The Ultimate Guide On Raising Rent

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Raising rent can be an important part of staying profitable as a real estate investor — still, it comes with risks, such as tenant turnover and increased time commitment. While there is no one-size-fits-all answer to the “should I raise my rent” question, you can best inform your actions by assessing your investing priorities, evaluating your relationships with your tenants, studying your local market, and more.

An expert is someone who has succeeded in making decisions and judgements simpler through knowing what to pay attention to and what to ignore.

-Edward de Bono

Your tenants’ leases are about to expire…

There’s a for-rent sign on the house down the street, and the owner is trying to rent it for an amount that exceeds your rent…

You would also like to raise rent, but the local economy is showing signs of weakness, and your current tenants are great…

What should you do? Raise rent and risk losing the tenants? Or maintain rents the way they are and risk missing out on income growth?

So, you scoured investment property forums, searched on Google for “should I raise my rents,” and reached out to your local palm reader for her opinion. You are still unsure what to do, and now you’re down $50 bucks for those tarot cards.  On the forums, one passionate group says, “Raise the rents!” and the other group says, “No leave them where they are!” And you walk away even more confused and puzzled.

The clock is ticking, the lease is about to expire, what should you do?

How This Guide Will Help You Save Money

Reader: Wait a second! I’m here to learn how to make money, not save money. Can you provide me with answer to my rent dilemma?

Sadly, there isn’t a one-size-fits-all policy for deciding to raise rents or not. It all depends on the person’s unique situation. Instead of providing a definitive answer, it’s better if we empower ourselves to make our own decision. This article will discuss the numerous factors involved in raising rents. Usually people narrowly focus on the market rate for rents to determine whether one should raise them or not, but that shouldn’t be your prime focus. There are numerous other components at play that should determine our final action.

Whenever we arrive at a crossroads in life; be it investing or personal, it’s always good to stop and reflect on what we’re trying to accomplish overall. Our values, usually written in a form of a business or Hobby Plan, will help us to determine the best course of action during uncertain times.

This guide will not provide you with a one-size-fits-all answer to your problem. Think of this guide as a decision making process to calculate the risk involved in making rent related decisions, so you don’t lose a quality tenant due to a knee-jerk emotional decision.

The Goal Of Raising Rent: It’s Not What You Think

Narrowly framing the situation as an either-or dilemma, “To raise rents or not,” distorts the reality of the situation, which fans the flames of emotion and leads to a potentially bad decision. Making good decisions requires an understanding of all the alternatives so you can properly value the costs and risks involved in the final decision.

So let’s reframe the question—“What are my priorities for this property?” Reframing the question creates alternative scenarios, which lead to better decisions because we can weigh the tradeoffs involved.

Potential Priorities:

  • Maximizing Profits
  • Minimizing Personal Involvement
  • Maintaining a low vacancy rate
  • Decreasing Tenant Turnover Costs
  • Stabilizing Cash Flow

This list is a starting point to determine your motivations behind an investment. Start brainstorming and think to yourself what are your true priorities.

Frank: Well, maximizing profits is important to me, but I don’t know if it’s worth risking a higher vacancy rate and spending my weekend showing the property to new tenants.

Sue: Come to think of it, I really care about tenant stability and minimizing my time commitment. I have a demanding career, so I don’t think raising the rents is the best decision at this juncture.

Pete: Actually, maximizing profits is something I would like to proceed with because I can handle the potential risk of tenant turnover and the added time involvement.

Related: How to Successfully Raise Rents Without Risking Costly Vacancies

The Power Of Anchoring

When the tenant signed the original lease agreement, your negotiations for rent didn’t end there. It just symbolized the closing of one chapter and the beginning of another in the ongoing negotiation for rent.

The original rental price has a powerful anchoring effect on subsequent negotiations. While we might think everyone is perfectly objective, we are emotionally-driven animals. We have strong sense of fairness running through our minds, and if the tenant perceives the rent increase to be unreasonable, they will be compelled to walk. No matter how underpriced the rents are, they will use their original rent as a reference point.

