Doubling rents without loosing tenants?
Rental Property Investor · New Berlin, NY · Member since 2020 · 23 posts · 12 votes
Doubling rents without loosing tenants?
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes@Dwight Cook think about your objective and I believe yours is to bring rents to market. There is no way to achieve the goal and soften the blow. Tenants are easy to replace in most markets and yes there is some expense involved to do a turn over. Tenants also know prevailing rental rates and some will pay more to stay. The job is to make money so don't over think it. All the best!
60 Replies
- 4yAnthony KingPro MemberInvestor · Charlotte, NC · Member since 2020 · 236 posts · 247 votes
@Dwight Cook A while back I purchased a duplex and sent notification to raise rents to market rate right away. The one tenant who had been there for 10 years said she was leaving. 3 weeks later she signed a new 1 year lease with me. If you're priced right and not trying to gouge them, they can shop around all they want, but the rental rate they got 20 years ago is nowhere to be found anymore. It's great for them that they got a good deal for so long, but now they need to pay market rate. Even if they find a place $50 cheaper they're unlikely to go through the hassle of moving 20 years worth of stuff, and memories.
- Real Estate Professional · Tampa, FL · Member since 2015 · 176 posts · 252 votes4y
Honestly, it's tough. We're all in this to make money but we're human beings as well. I can't imagine how awful it must be to be a tenant and have your landlord come to you and tell you they're doubling your rent or not renewing your lease.
The best situation is to work with a qualified property manager to handle the situation. They'll do their best to soften the blow by helping the tenant with relocation. A good property manager will have the contacts to help these tenants get settled into a unit in a location in their price range.
Typical rent increases for most markets are around 3% annually and should be expected by most tenants. Obviously when market valuations change drastically (as they have in my market of Tampa) this is something to consider. One of the investors I work with had a similar situation recently.
The building she purchased had 4 units, all 2 bedrooms. Unit 1 was fully renovated and bringing in $1,500 per month on a yearly lease. Unit 2 was partially renovated and bringing in about 1,300 a month. Both units have solid tenants who have not presented with any problems to the landlord, pay their rent on time and keep their units, garages, and balconies neat.
Unit 3 and 4 were a different story. Neither were renovated, were only generating about 850 a month in rent each. The tenants both were "hobbyists". One was runing a woodshop in his garage and the other was tricking out import cars in the driveway. Both of these situations detracted from the overall aesthetic of the property.
Both tenants were offered to renew at the $1,500 a month rate that the fully renovated unit was bringing in. Neither accepted the renewal offer. We have since renovated both units and furnished them. Instead of long term leases we're letting them furnished short term to traveling medical professionals. Unit 3 is bringing in $1,900 a month furnished (includes utilities) Unit 4 just rented for 2500 a month furnished (includes utilities) and we had a TON of applicants for both. These units combined were originally bringing in $1,800 a month and are now bringing in $4,400 a month. Even after utility expenses they're still clearing over $4,000, essentially doubling the gross compared to the long term leases.
It's a tough thing to do, but people can't expect to stay in a neighborhood they have no ownership of when market factors change. The best situation is that your property manager can help relocate them.
- Rental Property Investor · San Diego, CA · Member since 2010 · 366 posts · 314 votes4y
For what it's worth, I always explain to my new tenants that I am responsible to my future elderly self for the management of my properties, since that is my retirement fund. I'm not there to rip them off, and my goal is to provide great housing at a reasonable rate, but that I DO have to run it as a business. I also tell them that I WISH landlords made as much as everyone thinks they do.
