Newbie Landlord-How to Deliver a Rental Rate Increase

7 Replies

Hello everyone my name is Jason Willis and I am in the process of closing on my 1st property. It is a single family home in a great town here in Southeast Texas and I am looking for an answer on how to inform the renter of increase in the rent when I close. The current renters are wanting to stay in the property, they have been there for 2 years but the previous owner bought the house with cash and did not have the expenses I will have and had the rent WAY below the market for that area. They had no lease agreement at all. They have been given the notice that a new owner is in the closing process and will be requiring a lease agreement and will be making a few changes. Would someone happen to have some insight on how to handle this situation? Thanks!

Originally posted by @Jason Willis :

Hello everyone my name is Jason Willis and I am in the process of closing on my 1st property. It is a single family home in a great town here in Southeast Texas and I am looking for an answer on how to inform the renter of increase in the rent when I close. The current renters are wanting to stay in the property, they have been there for 2 years but the previous owner bought the house with cash and did not have the expenses I will have and had the rent WAY below the market for that area. They had no lease agreement at all. They have been given the notice that a new owner is in the closing process and will be requiring a lease agreement and will be making a few changes. Would someone happen to have some insight on how to handle this situation? Thanks!

 Hello and welcome to BiggerPockets. I would recommend offering the tenant three options. Use whatever numbers work for your market, this is just an example:

1. Sign a one year least at $1500 per month.

2. Sign a month to month lease at $1600 per month.

3. Give 30 days notice to vacate.

Another approach is having them sign a month to month lease at the current rent amount. This gets them to sign an agreement with little reason to object, because rent is the same. You can then wait a few months and send a rent increase in the spring (which is a better time to lease). This may be a better approach than raising rent day one.

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Originally posted by @Jason Willis :

Hello everyone my name is Jason Willis and I am in the process of closing on my 1st property. It is a single family home in a great town here in Southeast Texas and I am looking for an answer on how to inform the renter of increase in the rent when I close. The current renters are wanting to stay in the property, they have been there for 2 years but the previous owner bought the house with cash and did not have the expenses I will have and had the rent WAY below the market for that area. They had no lease agreement at all. They have been given the notice that a new owner is in the closing process and will be requiring a lease agreement and will be making a few changes. Would someone happen to have some insight on how to handle this situation? Thanks!

 Whatever you do, don't go the Vito Corleone horse-head route! 🤣

The reality of it is if they were far below market rates, they will probably end up moving if you need/want to raise rent significantly. Most people won't go through the trouble of moving for I would say anything below $50. $50-100 per month increase is a crapshoot, could go either way. Above $100 per month increase, except on very high rent areas, ends up being 10% or higher increase and a lot of people will move on that figure, not even so much for the reason of whether the rent is fair for the market or not, but on the principle of being handed such a large increase which most renters would feel is unfair.

So if you need a big increase to make this make sense, you should be prepared for the current tenants to vacate.


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Guest Dion Mcneeley shared that he will give the tenants a notice of how much he paid for the house (big number anchoring technique), gives them a report strait off Rentometer, and then asks them what would be fair for their rent. I've never tried it out, though I intend to when my inherited tenants lease is up. He indicated he had good success and the tenants asked to raise their rent to slightly below market. 

It's not fair to assume renters are dumb, they most likely know they have been getting a great deal. However, they may just not have the resources to pay market rent. I'd second Joe's suggestion of giving them options that all work for you. 

My suggestion is treat them the way you wanna be treated. Honest open and respectful. Notify them of the new rent rate, allow them the opportunity to sign a lease at that rate, if you don’t like that allow them to move out. The comments above are all valid and accurate.

You’re running a business, And need to treat it as such. Follow local laws and regulations, be firm, fair, and direct.

Give them adequate time to adjust, or vacate. Congratulations on your new purchase, enjoy the ride!

Thank you for all the great responses! I 100% intend on being Professional and Respectful. I have been following BP for sometime now and reading different books, watching webinars and doing  a lot of homework on RE investing. I just want to make good informed decisions. Thank you all.

Originally posted by @Jason Willis :

Hello everyone my name is Jason Willis and I am in the process of closing on my 1st property. It is a single family home in a great town here in Southeast Texas and I am looking for an answer on how to inform the renter of increase in the rent when I close. The current renters are wanting to stay in the property, they have been there for 2 years but the previous owner bought the house with cash and did not have the expenses I will have and had the rent WAY below the market for that area. They had no lease agreement at all. They have been given the notice that a new owner is in the closing process and will be requiring a lease agreement and will be making a few changes. Would someone happen to have some insight on how to handle this situation? Thanks!

When someone is "WAY below the market" they are unlikely to qualify for market rates. And they've been operating without a lease which means they probably weren't screened and they may not be too keen on abiding by your rules. I think your best bet is to give them notice to vacate and start fresh. You can be kind by giving them 60 days instead of just 30, but I would not make a lot of concessions. If they have two brain cells, they know they've had it pretty easy and that the free ride is over.

If you do decide to offer then a lease, I recommend:

1. Screen all adults in every unit. Confirm they can afford the new rent rate, that they are not criminals, etc.

2. Offer them a written month-to-month lease. This gives both parties the opportunity to test each other out (I recommend 4-6 months). If things are going well, then you can offer them a one-year lease in the spring/summer.

3. Rip off the band-aid! Some Landlords like to do increases in increments. That is more likely to create additional work for you, confusion for all parties, and a growing resentment with the tenant. In the end, they'll likely pack up and leave anyway. Don't delay the inevitable.