Rent Increase or Not?

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boogiehead
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Rent Increase or Not?

Post by boogiehead » Thu Sep 06, 2018 12:16 am

I have a rental property in which the lease is about to expire. The current tenant's have been pretty good in terms of paying on time, however I believe the rent is about 5% below market for the area on top of that I had to pay a special assessment and increased HOA fee this year. I was thinking about doing a small increase 2.5% of the rent to recoup some of those fees going forward, however I'm not sure if its worth the hassle if the tenants end up moving out because of the fee increase. For those landlords out there wanted to get your opinion on what would do and how often do you increase rent for your rental properties? Thanks!

HEDGEFUNDIE
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Re: Rent Increase or Not?

Post by HEDGEFUNDIE » Thu Sep 06, 2018 12:17 am

If it is a good tenant I usually let the rent lag market rate by about 10%

boglerdude
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Re: Rent Increase or Not?

Post by boglerdude » Thu Sep 06, 2018 12:27 am

+1. Want the tenants feeling like they're getting a good deal.

Madbull
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Re: Rent Increase or Not?

Post by Madbull » Thu Sep 06, 2018 12:57 am

<<-Renter here.

My property manager/landlord didn’t raise our rent at the last renewal even though he probably could have justified the increase. I appreciate the fact he didn’t. On the flip side, I know he appreciates the things we do on our own, (like replace the builder grade garbage disposal when the bearing seized up with a nice 3/4hp one).

When I texted him we did that, and asked if he wanted me to toss the warranty card in the envelope with the following months rent, his reply was, “Why, you planning on going somewhere? Just put it in your name”.

We have a great business relationship. 👍

Daryl
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Re: Rent Increase or Not?

Post by Daryl » Thu Sep 06, 2018 5:59 am

<-- Another renter.

It is my understanding that good rentals are much easier to find than good tenants. I highly recommend that you price your rental at the highest price the market will bear and then work to find the right tenant. After that, do everything that you can to keep them happy (and those rent checks coming!). Do everything that you can to hold rent constant from year to year, and re-adjust to market rents when you have turnover in the unit.

ddurrett896
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Re: Rent Increase or Not?

Post by ddurrett896 » Thu Sep 06, 2018 6:46 am

Landlord here.

A good tenant is INVALUABLE...so is a happy tenant! If they are good, wait until they move to raise the price. Moving is a pain and I feel like they are held hostage when presented with a higher rent.

In fact, I'd knock off 5% if I could guarantee a tenant that paid on time and took care of the place.

euroswiss
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Re: Rent Increase or Not?

Post by euroswiss » Thu Sep 06, 2018 7:09 am

Agree with most of the other responses. If it is a good tenant, and you are on.y 5% below market, leave it alone.

JT05
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Re: Rent Increase or Not?

Post by JT05 » Thu Sep 06, 2018 7:13 am

Landlord here. You will lose far more than the small increase with an empty month(s). Keep the good tenant happy.

carolinaman
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Re: Rent Increase or Not?

Post by carolinaman » Thu Sep 06, 2018 7:36 am

I have no experience as a landlord but have read that small increases usually do not bother tenants, especially when you have expense increases like you cited. This same article said it is better to do small, incremental increases than to hit a tenant with a large increase every 5 years or so. That is when you risk losing the tenant. Is the tenant going to move over a small increase? That seems unlikely.

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PrettyCoolWorkshop
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Re: Rent Increase or Not?

Post by PrettyCoolWorkshop » Thu Sep 06, 2018 8:06 am

OP, is this your first year that you are doing this? You should not set a precedent for the rent staying unchanged forever, that would lead to unrealistic expectations.

What I typically do is look up the year-over-year increase in CPI-W, and index the rent to it accordingly. This provides a solid justification for your rent increase, and also lets you stay on top of expected changes in the costs of your unit without having to look them up in depth. When I did this about a month ago with the latest data, the year over year increase was about 3%, not unlike the percentage change you are expecting. Notably, CPI-W inflation over these last 12 months is A LOT more than that of the year before that, which was under 1.5%.

https://www.ssa.gov/oact/STATS/cpiw.html
Be greedy and fearful. All the time.

tim1999
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Re: Rent Increase or Not?