Absolutely find out what rent controls are in place. Do a web search, call city hall and look up "tenant's rights" websites. Rent-control is one of the due diligence items that affects the value of rental property so much that if you can't raise the rents you may want to reconsider purchasing. Your realtor SHOULD know this, but it's your financial derrière on the bottom line, so to speak. Here in CA, there is even state-wide rent control based on the type of ownership -- most residential properties owned by an LLC, REIT, or Corp are under rent control, as are all multi-family no matter who owns them. The law was passed last year, and with so little fanfare that most of the public isn't even aware of it.You do need to find out if it is even possible for your existing tenants to pay closer to market rent. Filling out an "application" isn't unreasonable (though skip the paid credit check - not relevant, since they have already been paying the rent). No one will LIKE paying more rent, but if they CAN'T pay more that may change how you approach things. A previous post suggesting notice that rent will be going to fair market in predictable increments has a lot of merits, since it gives the tenants time to find a new situation, but motivation to move if they need to. You can afford to take awhile, since you probably don't want to be rehabbing multiple units at once, and any sort of eviction will wipe out years worth of rent gains.
Personally I'd take everyone to month-to-month. For your lowest two rents I'd give them very long notice of the rent increase (60-90 days). If they can't afford to stay, you want a wide-open door in front of them so they can move as soon as they find a place, so I would state that during that 90 day period you require NO notice -- if they find a place you want them to move ASAP. You won't be able to rent a 30 year occupied unit the next day anyhow, so it's not costing you anything, but it is making their move frictionless from your side.
You aren't the "evil landlord". Pretty sure that 5 years from now you'll be wondering how you ever thought you would even come close to breaking even with the now-current rents -- older buildings virtually ALWAYS have some unexpected repair.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes4y
@Dwight Cook You will inevitability lose tenants, but that’s part of the business.
- Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes4y
@Dwight Cook The first thing you need to do is find and read the landlord/tenant law applicable to where the housing is.... here is a link to a pamphlet for tenants for NY state to get you started. https://ag.ny.gov/sites/defaul...
Second, you know as well as everyone else that the likely hood of the 30 year tenant to pay double is slim. Also unlikely that everyone else will appreciate a doubling of their rent. So you are looking at 4 vacant units. Obviously you need to let the lease run its course ...... but do you really want all 4 units empty? Have you run the numbers to see where you would stand if you raised the rent slowly over a couple years? I usually find that keeping the tenant is better than the cost to turn the unit, a month or 2s vacancy, etc. - Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes4y
STEP 1: Learn the law in your area. Hop to it, newbie landlord. And asking people on a forum like this to help you out with that because you don't even know where to start, AFTER you buy a place, that's total bull. Ask the state authorities, the county authorities, and the municipal authorities to clue you in. If you just can't find these people and need special help, you're just a hot mess and need to snap out of it.
STEP 2: Figure out what an equitable rent is. You've done this already, you might think. Odds are you've done a not-so-good job of it as a newbie. So take some time to physically verify your impressions. Go see places in your area. Figure out how your place compares.
STEP 3: Get your tenant from the rent they're at to the rent they should be paying.
There are multiple ways to go about Step 3. They depend on whether you want to keep or whether you want to get rid of these tenants. They also depend on how much money you have in your warchest and what you intend to do with the property.
Whatever kind of sweetheart deal the relative was getting, what sort of special agreement you've made with the former owner, it's your property now and it's your responsibility to decide what to do.
But you're not at Step 3. You're at Step 1. Worry about Step 1 now.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Originally posted by @Dwight Cook:
Hey everyone!
I'm currently in the process of purchasing my first property. This is a fully occupied 4 unit property in good condition. Each unit is a 2 bed 1 bath around 1,000 SQFT each. The current tenants are paying $400, $470, $630, $630. This area's market rents are around $750-$800. The tenant paying $470 has been there for 30 years, the one paying $400 has been there for 11 years and is a family member of the current owner. (that's why theirs is so low)the other two have been in the units for less than 2 years. 3 of these units are month to month. The 11-year tenant is currently in a 1-year lease.
At the current rents, I will be just above breaking even. How do I get the rents to market value so I can turn this into a good cash-flowing property without portraying myself as a horrible new landlord? There are some small improvements I plan on making, replacing a carpet, fixing a crack in a window but nothing major.
