Raising rent?

13 Replies

What month is the best to raise rents? Is any month better than others in case of a move out?

Thanks for any help...

Mike

If it is a turnover, we look at current market rents and adjust accordingly, not determined by month but by current market, although we expect it to take longer to rent if it's Nov - Jan (but also ask for a longer lease so next one ends Mar-Jul).  If tenants are still in, we tend to be much more conservative, adjusting every 2 years or so if rents have increased in the neighborhood and usually keep it under market as it saves us a turnover.  I used to not raise it until a tenant left, but I got stuck with way lower than market rents so learned the hard way not to do that anymore.  

We have all our leases ending June 30th.  This way school is out and the weather is nice.  I raise the rates when leasing to a new tenant.  I discourage raising rent with renewing tenants unless your portfolio has less than 5% vacancy/collection rate.

I favor April 1 as an effective date for rent increases.  Tax refunds are out around then.  I send my notices towards the end of February for the April 1 effective date.  Good question @Michael Newhouse  !

Thanks for the insight. I like the idea Steve Vaughan had about tax refund time. These are long term tenants and no raise of rent in 3 years. I want to bring them to just below market value to avoid a vacancy yet increase from where I am currently.

Thanks @Jabari Long and @Lynn M. !

Rents increase automatically at automatic lease renewal date. No question. It's written in the lease. Increase is not so much that I am above market and it happens automatically so there is fuss when it happens.

We increase  rents during renewals. If they are good tenants , I tend to do less of an increase for a 2 year than a one year. 

That is a great idea @Bill S. Do you use a formula like a 3 or 5% raise. I like that it is up front and they sign off on it to begin with.

Appreciate the advice!

I've been a renter for a while. Rent has always been increased when the lease is up. This raises a question I have, if you have an excellent tenant who says they will move if you raise the rent beyond a certain amount, would you fight to keep that tenant? Or just let them walk and find someone new?

Hey @Michael Newhouse  - I just had the rent increase discussion with two tenants yesterday. Both of the tenants are approaching (4 months to go) the end of 2 year leases. All the leases I personally are spaced out to end between April and September, as to minimize their impact on my life and maximize choice in quality tenants.

I typically have the conversation about 2 months before the lease expires, but had a natural opening. I was doing my bi-annual walkthrough, and asking them questions about their life, family work and just being friendly. "Out of curiosity, have you and the family decided if you will be staying on and want to renew your lease, or are you moving elsewhere in town?" This helps answer a key question for me to plan my spring / summer, but I've found that you can almost guarantee the next question will be "are you raising the rents?"

I go into these discussions prepared. I do my market research, and discuss the tenant with my wife. Do we want to keep this person? Are we planning to sell at any point soon?

One of the tenants is a high touch, maintenance heavy user, who is substantially below market. We closed on the property in early February and had a duplex to fill. I picked a low price point on one side to make sure it turned over quick (we had 40 people walk through on the open house - probably a bit too low honestly). Now, I'd like to do the remodel on this unit, and get the price up to market (about $300 / month more).

The other tenant is simple, self-managing, and closer to market. She asked if we would increase it and I told her only a token amount.

I totally vibe with everyone's caution about vacancy. To provide an counterpoint to that view: it is SUPER IMPORTANT if your properties are MF to raise the rents when you can, as you are increasing property value. You never know when life will give you reason to sell, and you want to maximize value safely. After all, our local cap rates are 3-5%. ($300 / month * 12) / .05 = $72,000. That three hundred a month may not sounds much, but it is worth a minimum of 70k in sale price in my market.

@Eric Petersen

I think I would try to keep an outstanding tenant by small and incremental increases. I would probably make any necessary substantial increase when that person left

I would raise rent yearly if there is issue with tenant, or after 2-3 years. If you ever do a re-fiance, the appraiser will do a rent analysis of rents on your street and then you can gauge if your too high, or too low. I stay right in the middle. 

@Michael Newhouse  my rent increases vary depending on when the lease was written. I was using 5% when rents in my area were going up 10% per year. Now I use 2.5% since rent grow has flattened a bit (8%) and there is a lot of new inventory coming on the market. My increase is a fixed dollar amount. Percentages are too hard for most people to figure so my $25 a month on $1,000 rent is easy to know how much it is and no worries about rounding etc. When you only have one unit it's not so much an issue to have a "discussion" with the tenant a few months out. When you have more units, you will want it on auto pilot.

Since my rent increases are below market for rent growth, tenants that stay multiple years are below market rent and they know it. Since the increase is built into the lease there is no "discussion" about it happening. I have discussed the amount and done less of an increase for those that asked and who have been quality tenants. Having the increase built-in avoids the possibility of tenants getting their nose out of joint during the "discussion" and moving out of spite. 

@Eric Petersen  with my approach there is really no discussion. If the amount of the increase is more than the tenant wants to pay then they can move. As I said, they will likely be paying more for a similar property so if they move, it's not about rent being too much. If they can't afford the increase then it's time for them to move and find a smaller place or one with fewer features. In my market tenants have few options but to accept the rent increases. There are several applicants for each vacancy and I've been increasing rents at least $100 between tenants. Perhaps when things change your question would get a different response. The market drives my response.

Most folks think a "good" tenant is hard to find. I've found with proper screening, most tenants are "good" or "excellent" tenants. Those that roll the dice and take the first applicant might have more difficulty finding quality tenants but screening is the key to sifting through the chaff.

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