Raising rent, should i or should i not?

18 Replies

I have a condo that is up for lease renewal. I am trying to figure out if i should raise the rent or not. i believe rent for my market is very competitive already but the changing variable is My HOA dues just went up $29. So does anyone have any tips for raising rent?

@Chase Williamson you probably should in this case and pass on the increase. 

Raising rents is standard operating procedure for (real) multi family, as the value of the complex is determined by the NOI net opertaing income. The cost or re-leasing is just cost of doing business.

On a single family or a small MF value is not tied to NOI and you have to do the math: is the increase worth a possible turnover. My total turnover cost is typically $5,000 based on a $1500 rent in Milwaukee. So if a $50 rent increase is causing my tenant to move out I will need 100 months to recoup the cost. That's the reason why I typically don't raise the rent on tenants that renew.

I completely agree with Marcus...is the increase worth a possible turnover? I've had the same tenant in my NC rental for going on three years. Yes, I could probably raise the rent $25-35 a month but the few extra bucks isn't worth the hassle of finding a new tenant, should they decide to leave. That being said, you could float the idea to the tenant with an educated explanation, so it doesn't sound like you're just being greedy, and see what happens. The same logic of us not raising rents, to avoid the costs of finding a new tenant, could be applied to that of a tenant not wanting to move out, i.e. time to find a new place, pay application fees, rental trucks, move their stuff, and so on. 

We've only had rentals for 6 years, but for as long as the tenant remains in the rental, we have not raised their rent. Now, once tenant moves out, then we may post rental for a higher rate, but we have never raised when tenant renewed. I'm betting you will be ok even if you bite the bullet on that $29 HOA increase.

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Many years ago, when i was a renter at 2 different locations, my rent was raised every year.  When I rented month-to-month, my rent was raised more often than yearly.   I was a perfect tenant but still the rent was raised.

Most of the time for the 20+ years I've been a landlord, I don't raise the rent for good tenants who pay on time and don't bother me unless something is broken.  So I manage my properties differently than the companies who managed me as a renter.

With that said, I'm not sure my tenants are as good for me as I was for my landlords.  So maybe keeping their rent lower doesn't pay off for me?

So....if you're confident you're competitive, I might raise the rent if i was in your shoes. I'd also send a copy of the fee statement and tell them I'm not getting any of the money. I'm just passing it on to the HOA.

That's what I did when I did rarely increase the rent.  In my case it was always due to property tax increases.  I sent the copy of the new and old statements and I passed on the cost.  No one has ever objected but no one has ever thanked me or said they appreciate the rent only going up when the property taxes went up.  So I suspect they really don't care why I raised it.  Perhaps to the tenant, an increase is an increase regardless of why it increases.  I think in the future I'll ask the tenants opinion because your question is making me curious...

(In the cases were I've had an HOA, I was lucky. The fees never increased and there were no special assessments in the 15+ years I've had rentals covered by HOAs.)

For those saying they don't raise rent because someone might move, for how long? 5 years? 10 years? 20 years? How much under market do you leave it before you bring it up to market rate? $25? $50? $200? Costs increase every year in most places because everything goes up (except the mortgage if you have a fixed rate). If you leave the rent alone for 5 years, why do you choose to make less money while your taxes, insurance and capex costs go up every single year? I am seriously lost trying to comprehend this mentality and want to understand it

I don't raise mine every year with a good tenant, but I do raise it from time to time (every 2 years).  When I rented (20 years ago), my rent increased from 1 year to the next based on the rate of inflation.  This meant it was a small amount.  I think if it goes up by a small amount each year, the tenant is unlikely to move as the amount seems small compared to the cost of moving.

I make a habit of checking what the current rental market is bringing. If I am already at/near the top end I don't consider a raise in rent, especially for my good tenants.