I am thinking about offering each tenant two options. 1 year leases for $700 or month to month for $750. But I fear this may be too big of a jump for the long-term tenants.The family member is an easy one, as long as you take it head on, and immediately, no beating around the bush. You approach and treat it like your a team in achieving what you want, that's how your framework your words. Tell them they know they have been getting this amazing family deal, kudos to them, and it's nice how family can do that for one another. And now that this has changed, it's time to be fair, "which we both knew would have to happen right?". Now lead with the stick, than offer the carrot. Lay out top market pricing, which is what's needed and fair. Pause until you see/feel the shock value hit them and they reel back a bit. THAN you present the carrot, that you'd like to lend them a hand in this transition, that in exchange for _____ you can manage to afford discounting their rent ___ per month for ___ time.
I STRONGLY suggest to use this mechanism, of writing the rents at full top market pricing, have that number top and center, than detail a specific rent credit. This is very important psychology for conditioning them both to the fair market rents but also to appreciation and comprehension that you are actively giving them a discount. If you just say it, and all they see is that final rent amount, "poof" no discount, it's how the brain works. You MUST have the accounting drawn out.
Do this with the rest of the tenants, various strategies. This is your only shot at stepping rents up without a mutiny.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Originally posted by @Jim K.:
STEP 1: Learn the law in your area. Hop to it, newbie landlord. And asking people on a forum like this to help you out with that because you don't even know where to start, AFTER you buy a place, that's total bull. Ask the state authorities, the county authorities, and the municipal authorities to clue you in. If you just can't find these people and need special help, you're just a hot mess and need to snap out of it.
STEP 2: Figure out what an equitable rent is. You've done this already, you might think. Odds are you've done a not-so-good job of it as a newbie. So take some time to physically verify your impressions. Go see places in your area. Figure out how your place compares.
STEP 3: Get your tenant from the rent they're at to the rent they should be paying.
There are multiple ways to go about Step 3. They depend on whether you want to keep or whether you want to get rid of these tenants. They also depend on how much money you have in your warchest and what you intend to do with the property.
Whatever kind of sweetheart deal the relative was getting, what sort of special agreement you've made with the former owner, it's your property now and it's your responsibility to decide what to do.
But you're not at Step 3. You're at Step 1. Worry about Step 1 now.
Damn Jim....... Your not wrong but yeowzers, you threw out the lube, wrapped it in 60 grit and just dry pounded that like a gorilla. A really angry gorilla.
I did laugh a little though.... Ok a medium amount but not the point, lol.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes4y
Originally posted by @James Hamling:
Originally posted by @Jim K.:
STEP 1: Learn the law in your area. Hop to it, newbie landlord. And asking people on a forum like this to help you out with that because you don't even know where to start, AFTER you buy a place, that's total bull. Ask the state authorities, the county authorities, and the municipal authorities to clue you in. If you just can't find these people and need special help, you're just a hot mess and need to snap out of it.
STEP 2: Figure out what an equitable rent is. You've done this already, you might think. Odds are you've done a not-so-good job of it as a newbie. So take some time to physically verify your impressions. Go see places in your area. Figure out how your place compares.
STEP 3: Get your tenant from the rent they're at to the rent they should be paying.
There are multiple ways to go about Step 3. They depend on whether you want to keep or whether you want to get rid of these tenants. They also depend on how much money you have in your warchest and what you intend to do with the property.
Whatever kind of sweetheart deal the relative was getting, what sort of special agreement you've made with the former owner, it's your property now and it's your responsibility to decide what to do.
But you're not at Step 3. You're at Step 1. Worry about Step 1 now.
Damn Jim....... Your not wrong but yeowzers, you threw out the lube, wrapped it in 60 grit and just dry pounded that like a gorilla. A really angry gorilla.
I did laugh a little though.... Ok a medium amount but not the point, lol.
The OP a US Marine. I figure he's had dealings with the truth in the past and he damned well knows what it sounds like.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Originally posted by @Jim K.:
Originally posted by @James Hamling:
Originally posted by @Jim K.:
STEP 1: Learn the law in your area. Hop to it, newbie landlord. And asking people on a forum like this to help you out with that because you don't even know where to start, AFTER you buy a place, that's total bull. Ask the state authorities, the county authorities, and the municipal authorities to clue you in. If you just can't find these people and need special help, you're just a hot mess and need to snap out of it.
