All Forum Posts by: Don Zuehlke

Quote from @Theresa Harris:

Quote from @Don Zuehlke:

Quote from @Theresa Harris:

Start by doing annual increases.  If you go up to market value (assuming your area permits increases that large), the tenant may move.  If you increase rent by $50 a month and do that each year, they are unlikely to move over $600 in part because moving takes time and money and rents elsewhere will be higher.

Thank you. Do you have any advice on how to approach the tenant? Since it's my only property and we've developed a relationship with them over the years, even if from afar, I considered taking them to lunch or coffee to discuss but would that be too formal and over-the-top for such a small property? I'm big on transparency so I want to make sure they understand that we value them and that it isn't 100% about the money (because it's not). 

 Either give them a call or ask if you can drop by to talk about lease renewal and do an inspection.  Let them know costs have gone up over the years and you need to increase the rent.  If you want to do it gradually, let them know that-eg $50 a month this year and it will go up the same next year.  Tell them you've not increased the rent because they are great tenants, but you can't keep absorbing the extra costs from taxes and insurance.

Where most of my rentals are, there is a cap on rent increases, so unless I have a turnover, I can only increase the rent a bit each year (eg 3%).  Last turn over I had rent went from $1600 to $2000 and that gap was after the people were in there 4 years (the market in that area is nuts) and I had been increasing rent the maximum allowed each year.

 Thank you, this is great advice and very similar to how I was imagining the conversation would go. I really appreciate you taking the time to pass on some wisdom. 

That 1600-2000 jump is crazy. Hopefully, the costs didn't go up that much so your cash flow benefited!

Quote from @Theresa Harris:

Start by doing annual increases.  If you go up to market value (assuming your area permits increases that large), the tenant may move.  If you increase rent by $50 a month and do that each year, they are unlikely to move over $600 in part because moving takes time and money and rents elsewhere will be higher.

Thank you. Do you have any advice on how to approach the tenant? Since it's my only property and we've developed a relationship with them over the years, even if from afar, I considered taking them to lunch or coffee to discuss but would that be too formal and over-the-top for such a small property? I'm big on transparency so I want to make sure they understand that we value them and that it isn't 100% about the money (because it's not). 

Quote from @David Peschio:

Raising the rent by only 3% annually, while considerate, would significantly prolong the time it takes to reach the market rate of $1,100. For instance, starting at $775, a 3% yearly increase means it would take over a decade to close a gap of approximately $325.
Considering how much you value this tenant, a compromise approach seems most sensible: initiate with a slightly higher increase—perhaps 5% or a flat $50 per month—to narrow the gap more quickly. Once you are within $100–150 of the market rate, you can revert to smaller increases to ease the impact on your tenant. 

This is kinda where I'm at, I think, so thank you for the sanity check!

I have also heard one of the guests on the BP Beginners podcast talk about the "binder" method when investing in properties with existing tenants. I thought I could adapt that approach with the tenant and explain the market analysis and increased costs for maintenance, taxes, and insurance so they know where I'm coming from. I obviously don't need to reveal exact profit numbers but I think that transparency could go a long way in keeping the trust with them. Anyone have thoughts on that approach?

If anyone else reads this post looking for information, I found this article here on BP that was helpful for me and gave me some confidence in proceeding.

https://www.biggerpockets.com/blog/6-ways-to-raise-rent-whil...

Valid point -- so how would you recommend I approach it?

I have a property in South Carolina with a very loyal tenant who has verbally expressed a desire to stay for several years. They are relatively low maintenance and take great care of the property, report maintenance issues on time, etc. Needless to say, I value this tenant and don't want to give them any reason to leave. The problem is that I've not been a great INVESTOR and have not increased rent in several years. The median rent for the comps, according to Rentometer and the BP calculator, for the property is about $1,100/mo whereas the current rent is $775/mo.

Question - how do I approach increasing the rent in a way that is fair to the tenant but also fair to me? I was thinking about writing a clause into the new lease that includes a 3% increase per year until rent reaches the median rent. Does that seem fair and reasonable?

Thanks in advance!

Quote from @Jaycee Greene:

Quote from @Don Zuehlke:

Quote from @Jaycee Greene:

Quote from @Don Zuehlke:

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*This link comes directly from our calculators, based on information input by the member who posted.

 Hey @Don Zuehlke, welcome to the BP Forum! Which one of these deals are you most interested in?

 Probably one of these two since they both cash flow and that's my main focus.

https://www.biggerpockets.com/analysis/rentals/7988a5f6-41da...

or

https://www.biggerpockets.com/analysis/rentals/61f8a5f6-d85c...

Thanks in advance for any advice!

@Don Zuehlke That's great! Other than the obvious that one is projected with higher cash flow, do you prefer one over the other? Perhaps one is in a better market (part of town) or something?

 Both properties are actually in similar neighborhoods. The sfh seems like it could be less work and closer to turnkey, also lower upfront cost. The quad looks like it might need some work but it’s not clear the extent of repairs needed, the description simply says “New owner will potentially want to do some work to the property and it is priced accordingly.”. It’s obviously livable since they have tenants in all 4 units so it can’t be that bad I guess?

In any case, the sfh just went under contract so I guess that makes the multifamily more interesting at this point!

Quote from @Jaycee Greene:

Quote from @Don Zuehlke:

View report

*This link comes directly from our calculators, based on information input by the member who posted.

 Hey @Don Zuehlke, welcome to the BP Forum! Which one of these deals are you most interested in?

 Probably one of these two since they both cash flow and that's my main focus.

https://www.biggerpockets.com/analysis/rentals/7988a5f6-41da...

or

https://www.biggerpockets.com/analysis/rentals/61f8a5f6-d85c...

Thanks in advance for any advice!

View report

*This link comes directly from our calculators, based on information input by the member who posted.

View report

*This link comes directly from our calculators, based on information input by the member who posted.