Tenant’s Relationship

Another factor to consider is your current relationship with your tenant. Having a great tenant is compelling reason to leave rents at current levels or to minimize rent increases. If the tenant is excellent, is it worth the trouble to raise the rent at the risk of losing the tenant? Finding a good tenant can be a tough proposition in any market.

Signs Of A Great Tenant:

  • Does the tenant pay always pay her rent on time?
  • Does the tenant maintain the interior and exterior of the property?
  • Have other tenants complained about this tenant (Noise complaints or property upkeep)?
  • Does the tenant update you on potential issues related to the property?

Some investors minimize rent increases in a hot market, and if the tenant leaves, they list the property at a higher market rent so the new tenant doesn’t feel heartburn of having massive rent increases after signing the lease.

keep-tenants-happy

Rent Increase Percentages And Tenant Reactions

In the SF Bay Area, rents are anything but affordable, while in other markets rents are affordable. In some markets, tenants expect regular rent increases of 10%+ as status quo, while other markets tenants would consider moving immediately. In general, I’ve found that rent increase reactions cluster around three price bands.

Rent Increase Reactions (Rule Of Thumb):

  • 1-5% — Expected increase, it’s not worth moving unless my rents are severely above market rents.
  • 5-10% — I might consider moving, but if the property is well maintained, located in a nice area, and has great amenities, I will probably stay put.
  • 10%+ — Time to consider moving, unless I live in an area where all rents are increasing by 10% and moving would add significant time to my commute.

Now everyone looks at increases differently, but once you start finding yourself in the 7-8% plus range, tenants start to think “Will these increases continue indefinitely?” and “Maybe it’s time to start looking for a new place to live.” As a landlord, you must be aware of the hidden message you’re sending tenants by increasing their rents.

Pitfalls and Planning Opportunities When Moving Into Your Rentals

 

The Hidden Costs Of Raising Rent

A bird in the hand is worth two in the bush.

-Proverbs of Ahiqar

Before deciding to decrease or increase rents you should determine the cost benefit analysis of your decisions.

Investor Pete has decided his property’s monthly rent should be increased from $600 to $650 (8.3% increase), which would be a gain of $600 per year. Pete asked his property manager to research market rents in the area. The market rate for rents in his area is $500, but Pete is confident that his property is worth the rent premium because of the curb appeal of the unit and amenities.

Pete’s city is going through an economic downturn, and local vacancies have been on the rise. The property down the street has had a for rent sign on it for one month, and the asking rent is $550.

One thing Pete should think about is the risk of losing a tenant due to the rent increase and the costs involved in re-renting the unit.

 

Potential Costs:

  • One-month Vacancy: $650
  • Turn Around Costs: $500
  • Advertising: $50
  • Finders Fee For New Tenant (One Month’s Rent): $650
  • Total Cost: $1,850 (Pay Back Period: 3 years and 1 month)

Pete is risking a potential loss of $1,850 for a yearly gain of $600. If Pete is wrong, it will take him at least 3 years and 1 months to recoup the costs involved for finding a new tenant. Also, if the lease expires during the winter or when school is in session the vacancy could be longer than one month.

Maybe it’s not a good idea for Pete to increase rents at this juncture, and he should wait until the market strengthens.

RelatedIs Now a Good Time to Raise Rents?

Tenant’s Previous Earnings

An indicator of whether the tenant will be able to afford the rent increase will be the tenant’s earnings history. Open your tenant file and see what the tenant was earning when they qualified for the property. Now this isn’t scientific, but you can make a rough approximation of what their current salary should be a year hence of completing the application. You could either leave the salary as is or you can factor in an inflation adjustment.