STEP 2: Figure out what an equitable rent is. You've done this already, you might think. Odds are you've done a not-so-good job of it as a newbie. So take some time to physically verify your impressions. Go see places in your area. Figure out how your place compares.
STEP 3: Get your tenant from the rent they're at to the rent they should be paying.
There are multiple ways to go about Step 3. They depend on whether you want to keep or whether you want to get rid of these tenants. They also depend on how much money you have in your warchest and what you intend to do with the property.
Whatever kind of sweetheart deal the relative was getting, what sort of special agreement you've made with the former owner, it's your property now and it's your responsibility to decide what to do.
But you're not at Step 3. You're at Step 1. Worry about Step 1 now.
Damn Jim....... Your not wrong but yeowzers, you threw out the lube, wrapped it in 60 grit and just dry pounded that like a gorilla. A really angry gorilla.
I did laugh a little though.... Ok a medium amount but not the point, lol.
The OP a US Marine. I figure he's had dealings with the truth in the past and he damned well knows what it sounds like.
Yeah, that changes things a bit.....
Dwight, wtf, 7P's, come on. Tell me you don't need this Barney-style.
- Rental Property Investor · New Berlin, NY · Member since 2020 · 23 posts · 12 votes4y
Thank you everyone! There is definitely a lot of good suggestions and strategies in here. I will take them all into account when deciding what to do. If I remember to I will update this thread in a few months with how I decided to proceed and what the results were!
- Tucson, AZ · Member since 2017 · 118 posts · 40 votes4y
@Dwight Cook What if you were to increase rents incrementally over several months. You could increase rent $50 a month every other month until the properties until the units are at market rate. This would probably give them the time to adjust to the increases and make living choices that will help them make the transition easier.
If it barely works the way the rents are now, you could use the extra cash flow to make improvements to each unit over time. Let the tenants know that improvements are coming on a priority basis but that they are coming. If after 6 months of paying an increase rent the tenant finally gets a new refrigerator that might make the increased rent a little less of a burden.
- Lender · Vancouver, WA · Member since 2015 · 482 posts · 316 votes4y
@Dwight Cook If it was me, I would set my market target at $750 for the most updated unit, and respectively each unit. Then evaluate each unit accordingly and discount a little, not a lot, for major things not updated. All I would care about is to fix now would be glaring deferred maintenance. Give everyone 60 days notice of their new rent. So I might have 1 @ $750, 1 @ $700, and 2 @ $650. Fix what has to be fixed now, build a schedule to make upgrades and leave the other stuff until next year or when tenants move out. Next year, everyone receives same increase. If a tenant leaves, renovate and raise rent. If not, don't pester them with promises, just let then pay rent. It's a business. Not personal.
- Rental Property Investor · Soldotna, AK · Member since 2020 · 5 posts · 3 votes4y
@Dwight Cook
You will not be a bad landlord for moving tenants out or not renewing their lease. They know that it could happen, thats always a possibility with renting.
If you are worried about turnover costs or having to find new tenants, heres some reasons i think its a good idea.
1) with the tenant(s) moving out and the unit(s) being vacant you will be able to get a more thorough inspection of the unit and fix things that need fixed.
2) with bringing in new tenants it is easier to instill new rules/regulations and systems from the get go instead of changing the way a tenant has been living for years.
3) if the market rent is double what is now it is likely you wont go negative on turnover costs if you advertise for a fair market rent (Atleast where im at it will get eaten up.) You will probably have a huge profit increase from raising rents.
4) since the rental rate has gone up, breaking even turns into a decent amount of cashflow (the whole reason you invested in this asset)
5) if you dont do it now, when will you?
Its a business and you have to treat it as such. Example: You never see one gas station offering any less than the other by much, if anything.
