How to Raise the Rent on a good tenant

Question

Hello,

I recently bought a property in Cleveland and inherited the tenant.  The tenant is amazing and has been there for a long time, she says she has no plans on leaving.  The property is rented at 850 a month with market rent average at 1300 and she covers all utilities and yardwork.  I don't want to be greedy but also that is a humongous gap. Should I just raise it a little per year to get it closer? How much is fair?

Thanks so much for your input.

-Calum B

Tim Delaney · Answer

I do give tenants discounts for yard work or snow shoveling, but I keep it less than what I would pay a company to do the work.

As for raising the rent, use the binder method. It has been discussed in the main BP podcast as well as the Rookie show. Basically put together a list of comparable apartments that are currently available for rent. Take those to your tenant and show them what they would be paying if they move. They should be more understanding and willing to pay closer to market rent if they are able to afford it.

Nathan Gesner · Answer

I think you have the wrong mindset.

You are losing $450 per month at the current rent rate! If this tenant left and you sat empty for two months, you would lose $1,700. But if you place a tenant at $1,300 a month, you'll make up the loss in four months. Your annual earnings will be $4,500 higher, even with a two-month vacancy.

Mohammed Rahman · Answer

Hey @Calum Bressington - it's not being greedy, it's adjusting the rent to keep up with market rents.

By the time you raise it bit by bit, the new "market" rent will probably have surpassed the $1300 mark lol.

Likely your tenant is already aware of this, but I understand its a sensitive topic and a big jump as well - if they've been a good tenant so far, it could be worth it to have a convo of raising the rent but giving a discount for them taking care of XYZ on your property/ies.

Marylyn Patankar · Answer

Hey Calum, great question! I think the key is to do it in a way that feels fair to both sides. As a general rule, many landlords raise rent 3-5% per year, which is a more gradual and manageable increase.  This approach lets you get closer to the market rate over time without shocking the tenant, especially since she’s been a good tenant.It’s also a good idea to explain to the tenant that you’re trying to bring the rent in line with current market conditions, and if she’s open to a longer-term lease, you could even keep the rent at the current level for another year. The last thing I would want to do is upset a tenant that is paying on time.  Keeping the increase reasonable and communicating openly can help maintain a good relationship while still addressing the rent gap over time, just be honest with them and maybe present some comparisons. I'm sure at this point they know what a stellar deal they are getting, its only a matter of time before the rent rises. Considering you have just bought this property and inherited the tenant, I would also consider finding some ways to be in good standing with them before proposing the rent increase, they might not take it so harshly. Best of luck!

John Morgan · Answer

@Calum Bressington

I’d go $75/year. I’ve bought 18 SFR with inherited tenants WAY below market rent. I raise it fairly aggressively over the first 3 years. Then go easy on them. I tell them all they can stay here forever. However, I have a mortgage payment that is much higher than the previous owner so I can’t lose money. They all understand and have stayed with me. These people know what market rent is. I will usually lob out what market rent is in case they don’t know. And I offer to fix anything or do updates as soon as I buy the properties. I rarely ever have turnovers which saves me tens of thousands. Keep your tenants happy, and they’ll stay forever. :)

Patrick Drury · Answer

@Calum BressingtonYour better off kicking them out turning the unit and re-renting to someone that meets your  requirements and can afford market rent

Jake Knight · Answer

Some interesting takes on here and it's a really subjective thing.  You'll have to find your comfort level on how you want to manage it.  If you look at things through a financial lens, follow Nathan's advice.  If you don't want to rock the boat, you can raise it over time.  If you go to that tenant with a $300-$400 it's almost certain they will leave.  I imagine Cleveland is fairly seasonal so she would be moving during your slow season. It may not be a bad idea to have a real conversation with the tenant and educate them on your plans and how far below market they are.    Best of luck!

Kevin Epp · Answer

Give them ample notice you're raising rents to market price. Show them all the examples of properties that are at this same price.

There are awesome tenants at market rent. In fact, this exact tenant who is at $850/mo was once at market price. Just nobody raised rents on them, and now it's your issue.

Bob Stevens · Answer

Tell them it's going higher, if they do not like it do not renew. Assuming it's a 3 br, you will get 1500 NOT 1300. 850 is VERY low. I'm getting 900 for 1 brs in the hood. 1700 in Lee Harvard

How to Raise the Rent on a good tenant

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