Should I Raise Rents?
Hi All,
I have a tenant whose lease is expiring soon. They have indicated that they are interested in renewing the lease but are yet to give me anything formal.
I am trying to decide if I should raise the rents or not. The rent they are paying is currently $75 - $100 lower than comparable rents in the area. These tenants have been okay tenants, a couple of lates but always paid the late fees when presented. No damage or vandalism or anything of the sort and from what I can tell, they keep the place in good condition.
I am thinking I should raise the rents by $75 if I go month to month. If they agree to stay and sign a new 1 year lease, should I still increase the rents by a token amount ($20/$25)?. The increased income ($300/year) is less important to me than having responsible tenants.
What have you done with your tenants? any insight would be appreciated.
Thanks,
JS.
JS
Feel them out with a phone call. Tell them about increased costs etc. Thinking about a 50 raise. Would that be too much? You will get a good idea from their response. Better to be slighly under market than way underpriced.
I would reccomend a modest increase as your expenses have no dought increased (taxes, ect...) I do not think 25 will be the deciding factor in wheather they stay or move
Rob
I think it is absolutely critical in this business to keep the rent at market level.
This does several things.
1. Keeps your cashflow going up!
2. Insurance and taxes will always go up - you need to keep pace.
3. Higher rents seem to attract better people.
4. Most tenants expect some increase every year - they may complain, but small increase wont force someone to move.
5. When/if you sell you will be in a better position with higher rents - lots of investors look at cashflow based on the current rents - if rents are too low they may go somewhere else. I have skipped over several properties, because the current tenants had low rents. I would be forced to negative cashflow for 6 + months, plus the added agravation of finding new tenants, cleaning etc etc.
You say that these are tenants you would like to keep. I have also been faced with the same dilemma -- rents are quite a bit below market. In your case with rents $75 - $100 below market, an monthly increase of $40 should be automatic. Same increase the next year when the tenants renew. Should you have a vacancy, advertise at slightly under market rent (up to $25 less)
You might try offering a two year lease. I made an offer to a tenant in one of my units as follows -- if you only want to renew for one year, your rent will increase from $910 to $950 per month. However, if you are willing to pay $965, I will give you a two year renewal. The tenant took the higher rent to lock in the two year term.
If I had planned to raise the rent another $30 when the one year lease renewed, my total rent collection would have been the same as collecting the higher two year rent now. The advantage to me is that I locked my tenant into a two year lease. I may offer another two year renewal option this fall when the current lease expires.
Smithj2,
Everyone has had some excellent points. What NewKidinTown2 said is a great idea. Lock someone in for two years with a deal, that is one property you dont have to worry about for some time except collecting rent. I think the average yearly increase is around $50.00. At least in California.