just got a call this week for a leaking roof. There go my profit for a few months. I have reserves but if I don't keep my rents up my reserves go down and then my tenants suffer the consequences. I know this sounds crazy but raising rents allow your tenants to have a better place to live and allows you to be a better landlord.
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes5y
Originally posted by @Nathan Gesner:
Originally posted by @Richard Weinberg:
A few years ago I did one with a four year lease and by the time the tenant moved out, they were $350 under market but on the other hand I had no turnover in that house for four years and had a great tenant and that was the deal.
Let's do the math. After four years they were $350 behind on rent. That's a missed increase of $87.50 per year.
Year 1: $87.50 x 12 = $1,050
Year 2: $175 x 12 = $2,100
Year 3: $262.50 x 12 = $3,150
Year 4: $350 x 12 = $4,200
Total losses after four years: $10,500
On a $1,500 rental that's equivalent to seven months of vacancy! Staying current with market rates and dealing with a month of turnover would have cost you far less and you'd probably have enough leftover to handle a painting or some new flooring.
I was just getting ready to offer the same feedback that you provided in response to Richard. An additional word of caution is that its harder to get rid of a bad tenant if you need to if you've got them locked in for 4 years. "Due Diligence" isn't limited to checking their credit score or work history. I NEVER sign rental contracts more than one year in consideration of the need to let them go at the end of the 12-month contract if necessary. Case in point; had a tenant that we did due diligence on. No problems. When we did a walk-through at the end of the first year we found a murder scene in the back bedroom. OK. Joking. But the room was in such terrible shape with horrid stains on the carpet that we were tempted to call in a hazmat team. Glad we go them out. I had a new tenant within two weeks after we replaced the carpet.
- Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes5y
@Nathan G. I’ve never done it but something to think about. Does this happen more in commercial?
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
Originally posted by @Jaquetta T Ragland:
@Nathan G. I’ve never done it but something to think about. Does this happen more in commercial?
Commercial leases are typically for longer terms of 3 to 5 years. The terms are widely varied. Some landlords will lock the rate for the entire term and some will build in an annual increase. I'm not in a large enough market or dealing with enough commercial property to say that there's a standard method.
The DIY Landlord Book4.7247 Reviews @Nathan Gesner we do not include it in the lease, but I have considered it. I think it's a great way to take emotions and "shock factor" out of the decision to increase rents. The tenants will be prepared for the pending increases as soon as they move in.
- 5yMike HurneyPro MemberReal Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
@Peter McKernan
Hey Peter,
You ever think about hiring a Public Adjuster? May want to check into using one... We use Len Theran
who is great, always enough to do ALL the work.
When you keep that much in reserves, would it make any sense to schedule upgrades on a regular basis then when you have more than enough...another property?
Mike
Y
- 5yMike HurneyPro MemberReal Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
Hey Matthew, 2 things I always do, 1. Give increases 60 days in advance like @Fred Cannon which seems to be appreciated! 2. When someone gives me notice they're leaving, I go to the unit with them ASAP. First to see if I can do anything to keep them (which has NEVER worked;-) and Second to assess any damage or work needed: ("Look I do NOT want to keep any of your Security Deposit so YOU'VE got to get this work/damage fixed ASAP, here's some local Handy Men or I'll have to deduct $x!" works great!!!
- 5yMike HurneyPro MemberReal Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
Hey Nathan, I love the 3% annual increase. All too often, I miss an annual renewal (all our Leases are "Tenant @ Will" (month to month), then we have to renew at an inconvenient time i.e. Christmas, April 1st, after a Nor'easter, after something has been fixed, etc
Then it's an emotional thing e.g. "This son of a gun was late (by a day) every single month, let's jack it up!" or "They always send a card with the rent, let's only do 1%" ;-)
- Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes5y
I am with Jay I have it in my lease to raise rent every renew. I will not raise rent to get a few dollars when I have a good tenant. Lot of folks will move out over some small amount increase it’s that simple lose a good renter over a few dollars then roll the dice on a new tenant I will pass.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @JD Martin:
I play it by ear. Most units seem to turn every 2-4 years and I just do a market reset at that time. Occasionally I go up if someone is staying put and they are getting out of whack. I get the argument about leaving money on the table but I also like what I call lazy landlording, and part of that is eliminating turnover whenever possible.
I don't leave the rent where it is because I care about making the tenant happy one way or the other. I know tenants will leave whenever they need to for any reason - I've had some real bizarre move-out stories - I do it because it suits me.
