Raising Rent??
I purchased my property not too long ago. The previous owner said rent was 725 when in fact it was 700. (Note: Lesson Learned .. get everything in writing and check out existing leases) Anyway, I now need to raise rent however today's economy is not too hot.
When would be a good time to raise rent??
What is a good rule of thumb for when raising rent is 'safe'
Any ideas???
I just feel right now if I raise rent on this excellent tenant, he might jump. He is no hassel what so ever. Pays his rent, etc...
Your thoughts...
[addsig]
raise the rent during the spring. if they decide to move you have a better chance in getting a better tenant than looking for a tenant in the winter
True. Also another situation is that he currently is renting month to month. I need to get him under a lease before the winter months come. Don't want him to bail in December and stuck trying to rent out this place.
[addsig]
What about a 6 month lease at $725.
Then bump up to $750 next 6 months?
When I raise rents, I try to show the tenant my costs for insurance, taxes, continue to rise. In your case, you have a higher mortgage ( assumed) than the previous owner, etc. , etc.
I also try to show percentages. Increaseing the rent 25 is ONLY a 3.5% increase. Let them know that they have been great tenatnts, and you would like to conitnue renting to them , but you must increase rents to make ends meet. You have talked with your accountant, and you simply must raise rents. You have tried to keep this to a bare minimum, and are therefore only increasing rent by 3.5% to $725.
Good Luck!
Wow.... Don't you think that's agressive? Just curious. To me it seems a bit much. Maybe to me it does but then again, I'm just starting out (GREEN). Have you done this?? (Raised rent in 2 six month increments?)
[addsig]
Frankly, I do year leases, and try to raise them 3-5%, depending on prevailing rent rates in the area.
I was just trying to think of a way to get you to the Spring (6 mo.), and to get you some increase without scaring off the tenant.
Raising rent is straightforward - You MUST present value to the tenant for the increase.
The problem is that tenants do not care what your landlord expenses are, and expenses alone can not determine your rent. The only thing that ultimately determines your rent is how much someone (current or a new tenant) is willing to pay for an extended period of time. It's extremely important to keep the visual appeal of the property and a good working relationship with tenants.
"If you want low turn-over rate, the easy way is to set your prices below what others charge. However, unless you have a superb tenant, it's not worth losing the extra income. Don't ever take the easy way out because the place has low visual appeal. It's well worth the extra dollars spent to improve the quality of both the property and the potential tenant. Crummy rentals welcome crummy tenants, which will cost you a lot more than reduced rent. "
[addsig]
demott,
Read over Ford's posting. What he's saying in the words he's giving you is to put the blame on someone else.
Blame the Dog gone insurance company, the tax man, your accountant, and anyone else that is not you.
You're sorry that you have to ask. You really like him and don't want to lose him, but you've got no choice. It would sure HELP you out if he could stay with you a while longer. (at $725)
People love to HELP if they can.
He'll go away ticked at the ins. people and the tax man, but not you. You're the patsy, caught up in the middle of a conspiracy to defraud you of your livelihood.
You wish you didn't have to raise the rent. Shoot, you like him and would let him stay for free if you could. You're sorry.
At that point, SHUT UP! The next person that talks LOSES. I've had several full minutes of silence before, even on the telephone, but I (almost) always win.
The only person this doesn't affect is my wife.
Hope this helps.
IF he absolutely balks at 725, then wait a day and come back with, "Well, I could probably go 715..." Then he won't mind if you bump him up to 725 in the spring.
Good luck. and keep us up to date. I'd love to know how this turns out!
Ronnie
Quote:I purchased my property not too long ago. The previous owner said rent was 725 when in fact it was 700. (Note: Lesson Learned .. get everything in writing and check out existing leases) Anyway, I now need to raise rent however today's economy is not too hot.ddemott,
If your margins are so tight that a $25 reduction in your expected monthly cash flow puts you in a bind, you have a more important lesson to learn -- Always do a cash flow analysis on investment rentals.
A formal cash flow analysis would have warned you that the property is at best breakeven, or perhaps a negative cash flow proposition.
Quote:When would be a good time to raise rent?? What is a good rule of thumb for when raising rent is 'safe'Any time of the year is OK. I like to put my tenant's on leases that expire sometime between March and November. December, January and February are slow months for filling a vacancy, though not impossible months for getting a new tenant. If a tenancy will end in December, I might offer the tenant a 15 month lease rather than a 12 month lease.