I use the rent coverage ratio to measure the tenant’s gross monthly income available to pay the current rent. For my tenants, I require gross monthly income to be at least 3 times the monthly rent. If your rent increase causes the rent coverage ratio to fall below 3, the tenant might leave or fail to pay their rent.

Assess The Local Economy

No matter how impressive the property, it’s still subject to market forces. Understanding the local economy will let you know what the market rates are for rents in your area.

Questions To Determine The Health Of Your Economy:

  • What’s the unemployment rate for your area?
  • What’s the average vacancy rate in your area?
  • How long are listed properties remaining vacant?

You can find this information via multiple sources: Bureau Of Labor Statistics, a quick Google search, your local Real Estate Association, business journals, or speak to local property managers.

Find Comparable Rentals In Your Area:

Before you make a decision on rents, you must analyze the current market to determine the market rents for your area. The market rent is what people in your area are paying for rental housing. By determining market rents in the area, you can determine if your increase is within reason. Rental prices for your area aren’t determined by your gut feeling or by your desired return—they are determined by market forces. No matter how minor we perceive the rent increase to be, the tenant’s opinion of the increase will be determined by its proximity to market rents.

There are many ways to determine market rents. Here are a few suggestions:

  • Walk around Your Neighborhood: This is the best way to determine the market rents for your area. Look at rentals in your area and try to arrange a preview of those properties.
  • Speak to the Locals: Ask them about how much a certain property was renting for in the area and whether they would be willing to rent the property.
  • Speak to Property Managers: Ask them about the going rate for rents in your area.
  • Speak To Other Investors: You’ll learn about market rents, expand your network, and you never know if the investor might want to sell their property to you.

Using Online Sources To Determine Market Rents:

Out-of-state investors don’t have the luxury to drive through their property’s neighborhood, so they will need to call local experts and review online sources to determine market rents. While online resources are easily accessible, they list rental prices that are aspirational, not the final leasing price (which can be lower than the listing price). Unfortunately most online sources don’t have the capabilities to determine the final agreed upon rental price.

Sites To Find Rental Comparables:

You can use Rentjungle.com and zilpy.com to determine rent trends in your area; however, none of these sites should be used as the single point of truth because each site has its own biases.

Comparables vs. Your Property:

Sample size is everything. Try to find as many properties as possible within your property’s neighborhood, and make sure to create a database to track these properties. It doesn’t matter if your property is a duplex and the property for rent down the street is an apartment—tenants tend to lump different residential property types into the same category.

Now it’s time to combine the data that you have collected to analyze how your property fairs against the competition.

You can add the information into a basic spreadsheet, such as this one, to get a better idea of how the market is determining value.

While understanding the market rents for the area is important, these averages exclude the unique features that your property may offer. Make sure to add or subtract the value of the amenities included in the rental. It’s hard to precisely determine the true value of amenities, but you can approximate the value by finding comparables.

If you see two properties in the same area that have approximately the same square footage, but one unit has one bedroom and the other has two bedrooms, you can approximate the value of an extra bedroom by the difference in prices between both rentals. It isn’t a scientific calculation, more of a ballpark measurement.

Things To Compensate for when Determining Market Rent:

  • Does the property have curb appeal? Are people living there because they want to or because they have to?
  • How many bedrooms and bathrooms?
  • Size of the backyard?
  • What’s the property’s walk score?
  • What utilities are paid for by the tenant?
  • Does the property include garage parking?
  • Does the property allow pets?
  • Is the property furnished?

By aggregating the data and refining it based upon your understanding of the market, you will be able to determine the market rent for your property.

If you’ve concluded that your rents are currently above market and that an additional increase wouldn’t be worth the hassle, then you may even consider decreasing the rents depending on the state of the local economy. Sometimes it is better to get ahead of a softening economy, and lower your rents to prevent a vacancy.

Important: A message from Lawyer Cat, please read!

Before we get started on this, each state, city, and county has its own rules and regulations regarding rent increases and communicating rental price changes. Please read the rules or consult a human lawyer.