For my single family homes, I factor multiple considerations into the decision. Most are at the highest end of market rent. All rentals taxes went up about $19 a month this year. For the rentals at market or above, no rent increase. My first property got a $25 a month increase ($1475 to $1500). Rookie mistake, we included $70 a month water/sewer. They are at Top market but behind the $70 a month and I have no idea how to get that back. They are very good tenants and just told us their plan is to stay at least 7 more years. 

Raise the rent's if comps justify. Remember style, amenities, sq ft etc you want to make sure your condo is competitive relating to the rent you are commanding. Do good research. I've seen/done raising rents just to raise and it's a big mistake lol.

Just out of personal curiosity how often do you see HOA fee's being raised in a year?

@Chase Williamson some tenants are smart or stubborn...but for the most part you should be able to SELL them on the rental increase. Yes your an investor but your also in the people business and the sales business in a sense.

Do it right or with some sort of sales tactic or don’t do it because if you could lose a tenant.

I always consider this situation according to different tenants.

@Bryan Devitt I agree with you. I am in a very desirable neighborhood and know I can get a new renter quickly. Also that’s why you have a vacancy reserve. I used to have a scarcity mindset when it comes to securing a renter. I have changed that thought because I know my property is maintained well and the rent is slightly below market at all times.

You should always bring your rents up the market. Does the bank give you a discount when rates go up?

Tenants know the rental market better than landlords. As long as you're at market, they won't be going anywhere.

After selling our home, we start to stay in a house in rent, but the rentals increase so much in a few years. So we decide to to change our home plan to go to Dubai and take an apartment or villa in rent for some times and then purchase a home for own. So we start to finding apartments or villas at a low price. We also visit on Google, there is so many online rentals portal, and we visit many of them https://www.dubairent.com is one of them but don't book yet.

Hey guys, looking forward to thinking that people are fantastic here must help us to get an apartment or villa in Dubai. Any thoughts greatly appreciated.

@Marcus Auerbach

Your typical turnover cost is $5k?!?! What?!?! I can only imagine your tenants stay for at least 5 years and also trash the place.

I’m in agreement with raising the rents each year. It doesn’t mean by a lot. But my property taxes just went up, again. My insurance never goes down. My costs go up, and that means the tenants costs go up as well. Are they going to move for a $25 increase? My units rent for $1,000 to $1,400. They’d need $2-3k to be able to move. All because of $25 a month?

Originally posted by @Anthony Wick :

@Marcus Auerbach

Your typical turnover cost is $5k?!?! What?!?! I can only imagine your tenants stay for at least 5 years and also trash the place.

I’m in agreement with raising the rents each year. It doesn’t mean by a lot. But my property taxes just went up, again. My insurance never goes down. My costs go up, and that means the tenants costs go up as well. Are they going to move for a $25 increase? My units rent for $1,000 to $1,400. They’d need $2-3k to be able to move. All because of $25 a month?

Sorry,I should have broken that $5,000 turnover cost down - we usually have very little if any real damage, but:

$1500 for one month vacancy

$1500 for marketing and re-leasing cost (one month rent, even though I do it myself - I am not cheaper than a PM lol)

$2000 for misc repairs, some paint, maybe carpet, landscape overhaul, etc.

TOTAL: $5,000

I agree, nobody is going to move over $25 and financially it is hard to defend my position on paper, but it is the way we say "Thank you" and how we do business. And at the same time it is not that much of an increase in cashflow, that I am willing to risk it. If you do that every year, the tenants get the notion very quickly that this is going to continue and they better start thinking about buying a house at some point. And if it causes only one additional turn over in the entire portfolio I have lost more than I have gained. 

Keep in mind: NOI is less important with a single family portfolio compared to MF, because it has no bearing on the fair market value of the asset - on SF its just comps. My strategy is less focused on cash flow and more on equity, so I focus my time and energy on growth: acquisition and rehabs.

 

Raising rent each year within a reasonable range is acceptable. But I usually decide depend on the tenants. If they are nice and I want to keep them, maybe I just raise rent like every two years?

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