How much to increase rent by?

Question

Hello BP community,

I have a 3 unit property.  The first floor has not been renovated, has a month to month tenant who has been there for years.  It is rented for 1350. The second floor is renovated and rents with a lease for 2100. The third floor is renovated and is rented with a lease for 1900.

Last year I did not raise the rent on the first floor tenant due to covid and the tenant being a good tenant.

My question is, how much would you raise the rent on the first floor tenant? There is no limit on how much rent can be raised in my area. I also know to value a tenant who pays and doesn't cause issues. But the comparable rents in the area are around 1800 to 2300. So I'm leaving a lot on the table at the current 1350.

Any advice is welcome.

Account Closed · Answer

John Johnson Real Estate12543 S. Main StreetDallas, Texas 889001(832) 999-5555

November 3, 2021

Mr. Davey Jones Locker

5542 S. Denver StreetDallas, Texas  89005

Re: 60-Day Rent Increase Notice

Dear Mr. Locker:

To keep up with the increased costs, your monthly rent payment will be increased to $2100 effective January 1, 2022.

Thank you very much.

Don JohnsonProperty Owner

P.S. If you don't like it then complain to your priest, but be out of the unit by December 31, 2021

Bill B. · Answer

Don’t forget. If you are under market. One day they’ll flip a switch like they did in MPLS and St. Paul last night and you will be prevented from raising rents more than 3% per year. This means you will lock in $10k a year plus inflation losses for the rest of the properties life. Plus the $10’s of thousands less the property will be worth.

Account Closed · Answer

Raise the rent not one penny less than $2100 even if the apartment needs major work.

Where I come from, rents on the first floor and 2nd floor used to always be less than the first floor.

Run your rentals exactly like a business should be run and leave the love, emotions and crazy thoughts out of your decisions.

Supposing, your rent is $800 per month below market and that is $9,600 per year. You have to be insane to give up $96,000 every 10 years or $192,000 every 20 years, or any part of that.

The best thing that can happens to you is the first floor tenant moves in the next 30 days and you don't have to wait several years to start earning your additional $800 per month.

Don't raise the rent one penny less than $300 if you don't have what it takes. If you was working for me, like Trump, I would say, "You Are Fired!" I never watched that show one time, but I would fire you, anyway, just for asking your question.

Sorry!

Kathleen Osborne · Answer

Pull together comps of 3 bed 1 bath rentals in a one mile radius in similar condition.  Show to the tenant and ask what they think is fair market rent for the unit they are in. It may surprise you that they will say something close to the low average. For example, they may answer $1,700. Then ask them if they are willing to pay $1,550 to stay. They very well may still feel like they are getting a deal and you get more rent without having to rehab just yet.

Joseph Matarazzo · Answer

The first floor apartment is still in good condition. And they are all 3 bedroom 1 bathroom apartments. The first and second floor of equal square footage, and the third floor being slightly smaller square footage. So if I were to re-rent the first floor without renovating it, I could get 1700-1800, and renovated I could get 2100-2200.

Would increasing by let's say $100 be fair?

Theresa Harris · Answer

I'd do the rate of inflation.  The lower unit hasn't been renovated, so depending on the condition it may not get market rent and it would rent for less than the renovated units.  If you increase it a lot, you risk a vacancy-and in this case to up the rent you'd also have to do renos.

You are also missing info on the size of the units (beds, baths). The difference in rents for the 2nd and 3rd floor units when both are renovated suggests there is something different.  Also basement or ground floor units sometimes rent for a bit less.

Scott M. · Answer

You mention it has not been renovated.  What, in your opinion needs to be done to raise the rents similar to the 2nd and 3rd floor tenants?

How much to increase rent by?

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