  • According to the State of California, If you have a month-to-month (or shorter) periodic rental agreement, the landlord must give you at least 30 days’ advance written notice of a rent increase.
  • The landlord must give you at least 30 days’ advance notice if the rent increase is 10 percent (or less) of the rent charged at any time during the 12 months before the rent increase takes effect.
  • The landlord must give you at least 60 days’ advance notice if the rent increase is greater than 10 percent of the rent charged at any time during the 12 months before the rent increase takes effect.

Last note from Lawyer Cat, if you’re raising rent because your tenant filed a complaint against you or are raising rents for any reason that looks retaliatory…. STOP! Rent retaliation is illegal. Stop being a slumlord, and be a true landlord.

Thanks Lawyer Cat, now back to my story.

Communicating The Rent Increase

If you’re lowering rent, the message is usually well-received by the tenant.

If you’re raising your tenant’s rent, it’s a different story. Even if you invoke the rhetorical power of Johnny Cochran via each keystroke on your laptop, it won’t change the fact you’re taking money out of your resident’s pocket. Now this isn’t something you should feel guilty about because, if you manage a quality property, you deserve to be well-compensated for your work.

While I can’t tell you how to perfectly construct this message, I can tell you a few Do’s and Don’ts:

Do:

  • Communicate clearly and succinctly.
  • Feel free to express your appreciation for their stay at your property.
  • State the new rent amount and when the new rent changes will take effect.

Don’t:

  • Make your rent increase letter/email as long as War And Peace.
  • Communicate the increase in person. Sending the increase via email or letter allows the tenant to digest the information before responding.
  • Apologize for increasing the rent.  If you were truly sorry, you wouldn’t raise it in the first place.

Oh No! My tenant has decided to leave. What do I do?

First of all, don’t panic! Confirm the reason why the tenant is leaving. If it’s related to your rent increase, try to negotiate with them.

Points Of Negotiation:

  • Gradually phase in the rent increase or minimize the rent increase for a longer lease agreement.
  • If requested by the tenant consider adding an amenity (air conditioning, garbage disposal, etc.). So long as the amenity provides a reasonable return on investment, consider making the investment in order to keep the tenant and secure the rent increase.

Can I add rent escalation clause to my lease?

A rent escalation clause is a provision included in the lease agreement allowing the landlord to increase the rent to a pre-arranged rate based upon a fixed percentage or the consumer price index (CPI). Typically rent escalation clauses are used for multi year commercial lease agreements. Most rental properties don’t include a rental escalation clauses in their month to month or year long leases

If it’s a multi-year lease, you can consider pegging the increase to the consumer price index CPI for your area.

The rent escalation clause serves two purposes:

  1. If the tenant lives in a expensive real estate market, the escalation clause provides the tenant with assurance their rent won’t increase more than the prearranged escalation rate.
  2. The manager knows they can avoid the difficult rent increase conversation and their rents will increase with inflation.

Conclusion

The decision to raise your rents can’t be based off of just one factor. You need to break the decision down into a series of parts to make sure you’re considering all aspects  that are influencing your final decision.

The process towards making the final decision to increase rents should incorporate the following:

  • Your goals
  • Relationship with the tenant
  • Cost of vacancy
  • Health of the economy
  • Market rents
  • Comparable properties
  • State, county, and city rental laws
  • How to communicate the increase
  • And potential rent negotiations

Finally, keep in mind that you are taking a calculated risk by raising the rents: trying to get the most rent from your property at the risk of losing a good tenant (and spending time or losing money to replace that tenant).

Do you have any tips for raising rents? Or do you have any questions? Leave your comments below to discuss!