Post by tim1999 » Thu Sep 06, 2018 8:28 am

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

I would not raise the rent over a 5% difference between current rent and your estimation of market rent. If they leave over the increase, you will lose a whole lot more than 5% on vacancy and will run the risk of getting a new tenant who is not as good as the current one.

If I were in the tenants' shoes, and paying on-time/taking care of the place, a 5% increase would be a punch in the face and tell me that the landlord does not value my good behavior. "Screw that greedy jerk, he can take that 5% and pay someone to fix all this little stuff I've been doing for him for free."

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Sandtrap
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Re: Rent Increase or Not?

Post by Sandtrap » Thu Sep 06, 2018 9:20 am

HEDGEFUNDIE wrote:
Thu Sep 06, 2018 12:17 am
If it is a good tenant I usually let the rent lag market rate by about 10%
+1
I have one tenant who takes care of all the minor repairs and any issues. Has lived in the unit for 6 years. Right now the rent is nearly 20% below market. Still well worth it at this point considering he has never called me in 6 years and pays the rent on time.
For 5%, I would let it ride to keep a good tenant.
Sometimes tenants will feel like they are being "nickel and dime'd".

clutchied
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Re: Rent Increase or Not?

Post by clutchied » Thu Sep 06, 2018 10:52 am

I tend not to look at it based on percentages because that's not how people perceive rent.
I bought a place a couple of years ago and it was under market in all 4 units.

As they've turned over I've brought them closer to market and some above market if it's nice enough.
I still have 1 unit that's under market and I've left it there b/c it's my highest priced unit and I don't want turnover.

I'd much rather keep nice tenants than add $50 to their rent.... that's more than a year of pickup from 1 missed month.

boogiehead
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Re: Rent Increase or Not?

Post by boogiehead » Thu Sep 06, 2018 12:02 pm

PrettyCoolWorkshop wrote:
Thu Sep 06, 2018 8:06 am
OP, is this your first year that you are doing this? You should not set a precedent for the rent staying unchanged forever, that would lead to unrealistic expectations.

What I typically do is look up the year-over-year increase in CPI-W, and index the rent to it accordingly. This provides a solid justification for your rent increase, and also lets you stay on top of expected changes in the costs of your unit without having to look them up in depth. When I did this about a month ago with the latest data, the year over year increase was about 3%, not unlike the percentage change you are expecting. Notably, CPI-W inflation over these last 12 months is A LOT more than that of the year before that, which was under 1.5%.

https://www.ssa.gov/oact/STATS/cpiw.html
Yes.... I thought it was fair to leave the rent the same despite inflation, but this year with the special assessment, increased HOA fee, and increased property tax and insurance bill I thought it would be reasonable to try to recoup some of that cost. And whenever talking to my friends I always hear them complaining about the landlord increasing their rent every couple years (some even yearly!) by quite a bit too (i.e. 5% or greater), albeit these are huge complexes ran by management company so in my mind raising the rent first time in a couple years by only 2.5% should still be considered a bargain for my tenants?

But like others have mentioned having the place vacant for a month would cost me much more than the 2.5% rent increase on top of that there is no guarantee of finding a good tenant.

Now I know why so many people want to get out of the landlord business :)

CurlyDave
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Re: Rent Increase or Not?

Post by CurlyDave » Thu Sep 06, 2018 1:02 pm

Landlord here.

When I have a vacancy I try to re-rent at full market rate.

After that I try to let the rent lag the market by about 1/12 of one month's rent. The reasoning is that I will have a one month vacancy if a tenant moves out, so I am willing to accept slightly under market rates in order to not have the vacancy. The tenant benefits from this.

I have had numerous instances where I have raised rent to be 11/12 of market rates and tenants have felt it was way too much. The initial reaction is to say they are moving, but they almost never give formal notice, and after they have spent some time looking for a new place they usually stay. Of course the reason is that they realize that their current place is a bargain compared to what they could find on the open market.

