How Much To Increase Rent?
I know this is a controversial topic, but what are people's thoughts? If you inherited tenants with below-market rent, how much is acceptable to raise it if they want to stay? Are there any limits on price increases in the City of Milwaukee? This specific property is in Bay View for those local folks.
- Investor and Real Estate Agent
- Milwaukee - Mequon, WI
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As tough as it is, unless you are a non-profit, market rent is the only correct answer. You can give them advanaced notice, but make sure this does not end in the extension game..
Ideally you use the opportunity to clean up and improve the units.
Rents in Milwaukee have gone up 4.9% in the last 12 months, which is pretty much in line with wage increases. We have a housing shortage, so the direction will not change any time soon. Inherited tenants are often difficult to work with anyways, so may not be so bad to cycle through.
We adjust rents in spring, but I would not wait for that. To a certain extend it is easier to find a new place now and in winter than it is in spring.
Rent increases are not regulated in Wisconsin (partially thanks to the RPA and their members), you just have to give them formal notice according to your lease and State law - best to use the rent increase from from Wisconsin Legal Blanks.
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I didn't catch if your tenants are mo. to mo. or set term lease. If it's a set term lease, you are stuck with the terms until that term expires, but agree with giving them a heads up on a rental increase to budget for. When I do a big rent increase, I give examples of similar rentals (hopefully you can find some nearby) and if you want to charge a bid under for the first year, you can let them know they can shop around, but don't think they can find anything better for the same price.
You can also explain that you had to buy at current market value with a mortgage and taxes at that rate as well, so need to obtain market rate rents. I'm sure they won't be happy, but should at least understand your position.
@Spencer Krautkramer I’m not in Wisconsin but am in NH and in April bought a property where rents were $750 below market rents and for the tenants that had been there long term the rents hadn’t increased in over 6 years.
I gave them 3 months notice and raised their rents on average $250 and in a couple of cases $275. I only had 1 tenant move out.
I am also switching it over to where they will now be paying for their own heat in addition to the rent increase.
It will still be slightly under market rent but has totally increased the value of the property by about 100%.
Don't forget to consider the condition of the property. I'm all for getting rents up to market rate but if the home needs to be rehabbed to get it to market condition, how are you going to make that happen while tenants are living in the home? Balancing this is extremely difficult.
I usually run a search on craigslist near my geographical area with the same sq footage and bedrooms and average the rents out. I raise mine a couple of to a couple hundred below the market price.
I think raising the rent to market rate or slightly below market rate would work best! I would also make sure the property is up to the market condition as well. It's definitely a hard process to all of a sudden ask them to pay a new rate but it's needed to make sure you're not operating at a negative.
Quote from @Alecia Loveless:
@Spencer Krautkramer I’m not in Wisconsin but am in NH and in April bought a property where rents were $750 below market rents and for the tenants that had been there long term the rents hadn’t increased in over 6 years.
I gave them 3 months notice and raised their rents on average $250 and in a couple of cases $275. I only had 1 tenant move out.
I am also switching it over to where they will now be paying for their own heat in addition to the rent increase.
It will still be slightly under market rent but has totally increased the value of the property by about 100%.
That's awesome!
I have a concern with multiple tenants moving out at the same time. Make sure you can afford the vacancy first.
Alternatively, explain to your tenants what market rent is for the units and gradually increase the rent. Ideally put it into their new leases. If they sign right away, you can even give them a discount. It's a lot easier to stomach multiple $25 increases than one big one.
Also don't forget to treat all the tenants the same.