As for a rule of thumb for raising rents, I use the 12 month rule. Tenants expect annual rent increases. Even my month-to-month tenants (when I have them) have an annual rent adjustment. If your tenant has been paying the same rent for about a year, it is not too soon to give a rent increase notice. If your proposed increase is only $25 per month, this 3.5% increase will not scare away a good tenant.
Check your local landlord tenant laws regarding the minimum notification period you must give the tenant before a rent increase can take effect. To document your notification, mail your written notice. Use certified mail with return receipt required.
Hey,
I don't know about your area, but I see ALOT of empty apartments and rental houses in mine.
I have not increased my rents in two years, because of this reason. Just as an FYI: I turn this in to a BIG positive by sending the new lease and a letter saying how great the tenant is and how we are not raising the rent because they are so great.
If a tenant moves out, I do raise the rent.
Anyway, my point is if the tenant says "Forget it, I am out of here" and it takes only 1 month to get a new tenant, at the $725, it will take over two years to gain back the one lost month. Is it worth it?
Hello Ddemott,
I agree with the insight from others about your post. I will tell you about my situation that is very close to yours. The tenant was in the unit when I purchased the duplex. He was on a month to month lease. His rent was $25 below all other tenants. He payed on time, kept the place clean and in good order. I thought to myself, I would hate to lose this good tenant. Well, I just allowed him to remain in the apartment for the next year, until he purchased a house of his own. When he moved, before I could get the place cleaned and painted, I had three calls on the unit. I did not have to advertise, this was all word of mouth from friends of other tenants living in the area. I was able to increase the rent by $35. I felt to myself that I could have asked that he go on a yearly lease or move. I could have gotten the rental increase that I wanted for the past year.
I will not be afraid to do what I think is best for my business. Also, most mortgage companies don't like the month to month leases, should you apply for other loans in the future.
I purchased a quadplex 3 years ago. There was a tenant in 1 unit that was paying $100 less than I was getting for the other units, but, he has been in the same apartment for the past 15 years! Since I've owned the 4-plex I have turned over the other tenants a several times due to non-payment or from not getting along with the other tenants. A tenant who pays on time, doesn't bother anyone and has remained in unit for years is irreplaceable. For a few pennies more a month to me is not worth having a vacant unit for months.
I see both sides of the coin. I agree that raising the rent for this one person is probably not worth it in these hard economic time. Better to keep a good tenant than to try to get another $25 a month out of them. The only thing that I think would change my mind will be if I were selling the property. The amount of money that the property can create directly affects the price. My assumption is that if I raise the rent, this be raising the price of the property by X*12*10. If I raised rent 50 bucks, the price of the property would go by 50*12*10. Am I correct in this assumption?
[addsig]
I just re-read your post. For some reason, I had in my head that you thought you were getting $750/mo, but only received $700. I thought a jump from $700 to $750 (7%) was a bit steep to handle at once.
Quote:If I raised rent 50 bucks, the price of the property would go by 50*12*10. Am I correct in this assumption?What type of property is this -- SFR, duplex, multiplex?
You only talk about one tenant, so I will assume that you have a single family dwelling as opposed to a multi-plex unit.
If this is the case, then the answer to your question is that your current rent will not make any difference in the value of the property, and raising the rent will not raise the value of your property.
Instead, fair market value will be established by comparable sales.
Duplex
[addsig]
My original response still applies. I assume that your property is just one of several similar properties in the neighborhood. Comparable sales will still dictate value of the property.
If the property is a duplex, how much rent do you get for the other half?
If you only own one half of the duplex, then you still have a single family dwelling. Comparable sales will still dictate value of the property.
If $700 is market rent in your area and you go $750, you may be kissing your good tenant good bye. Even $725 may tell him he should buy his own home.
I try to keep my rents slightly below market if I have a good tenant who taking care of my property -- as the money will come when the property appreciates in value.
Let's say he moves. It sets vacant for 2 weeks, you need to paint, clean, run an ad and get another tenant, but you now rent it for $725. Are you now better off?
Will this new tenant be happy and take care of your property?
"If you only own one half of the duplex, then you still have a single family dwelling. Comparable sales will still dictate value of the property."
Answering the above question... I own both and live in half.
[ Edited by ddemott on Date 09/11/2003 ]