This is usually helpful to me because they come away feeling that the rent increase is very fair, despite their initial reaction.

Of course, as soon as there is a vacancy I increase rent to full market rate. I am neutral on whether they stay or move, since the higher rent will cover the vacancy over the course of one year.

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Cycle
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Re: Rent Increase or Not?

Post by Cycle » Thu Sep 06, 2018 1:09 pm

JT05 wrote:
Thu Sep 06, 2018 7:13 am
Landlord here. You will lose far more than the small increase with an empty month(s). Keep the good tenant happy.
+1.

I had to lower rent this year from last year to fill a vacancy. I managed to limit the vacancy to two weeks. The unit is now under market, and I just do month to month for eviction insurance. I could raise the rent in the spring, but it is such a pain to find new tennants I plan to keep the rent the same until the current tennants choose to move out.

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PrettyCoolWorkshop
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Re: Rent Increase or Not?

Post by PrettyCoolWorkshop » Thu Sep 06, 2018 1:10 pm

boogiehead wrote:
Thu Sep 06, 2018 12:02 pm
PrettyCoolWorkshop wrote:
Thu Sep 06, 2018 8:06 am
OP, is this your first year that you are doing this? You should not set a precedent for the rent staying unchanged forever, that would lead to unrealistic expectations.

What I typically do is look up the year-over-year increase in CPI-W, and index the rent to it accordingly. This provides a solid justification for your rent increase, and also lets you stay on top of expected changes in the costs of your unit without having to look them up in depth. When I did this about a month ago with the latest data, the year over year increase was about 3%, not unlike the percentage change you are expecting. Notably, CPI-W inflation over these last 12 months is A LOT more than that of the year before that, which was under 1.5%.

https://www.ssa.gov/oact/STATS/cpiw.html
Yes.... I thought it was fair to leave the rent the same despite inflation, but this year with the special assessment, increased HOA fee, and increased property tax and insurance bill I thought it would be reasonable to try to recoup some of that cost. And whenever talking to my friends I always hear them complaining about the landlord increasing their rent every couple years (some even yearly!) by quite a bit too (i.e. 5% or greater), albeit these are huge complexes ran by management company so in my mind raising the rent first time in a couple years by only 2.5% should still be considered a bargain for my tenants?

But like others have mentioned having the place vacant for a month would cost me much more than the 2.5% rent increase on top of that there is no guarantee of finding a good tenant.

Now I know why so many people want to get out of the landlord business :)
If you put yourself in your tenants' shoes, you can probably work out how they would think about a rent increase. Moving is more of a pain in the butt than paying a bit more, especially if your rent is already a bit below market. If your tenants are normal people with normal amounts of problems, as opposed to say, a disabled medal-of-honor-winning veteran with sick kids, you shouldn't let your sympathy overwhelm your need to look out for yourself and your need to charge enough rent to be able to maintain the dwelling appropriately.

It's also funny that you consider this to be a different consideration than inflation, because of special assessment, increased HOA fee, and increased property tax and insurance bill. 3 out of 4 things on that list (all but the special assessment) are what inflation is made of.
Be greedy and fearful. All the time.

Nate79
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Re: Rent Increase or Not?

Post by Nate79 » Thu Sep 06, 2018 1:13 pm

While you may decide to not raise rent in this circumstance, for example using the 5% rule or 1/2 of 1 month rent but I suggest to set some rules in your mind as it is very dangerous to set the president to never raise rent on the fallacy that having a renter is better than the potential of not having a renter but continuing to get below market rents.

Millennial
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Re: Rent Increase or Not?

Post by Millennial » Thu Sep 06, 2018 2:43 pm

LL here. I have had good luck with small, annual increases with good tenants. This usually creates a lag to the market, but I have accepted that as long as I can get within about 10% of market value. I usually just do a flat $25 per person per month (so for a 3 bed, the rent would go up $75). That's only 2% and hasn't seemed to bother anyone. As another poster mentioned, I think they probably look around and realize it's in their best interest to stay...