About Author

Jordan Thibodeau

Jordan Thibodeau is a contributor for BiggerPockets.com blog. He works a full time job and invests in Buy and Hold Real Estate in the Sacramento Area. Jordan is dedicated to helping people become better real estate investors by helping them clarify their investment criteria and goals. He was also featured in BP Podcast Show 74. Also, Jordan is the author of a personal development blog titled Growwithjordan.com. You can learn more about Jordan here or reach out to him in the BP Forums.

52 Comments

  1. John Van Uytven

    That was a great read. I worked for a company that was increasing rent while layoffs were happening at the local factory. The apartments were mid range quality asking top range cost.
    When I left they vacancy was roughly 10-12%. I heard recently vacancy is 25-30%.
    Knowledge of the quality of apartments, Knowledge of the local economy are vital.

  2. Kevin Manz

    Great read Jordan. I have a situation I’ve been debating over. I bought a 5 unit couple months ago. They are all under market. Lease is up in August. One unit I could probably get by with raising rent quite a bit. Tenant has been expressing they would like new Carpet, which I wouldn’t have a problem doing, but he has a big dog. I hate to put brand new carpet in there w a dog. Can I get your expertise on this situation. Thanks

  3. Cody Barrett

    Awesome article Jordan! Really enjoyed reading these tips as I am a first timer who inherited a tenant that is paying over 100 dollars below market rent. His old lady recently left him so let the fun begin I guess…. Thanks again for the post!

  4. Michael Boyer

    Lots of substance here. Great, standout piece!

    You even bring in the “predictably irrational” aspects like price anchoring. It is a nice holistic approach to the perennial question “to raise or not to raise”… The answer as you note is” it depends” (on many factors listed in the article). Adjusting rents to market can have unintended consequences, so you want to see the full picture…

    About the only addition I would add is in hidden costs. One DIY landlords will attest to is the turn around costs (be it cleaning, painting, minor repairs, loose odds and ends, and wear points)..

    There are so many little moving parts and if it is vacant, you need to get in there and do a thorough maintenance routine (which is ideal with no tenants, belongings, furniture, pets, scheduling etc) and shine it back into rental condition (much is just too awkward/difficult to do in an annual inspection, be it re-staining/polyurethane wood, or a toilet tank overhaul kit, even carpet cleaning if you still have that in any units)…

    Depending on the length of tenancy, wear and tear, and your labor costs and turn around routine, the cost can be a half to one month’s rent or more. But if you retain the tenant (I am showing my hand here in being in the tenant retention camp), the full turnaround work can be delayed for another lease term or two. So the full costs of the rent raise (if it can produce a vacancy are key).

    One’s scale is also important.. If I have 50-100 units, every fifty bucks per tenant a month is huge. If you have one fourplex, fighting for that 50 bucks and losing a good long term tenant may be economic folly with all costs figured in…

    Keep up the good work. Best of luck.

  5. Alex Franks

    Jordon Great Post. I unlike most have kept my rents , the same price since 2009 .On what I purchased during the 2009-2013 cash flow period. I see things different that folks are struggling. We watched subprime destroy a lot of families. Now I am seeing , the rents in some same areas surpass those numbers. I have been active in this business for a long time. So I feel we already are slowly recreating the problem. Rent versus income not working out.

    Alex

  6. Joel Owens

    Hey Jordan,

    The article was pretty good. One thing where I think it is out of whack some.

    “One-month Vacancy: $650
    Advertising: $50
    Finders Fee For New Tenant (One Month’s Rent): $650
    Total Cost: $1,350 (Pay Back Period: 2 years and 3 months)
    Pete is risking a potential loss of $1,350 for a yearly gain of $600. If Pete is wrong, it will take him at least 2 years and 3 months to recoup the costs involved for finding a new tenant.”

