What to do if the rent is under market value?

3 Replies

Im analyzing a property and the rents are around 200-350 under current rent value.. Do I raise the price as soon as I get the property or try to get the tenants to move so I can rehab the property a little and try to raise the rents even more? 

Help! thanks

@Juan Rubio - we often buy properties that are underrented.  Our approach is to offer existing tenants to stay at the rent we would get after renovating or let them know to move along.  As an example, if unit is currently rented at $500, market rent is $600 but we could get $700 after renovations.  We typically offer to let them continue renting at $650-$700.

Keep in mind, you cannot make any changes to existing leases/rents until the lease expires.  If the current lease goes through 1/31/19, you're stuck with those terms for roughly another year.

@Juan Rubio . You should always honor the existing lease of tenants. Once the lease expires, you should follow state laws and give the tenants enough time to adjust to the new prices. When raising rents steeply, you need to keep in mind that you might alienate the current tenant. Then you find yourself having to incur marketing costs and vacancy costs to bring in a new tenant. There is really a balance there, depending on your strategy and goals. I believe that an incremental rent increase is the best way to go. But, I'm sure other owners have other strategies. 

Good luck.

Thank you for explaining what I can do.

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