JGoneRiding
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Re: Rent Increase or Not?

Post by JGoneRiding » Thu Sep 06, 2018 4:07 pm

Millennial wrote:
Thu Sep 06, 2018 2:43 pm
LL here. I have had good luck with small, annual increases with good tenants. This usually creates a lag to the market, but I have accepted that as long as I can get within about 10% of market value. I usually just do a flat $25 per person per month (so for a 3 bed, the rent would go up $75). That's only 2% and hasn't seemed to bother anyone. As another poster mentioned, I think they probably look around and realize it's in their best interest to stay...
I agree. Small increases semi regularly while staying below market rate has never made any of my tenants leave. A single large increase when you realize you are way behind is a bigger issue. I try for about the above every year. Tenants almost always leave bec of life changes.

MrsBDG
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Re: Rent Increase or Not?

Post by MrsBDG » Thu Sep 06, 2018 5:22 pm

I'm a landlord and in just this situation. We had a three year lease with no rent increases at all, 6 months prior to the expiration, at their request, we signed a lease extension. It allowed an increase to market rates and month to month tenancy with 60 days notice from either of us.
Well, here I am 30 days before their original lease expires and they have given 30 days notice. I'm still trying to figure out if they are already required to give me 60 days or not, but the main point is that I am now losing a 3 year tenant. They went to a place that is $50 cheaper than my house was at the old rent and provides solar power so the electric bill will do down. They need to save every penny.
Would they have stayed if I'd allowed them to stay at the same rent? I am not sure. I wish I had asked them more questions about what they wanted and needed as I would have taken the opportunity to have a couple of local realtors look at the place, provide me updated sales comps and rental options and then I likely would have been lazy and just rerented to them for 18 months. I am now likely looking for a 15-18 month tenant and will reevaluate the market in 2020, as it is extremely slow to recover pricing post 2008.

JGoneRiding
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Re: Rent Increase or Not?

Post by JGoneRiding » Fri Sep 07, 2018 9:16 am

I will say i have the extreme advantage of being in a high demand low supply area, that might change as the college build more dorms. But I raised both my main rentals $200/mos at last turn over and filled no issue at all. I raised my tiny rental by about $35 and had people standing in line for it.

I will continue to raise on these new tenants in small amounts every year. None of my turn overs where due to price all due to life changes. I would have raised less if the other tenants had stayed in place.

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Sasquatch
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Re: Rent Increase or Not?

Post by Sasquatch » Fri Sep 07, 2018 10:38 am

With regard to rent increases............“Keep it small, keep it all”

Nissanzx1
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Re: Rent Increase or Not?

Post by Nissanzx1 » Fri Sep 07, 2018 10:45 am

I don't raise rents unless they are slow pay or somehow a pain. If you have a good one, keep 'em.

letsgobobby
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Re: Rent Increase or Not?

Post by letsgobobby » Fri Sep 07, 2018 10:54 am

boogiehead wrote:
Thu Sep 06, 2018 12:16 am
I have a rental property in which the lease is about to expire. The current tenant's have been pretty good in terms of paying on time, however I believe the rent is about 5% below market for the area on top of that I had to pay a special assessment and increased HOA fee this year. I was thinking about doing a small increase 2.5% of the rent to recoup some of those fees going forward, however I'm not sure if its worth the hassle if the tenants end up moving out because of the fee increase. For those landlords out there wanted to get your opinion on what would do and how often do you increase rent for your rental properties? Thanks!
We do about a 3% increase each year. If tenant leaves we might catch up to market but we've had the same tenant for three years. We only trail market by about 5% right now.

dmk395
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Re: Rent Increase or Not?

Post by dmk395 » Sun Sep 09, 2018 5:09 pm

Landlord here. Small increases here and there, BUT make sure they are still getting good value. Often times I'm easier on elderly etc, as I know there budget limitations and they usually take care of the place quite well. The key is not having turnover. Rental property is a long game. Vacancy is a killer.

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