    90% of the time this isn’t the case.The actual average time to recoup costs would be much longer than 2 years and 3 months. Say your tenant has been living there for 3 years. What they view as an acceptable place to live and what a new tenant approves of is usually totally different. The new tenant will notice the scuffed up walls, the worn out carpet, etc. So generally your “make ready” costs can be 500 into the thousands for the unit to get in rent ready shape again for a new tenant to execute a lease. This is true ESPECIALLY if you want top market rent. If you are 200 dollars below market rent with a waiting list then many tenants will take a run down unit with no repairs. You also did not mention the time of year when looking at raising rents or maybe I read too fast. If the lease is coming up during a winter time or it is a heavy family school area and people do not want to move during the school year you could have to wait a long time to get another tenant in. Sometimes it can take 2 to 3 months or more. Additionally also what was not covered is if the tenant fights the increase and you have to go through eviction to get them out. Some jurisdictions takes up to 6 months that is tenant state friendly to remove them.

    For these reasons I feel your example the costs to break even again would be much longer than your stated time. Could take 3 to 4 years to break even etc.

    The people I know with 100 units for a complex know as the building gets older and the units they need to be in the 50% range of rents for the area. That way when they raise the rent 3% every year they are still one of the best deals in town. They stay full and have almost zero turnover and have a list to pull from. Minimal repairs and down time happen because the rent is low so tenants will overlook things to move in.

  7. Terrence Arth

    Hi Jordan, Ya know, sometimes something so simple totally avoids me. In your post was a superb pearl of wisdom… you mentioned that when considering an increase during more volatile times for a good tenant, pull out your tenant file, review his/her earnings history and seek information about the person earnings potential.
    Your example showed a 2+ year payback for the increase and if you know they can’t afford the increase, it is either an exercise in futility OR just invite them to leave and don’t be surprised when they do.
    I like it! Thanx!
    T

  8. Well written article but I must ask – if Pete loses his $600/m tenant because he *thinks* his property is $650/m when market rate is $500/m would it be logical that he fills the apartment with a $500/m tenant thereby losing a lot more that your analysis suggests.

    What makes him able to fill his apt in one month at a rate almost 25% higher than market during the stated economic downturn and high vacancies?

  9. sandy salazar

    Hi Jordan,
    I have to say this was one of the very best articles I’ve read in recent times here on Bigger pockets. It was well written and filled with a lot of great info that is beneficial to both new and seasoned investors! Definitely will be keeping this as a favorite to reference back to when I’m feeling emotional about raising rents. I just recently raised rents 10% to a both tenants on a duplex who I have not raised rents in more than 4 years because of the economy and stability and demand for my property, but it didn’t turn them away because they expected it and they are happy where they are at, and they knew they were paying below market rents, and they still are a little below market rents. on another property I had a couple of years ago, a tenant asked me for a rent decrease, at that point she had been there for two years (I had inherited the tenant) and was paying way over market price, but she is the perfect tenant, has no intentions of moving, works very hard and pays her rent on time every time. I’ve probably been called out for repairs on average once a year. I gladly obliged her rent decrease and it’s still within market rents. So as you wrote in your article “it depends,” and a happy and good tenant taking care of your property is better than a vacancy and costs associated with tenant turnover.

  10. rob knapp

    Thank you for a very good article.
    I think there are so many things that can factor into a tenants mind about their home that I cant fathom.
    I send a letter saying I’m really sorry that I must raise rent because I cant loose money because of (HOA, taxes, insurance…) increase.
    Then I meet face to face 2 days later and negotiate when they say they will move.
    I do not feel bad that rent must increase, because its out of my hands. This is a business and all of my costs have increased including cell phone, pick up truck, tag and insurance. Come-on, a BMW 750 is up 10% this year

  11. J Scott

    Great article! I actually just finished this process with one of my tenants the other day, and spent a good bit of time deciding what to do. Ultimately, I offered them a new lease at the same rate, but they asked to go month-to-month because they’re looking to buy a house in the near future. That was the perfect opportunity to raise the rents as a trade-off for allowing them to go month-to-month. Win/win — they got what they needed and I got what I wanted.

