To raise rents or not to raise rents

14 Replies

I have two tenants who have been with me - one for 4 years and the other for 7 years- We have been through tough times here in my locale and there have been many empty units- I have these tenants in single family homes and they pay each month- Golden tenants.

I have not ever raised their rent and my insurance and taxes have gone up and I find myself with a .05 return  per year- I think I am behind the times for similar properties by $100/month

You should raise your rents.

You should have been raising them a little bit every year, no matter how amazing your tenants are.

Until you find a bill you can pay with smiles and sunshine, the bottom line is you need money to pay for the things you need.  You're a little behind now, but if you start now, it won't have to stay that way.

Are they on month-to-month leases, or longer terms?  If they are on longer term leases, are those leases due to expire/renew?  Since they're good tenants, I imagine you have a good relationship with them.  Set a time to talk, and tell them that you have to start raising the rent to cover your increased expenses. Lay out how much you're raising the rent, explain how often you plan to increase their rent (annually? every 2 years?), and assure them that there will be no surprises.  For long term tenants, I like to raise the rent 1% or 2% each year when they renew their lease.  In my market, that's $5-15 per month, depending on the unit.  I think if tenants know what to expect, and there will be no surprises, they won't balk at increases.  They know that expenses increase.

It varies by property and tenant.  I increase slightly but not every year.

They probably haven't moved becasue rents weren't getting raised every year.  

Now you should raise the rent. Most of the owners raise the rent 10 to 20 % each new year. I am surprised that you haven't raised the rent till now.

How much will it cost you if the place is empty for 1 month, including rent and paint, cleaning, etc?  Will that equal or be more than $1200?  If so, leave their rents alone, in my opinion.  Assuming there's a reason there have been vacancy problems - as in neighborhood issues, etc.

$100/month isn't that much money anymore to a tenant on the brink of looking for a nicer place.  When you give a tenant notice of a rent increase, they immediately hit Craigslist to see what they can rent for that much money.  Just be sure they can't find anything worth moving for, when compared to what they'll get if they stay.

With me being a renter, I definitely see both sides of the coin in respect to whether or not to increase rents or keep them the same; especially if you are currently under market value.

As a renter, if my rent increased every other year about $25 or so dollars, I'd be fine with it; however, if my rent increased every year arbitrarily because they "can," then I might be more apt to look for another apartment, even if the new apartment was a comparable price. I think that being a good, clean, and responsible tenant should provide for a few concessions from the landlord, in my opinion. 

I get that it's a business, and that if people have been somewhere for 4-7 years with no rent increase that you could be under market value; therefore, some increases would be justified. With that being said, short of water/utilities that may be included in the rent, if you are increasing the rents, but are not providing any additional services/amenities for the increase, then it will make me give pause. If I lived somewhere, and they increased my rent by $25, BUT, they had a landscaper there every weekend keeping things nice, and they kept all of the common areas clean with updated equipment, etc, then I would be able to see and appreciate the benefits of my increased rent. 

However, if they had some vacancies and were increasing the rent because they had to do a lot of work to a vacated property, and they were passing that cost on to me and my apartment wasn't being updated, etc, then I'd have a problem with that, because I would feel that they should price that unit accordingly in order to recoup that money they put into it. Just my .02.

If you have a large deficit between the rent you are collecting and should be collecting it's not really a tenant issue so I'd be very wary at upsetting gold star tenants.  You don't want to pass it on to them in the form of a large increase as it can be interpreted a variety of ways you may not expect.  I would make small, steady increases over the next couple years.  Keep them small enough so that the incentives to stay are better than to leave. Another option could be to make a few small upgrades to their units and/or the building and use that as additional rational for the increases.  It may take a few years to get to market value, but that's better than losing terrific tenants.  Good luck! : )

Wow!! Thanks for all the feedback. I think I will begin raising the rents a little ($15 - $25 for a year then increase again annually only by a little. This only after meeting with the tenants and explaining my increases in property tax and insurance. As Sue and Bryan eluded- an empty unit and it's fix up costs can equal many increases and it's nice personally for me not to have to deal with having an empty rental to fix up and rent.

I raise my rents slowly each year unless the market doesn't support it. This prevents this issue.

I would raise the rent some but hopefully not so much as to run them off. A gradual increase each year is to be expected. I found myself with one unit way under market. I had to drastically raise the rent from $935 to $1025. I am still under market at that. On another unit, I have been locked into a lease for a year and rents are going through the roof. My tenant is leaving the end of this month and I am asking $225 more per month. I just got my insurance bill on that one property and it floored me.....almost 3K a year for insurance! They go up every year...so I need to just to keep up. 

The apartment that I moved from was going to increase my rent by a bit shy of $100. I'd lived there for a year, and while I liked it, I didn't feel (personally) that it was worth that increase.  I had to make a couple of concessions, but I saved $160 from my prior rent to my current rent. 

They increased rent because they could. The property I lived in had a quite a few college students that lived there. While it's not close to the Univ of Wash, it wasn't far, and it was less expensive for the students to live in that apt than to live closer to the University.

The cost for me to rent movers was the amount I saved in one month from moving, so it was worth it for me. 

Again, I don't grouse about things like that. I get that it's a business, and I also know I have choices too. I don't need to complain about it, I can just move. It's pretty simple.

Like others said I'd raise the rent a little but keep yourself under the market if they are great tenants.  I have some tenants I have never raised the rent on for 6 years because they don't bother me over small things and try to keep the place clean.  My newest rental is rented a little on the low side and being 1/4 the way through their year I do not plan to raise their's because I haven't heard from them but once since they moved in and that was to make sure I got rent on month 1; I drive by and the yard looks nicer now than when they moved in.  Moral of my story is I would rather give up some potential gains to work less.  

I agree that you should try to raise the rent. I also believe you should do a search of nearby available rentals that are similar to see what the competition is asking for rent, a sort of rent survey. You don't want to put yourself in the position of asking more than the place they might look at moving to. And sites like padmapper and zilpy, and zilliow and Craigslist help to do that survey; I bookmark the search for those so that when the time to increase comes along, I click the bookmarks and observe the competition in the market. 

And when you explain to the tenants, you can tell them that your new higher rent is still a good value for the tenant because the competition is asking (a bunch) more. I prefer to do that in writing with what to me is a form letter. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.