How to raise rent?

9 Replies

I bought a town home where tenants' rent is way below market. It is a 3/2.5 occupied by three graduate students. They are paying $830, but market is about $1,100. I need some advice about how to raise the rent. Although it is a apt lease, the prior owner allowed them to bring in others as students graduated. So, they won't all graduate at the same time. I don't want to kill them but I want to incrementally get it to market rent. One thought is to raise it on lease renewal somewhat but tell them that if a new person moves in, their rent won't be the same and as each moves in, charge them market rent. I have some concern about doing that though because as I stated, it is not individual leases. Lease renews July 1.

Any help would be appreciated.

good luck with raising the rent and make sure you be very careful. I have lost several tenants by raising the rent just $30 in the past.  Perhaps you could do a mailer to let them know in July the rent will be going up so they will get prepared. If they do not agree with the rent increase then that will give you enough time to market for new tenants by July as well.  Also if you have any publications or any tax information about your property taxes going up or rent going up or property values going up in your area or just cost of living going up I would include that in your mailer to justify increases.  Or include any of the other rents being paid in that area that are higher...    tread lightly

You raise the rent by not raising it. If the rent is in fact "away below market" then it is substantially below the level at which others will pay. So you're not raising it but merely adjusting it to reflect the base market value. If you're an investor then you're not running a charity, which is what you are effectively doing by allowing tenants to pay substantially less than your property is worth. Good luck.

Another thing to consider, if your market is mostly college students, is the semester rental cycle.  I've found that students look for and arrange for housing 6-9 months ahead of their need in most cases.  Be sure to make any adjustments with price and time of lease period to align with semesters or temporary vacancy may be more costly. [experience talking here :-) ]

I like @Kris Haskins idea about using "data" to show that it's the economic climate driving the adjustment.

Maybe you could offer an option for them:  shorter term lease (6 mo.) at full market or a smaller increase (below market) if they sign another full year.

  

Originally posted by @Patricia Hinojos :

Another thing to consider, if your market is mostly college students, is the semester rental cycle.  I've found that students look for and arrange for housing 6-9 months ahead of their need in most cases.  Be sure to make any adjustments with price and time of lease period to align with semesters or temporary vacancy may be more costly. [experience talking here :-) ]

I like @Kris Haskins idea about using "data" to show that it's the economic climate driving the adjustment.

Maybe you could offer an option for them:  shorter term lease (6 mo.) at full market or a smaller increase (below market) if they sign another full year.

  

 I also like @Kris Haskin's idea for helping to justify the raises, and help them understand your not a greedy wealthy fat cat landlord -- as many renter and probably younger people are likely to believe.

To hijack a little bit @Patricia Hinojos :

Can you talk to me a little bit more about this college rental cycle.  I'm looking at rental properties in the area of 2 different colleges, and I need to be solid on understanding the timing of the market.  My greatest rental fear in regards to vacancy is I have an empty property for 6 months or I'm tempted to lower my tenant standards to get someone in.

I'm assuming you see the cycle start in August/September, so to have leases start and end in those months.  And therefore, most students are leasing their next rental in January through March?  I'm afraid I won't be able to acquire this new property and have it move in ready until late spring early summer.  Am I going to be in trouble?

in the college town I deal in, the college apartment competitors will give you clue to what the leasing practices are. In our case they all typically force a 1 yr lease Aug 1-Jul 31 on students at pretty high rent. Call the popular apartments near campus for a baseline lease term and timing od "the competition". I'm sure you already know comps for houses.  Rentometer.com could help too.

Go to the universities website and look at the student yearly calendar. Know that for Fall semester, Greeks have to be there at least 3 weeks before first class for rush and such so much depends on the student community. 

Have backup plan like making  a furnished short term rental if the home is nicely finished (for a lot more $)

Best way to raise capital if you are not comfortable doing it yourself is to find someone connected who will represent your deals for a  fee. Its always best to have a buffer in the middle.

@Kalimah Jenkins be completely honest with them and let them know they've had killer rent for awhile. But ignorer for you to maintain the property well, you need to raise the rent to the correct market value.

Raise it at lease renewal. Its unlikely they'll stay. Let them know a couple months ahead of time. Also let them know that you need a commitment or you'll start showing the place to other prospective tenants

Definitely exercise caution so as not to lose a great tenant, but to be honest, unless otherwise indicated by your state's law to do so there's no real obligation on your part for providing a full breakdown of what those reasons are (as for raising rent). But if you're still trying to think through how to frame this, common reasons would be for things like increased property taxes, competitive increases for lower quality properties in the area (to meet the current market value), etc. I would consider this towards the end of the original lease term. If you have a lease that isn't ending for some while, I'd be sure to keep in mind to give them proper notice (maybe during lease renewal time window make them aware of the change so this way they're able to plan ahead of time). @Kalimah Jenkins

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here