  12. Jerome Kaidor

    I’ve been on both sides of this issue. Back in 1980, we were renting a little apartment in San Carlos, CA for $300. One day, we received a letter stating that the rent was being raised to $360. A TWENTY PERCENT increase!
    This inspired us to start seriously saving for our first house.

    Now I own almost 100 units, and am definitely on the other side… But I am still careful about how much I raise rents and when. In general, I do no more than 5%, and no more often than once a year. And when the market doesn’t allow, I don’t raise the rents at all. I may also make allowances for my very best tenants; the ones I *really* don’t want to lose.

    The discussion of value brought to the landlord is missing one important point: higher rents raise the value of the property. Let’s say that property in a certain area is being sold at a GRM ( Gross Rent Multiple ) of 12 – a pretty ordinary figure nowadays. If I raise the somebody’s rent by $20, the yearly rent goes up by $240,
    and the market value of the building increases by $2880 – almost three grand. Multiply that by 10 apartments, and you have a thirty grand pop.

    If you’re in a rent controlled jurisdiction, then it becomes absolutely vital to keep up with the allowed rent increases; because if you try to sell or refi it on pro forma numbers, you’re just committing fraud against a buyer or lender who supposedly doesn’t know about the rent control.

  13. Jerry Bredesen

    Great article Jordan. We seem to have the same views on “arbitrary” rent increases. For our properties, we focus on attracting quality tenants with a quality product and then set our rents near the top of the range. But, as long as the tenant continues to meet their obligations and not cause problems we generally won’t raise the rent for a good long time. As you noted, it takes years to recoup even a one-month vacancy, not to mention the extra hassle and maintenance costs.

  14. Howard Maidens

    Excellent article Jordan. I just closed on a 4plex a couple of weeks ago. All units at the time of b/s agreement were rented at below market value. Fortunately, for me two of the units have recently turned over, and are now at market value. The other two units have long time renters with no plans on leaving anytime soon. My thinking is that when their leases are up, I would be inclined to keep increase to a minimum, as they are good tenants. What is your opinion?

  15. Daniel Eisman

    Hey Jordan,
    Thanks for this article. I’m a newer landlord but have already had to deal with vacancies and rent increases due to a hot Colorado market. You’ve got some great information in here that I definitely plan on referencing in the future.

  16. Roy Kwak

    This was a great post Jordan. I was expecting just a quick article that says things we already know but this was very fleshed out and you went into both the psychology of raising the rents as well as a comprehensive analysis of the factors involved. Look forward to reading more from you.!

  17. Manuel Ochoa Jr.

    Jordan,

    Very informative and fun to read. I enjoyed your article and made you sit and think is it truly worth raising rents when you look at all the potential losses and the amount of time it would take you to re-coop your losses for a potential small increase in yearly income.

    Great Job,

    Manuel Ochoa

  18. Christopher Smith

    Good Topic for Discussion

    I am always a little amazed that there is so much confusion around this topic. Its almost is as if people think it requires a personal psychic guiding you across a Ouija board in the middle of a seance or channeling session to get the the “right” answer. Dispense with the all idle soul searching, hand wringing and endless speculation, the market is going to tell you where your rental range is for a given property type in a given locality. That is what you should have your pulse on, and make realistic adjustments accordingly from that.

    For my average tenants (which is about half), my policy is that they always pay within the yearly market range and that amount gets adjusted every year for changes in market conditions. I usually try to shoot for about 2/3s up from the bottom of the range and increase that amount 3% a year upon renewal to cover increasing costs (market willing).

    For my above average tenants (basically the other half), I will discount from market maybe 3 to 5% at the most, but I always increase that amount every year so it never falls below that percentage discount range. I don’t want to have to come in later with a significant catch up increase, that will raise a tenants ire almost every time. That’s about it, and I have never had any issues with this, and have never lost a tenant to a rent increase, if what they tell me is accurate.

    I think folks make this decision much harder than it really is.

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