Rent increase recommendations
How often should I go up by $150? Every 2 or 3 months sufficient (like December 2023 or January 2024)
Does anyone have any other recs on how you would approach rent increase in this situation?
Back story below for context:
I’m new landlord to 4unit multifamily, hacking in one unit. 2 tenants have just moved out their units , which are about to be renovated , so I have to tread lightly to avoid completely vacancy.
Current inherited tenants were family to previous landlord in nice spacious 1200 sq ft nice unit currently paying $775 on month to month lease, which is WAY below market rate. They were paying $700 until Feb 2023.
Current market rate goal for local area is $1250. Which is still below market rate based on what they are getting compared to other places in areas.
Im giving options to inc from $775 to $1250 in October
Inc from $775 to $975, with acceptance of gradually increasing to goal $1250
Renovate the two empty units and then test your theory that market rent is $1250. If they fill quickly at $1,200+ then you tell the other 2 tenants you’re afraid they’ve been under market and the new rent is $1,250. You understand if they want to move and you’re giving them 60+ days notice. If you fill one unit first you could offer the other unit to either existing tenant if they have been good tenants.
What you don’t want to do is raise rent on existing tenants while the other 2 are empty, and have them move out. Only to then find out that the fully renovated units only rent for $1,100 and $900 is more than fair for the outdated units.
Unless your building is surrounded by identical buildings in identical condition market rent is really just a theory.
Quote from @Ashley Mallory:
I don't suggest incremental increases. They are likely to cause confusion and animosity. You will eventually get to a point where the Tenant can't afford the rent and moves out, meaning you've wasted a lot of time and effort and still failed to achieve the desired result.
Determine market value. Tell your Tenants the rent is increasing to market value in 60 days. If they want to stay, they need to prove they can afford the increase and sign a new lease. If they can't/won't then then need to move out so you can rent it to someone else.