This is not just the rental industry either. Plenty of industries don't raise their prices unless absolutely necessary because of competition, maintaining market dominance, etc. Very few business build in automatic price increases - you respond to the market and to your own needs. If rents are stagnant but my RE Taxes go up I'm going to raise rents. If rents are exploding but my costs haven't changed I probably won't.
One other thing: I see people talking about being way under market as if there's some sort of market police that are going to come around and issue you a citation. Of course I know what my market rent levels are, but I set my rent prices at the level *I* need them to be relative to the market. If I have a property making $500/month cash flow, and I feel it is fair, I couldn't care less if the market says I "should" be getting $600/month for that property.
I look at the simple math.. for me ( that's Me not you or someone more efficient) but a turn over has always been 30 to 90 days.. plus 1k to 2k in renovations to have a nice pristine unit. so it becomes risk reward.. at 25 a month increase that's 300.00 a year.. I have a turn over and that cost me at LEAST 2k .. so it would take 7 years about to just break even . Plus my time .. and having to pay ( if I had a mortgage) mortgage payments etc.. if one has a larger portfolio i can see taking the vacancy risk since your probably always dealing with a vacancy at some point during the year.. but for me personally with having very few .. It just does not make sense to risk a vacancy.
And for those land lording in C class semi rougher areas.. Vacancy takes on a LOT of risk.. risk of theft and vandalism all to chase 25 bucks a month. So all factors combined it comes down to your risk tolerance. So to me it makes sense to adjust rents when tenants move.. you have a organic turnover and you can assess market rents at that time.. Now if you have tenants staying for years and years and years well then maybe you look at those differently.
But with a lot of blue collar C and D class rentals that this new crop of landlords are buying.. 25 bucks a month to us does not seem like anything but when you have a 800 dollar rent and a renter who barely qualifies for that 25.00 means something to them its hard for us to compute sometimes as blessed as most of us investors are these days here on BP..
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
Originally posted by @Jay Hinrichs:
That's the main point: everyone needs to evaluate their situation and make an educated decision.
For me, turnover typically results in less than one week of vacancy. For a tenant to move, they have to find a comparable rental, come up with a deposit, first month's rent, utility deposits, and the time/cost of actually moving. Even a cheap apartment dweller may need to come up with $1,000 to make it happen, plus their time and energy. Will they go through that trouble to avoid a $30 increase ($360 annually)? Even if they could find a comparable apartment that fits their timeline, they are unlikely to spend $1,000+ to avoid $360. The devil you know...
Every situation is different. Landlords need to evaluate the impact to their renter and the risk of losing them, then decide whether to increase or stay the same.
The DIY Landlord Book4.7247 Reviews - 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Nathan Gesner:
Originally posted by @Jay Hinrichs:
That's the main point: everyone needs to evaluate their situation and make an educated decision.
For me, turnover typically results in less than one week of vacancy. For a tenant to move, they have to find a comparable rental, come up with a deposit, first month's rent, utility deposits, and the time/cost of actually moving. Even a cheap apartment dweller may need to come up with $1,000 to make it happen, plus their time and energy. Will they go through that trouble to avoid a $30 increase ($360 annually)? Even if they could find a comparable apartment that fits their timeline, they are unlikely to spend $1,000+ to avoid $360. The devil you know...
Every situation is different. Landlords need to evaluate the impact to their renter and the risk of losing them, then decide whether to increase or stay the same.
Nathan for sure its location specific. tenants in many of the markets I worked stayed on average of 18 months. so moving was just what they did.. Many folks in some of these cities will live in 30 plus homes within their community over their life time. I learned this when I spent a year in Jackson MS. I had a desk at a local PM company so I was able to witness it.. plus as stated we had 350 houses at one time. so I had to manage all of that. My A class rentals in the same state MS was a lot like what your talking about usually could get someone in there within 30 days but had to for sure spend money sprucing it up.. And those folks moved for other reasons almost always because they decided to buy a house.. I did have one stay the entire time I owned it.. 12 years or so.. I just had a renewal on an A class in Vegas I own and I said for another year lease we would not change they signed right up. Great tenant though and a 10 year old home in perfect condition. He is a DOD contractor working out in the Desert somewhere LOL. So Like JD Martin said I like the lazy landlord don't rock the boat .. I did hire a HVAC service to go over and do a through run through of the system change all the filters make sure AC is in great shape etc. and ask them for any other honey do's I think tenants appreciate that.. as well as this home when I do move on from it will 95% go to an owner occ buying a home to live in its not really a rental per se..
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