- Rental Property Investor · Naperville · Member since 2019 · 23 posts · 8 votes4y
@Dwight Cook
Best thing is to give notice now regarding that you have to increase rent but after winter and explain to them the many reason why .
Easy to find better tenant and easier to re rent shall they decide to leave
Some may start looking and realize it’s justified and may just decide to stay . Something for for them to ponder on
Be firm and don’t let them walk all Over you if it came to it lol at this as Buisness and at it objectively.
- Rental Property Investor · New York NY (brooklyn, ny) · Member since 2019 · 76 posts · 79 votes4y
My husband and I are firm in our strategy that we purchase based on current rents. All these listings that show room for increases but still want top dollar - these are commercial properties and should be evaluated based on the current business income and expense. Yes possible to raise rents 25-30/month but to go in knowing you’ll need to turn all the units is problematic. Why aren’t landlords doing regular increases to keep their tenants at or close to market? And yet they think they can get top dollar anyway for their property. And it means families are displaced.
- Rental Property Investor · Cincinnati, OH · Member since 2020 · 11 posts · 5 votes4y
@Scott M. Ugh this happened to me. 2 year lease the day it hit the market for $300 under market rent because it was the sellers mom.
- Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes4y
@Emily Weglage what a bummer. The real B of it is you can't do anything about it if they pay. That move cost you 7,200 So maddening! Great you are sharing that experience though so others can learn how to avoid it.
- New to Real Estate · Mission, TX · Member since 2020 · 34 posts · 7 votes4y
@Dwight Cook. What I know is the tenants have had it good for awhile, and they know it. They know what is happening with current rent. Do not detour from your plan. I agree that you will find another tenant, who will pay your price only if your due diligence on rents are accurate. Maybe the new tenants will be better b/c you vented them. Good luck! 👍
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes4y
Originally posted by @Alex Verdugo:
@Dwight Cook What if you were to increase rents incrementally over several months. You could increase rent $50 a month every other month until the properties until the units are at market rate. This would probably give them the time to adjust to the increases and make living choices that will help them make the transition easier.
If it barely works the way the rents are now, you could use the extra cash flow to make improvements to each unit over time. Let the tenants know that improvements are coming on a priority basis but that they are coming. If after 6 months of paying an increase rent the tenant finally gets a new refrigerator that might make the increased rent a little less of a burden.
Don't forget the fresh baked cookies. 👍
It's very simple. The tenant can or can't pay market rent. Increasing a little every month just puts off one of two things, you get to market rent with this tenant or the tenant leaves. All this time you've been costing yourself money.
- 4yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Unfortunately, there is no easy way out of this, and someone always comes out losing. Keep your eyes on the price, as this will help you make the best decision. I prefer to rip the bandage off and raise the rent (following state rules and regulations).
Always be transparent with your tenant.
I've attached a couple of articles that might help. Please keep us posted. Best of Luck!
NETWORTH BUILDERS5236 Reviews - Realtor · Boston, MA · Member since 2019 · 91 posts · 60 votes4y
@Dwight Cook
I second the comment to just rip the band aid of its easy to rent the units
If it's not so easy raise em all a little and push the very low units closer to reality
This should mitigate losing a few tenants at once while moving you closer to your goal of market rates
I've had success with a 2 year plane to take a smaller financial loss of rent potential while avoiding high vacancy and all the effort to replace a good tenant.
- Specialist · San Francisco, CA · Member since 2021 · 6 posts · 1 vote4y
@Dwight Cook
Where is the property?
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes4y
I haven't had the chance to read all of the replies but here are some thoughts.
Look at your local laws and conditions if you are still in a "State of Emergency." In Los Angeles, we can't raise rent while under the SOE.
Run the numbers at market rents MINUS vacancy costs. This could be doing work to the unit, having it just sit empty, commissions if you have someone else find the tenants, etc.
For example:
1 month vacancy including repairs, commissions etc. might be $1,200 for simple math. That would be $100 a month spread over a year lease. Why not offer the tenants $50/month below market rents? You actually net more and they might be less inclined to move because they know they will have to pay more.
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