Landlords - rule of thumb for increasing rent?

[kgtest]

Tenant's lease is coming up. Property manager suggesting a $50 bump on $2490. So about 2%. On a house in the DC area, on 1/4 acre, neighborhood built c1955, nice brick.


What's the current rule of thumb on rent as a % of gross income?


What questions should I be asking the PM ? --
-- if empty times have decreased since last lease signing
-- to check tenants financials to see what their number look like
-- how have rents been changing in the neighborood & vicinity

I charge what the neighbor charges but a little more since mine is nicer and his is not available.
If you are a good tenant, I don't raise your rent unless my property taxes go up. If the property taxes go up, your rent goes up. Simple. When the unit flips, I charge market rate again...whether that was more or less than prior tenant...but for me it's always been more.


IN my mind, if you want to live in that property, and the owners property taxes went up over the year, well its fair to ask you to pay the difference since you received the benefits of living and breathing in that community at that property. Kinda like when the price of grain rises, so does the persons cost for that box of Rice Crispies...pass it on to the consumer.

 

[Bongleur]

How do I figure sq ft of the house? Other than adding up all the rooms... Is it recorded anywhere? Outside dimensions x2 stories but minus 1 story garage...

 

[NgineER]

Usually your county would have the information online about square footage as your taxes are based on it.
Zillow may or may not be correct.
I also claim my properties on Zillow so that I can list my property for rent on Zillow among other sites.

 

[Bongleur]

The room dimensions on the 1960's listing card ( I have the original 3x5 card) are in decimals. I wonder if that is an abbreviation for inches. So 10.2 would be 10 feet 2 inches?


But my sq ft total is pretty close to the tax record, once I figured out how to dig down to that page.


I've lost confidence in the PM company... I need them to demonstrate that they are paying attention. Changing PMs would be a real pain even if I keep the tenant.

 

[CaliKid]

I like to offer a choice like:
2 year lease - no rent raise or very modest (assuming they are a good tenant)
1 year lease - 4% increase
6 month lease - 6%
month to month - 10%

This is not exactly what I do but this type of approach. I'd rather lock a good tenant up long term as vacancies will kill your return!

 

[kgtest]

I don't raise my rents on a schedule; however the rule of thumb I use is to raise them enough that it costs less than a moving van and crew.

Very solid point. You want the tenant to say, well it sucks my rent went up, but I know why because the landlords costs went up, and I like this place enough that I will pay the increase without the hassle of moving.


I don't know what sucks more, finding a new rental or a new job, but both suck a lot.


I raised my rent on a 1250 unit by $30. 2.4% this year, because that is how much the property tax went up. $30x12 = $360. The tenant can fact check me and stay, fact check me and leave, but my costs went up so there's will to. It's only a problem for the tenants that don't realize it's a business.

Oh I also raise rents if I want a bad tenant out. But that's not the only way to get a bad tenant out, I know a few, one is clever.


Ironically enough, right now my rents are very closely priced to about $1/sq ft . Not totally relevant but interesting fact. This is true for my father as well who has a few rentals.

 

[Another Reader]

Very solid point. You want the tenant to say, well it sucks my rent went up, but I know why because the landlords costs went up, and I like this place enough that I will pay the increase without the hassle of moving.


I don't know what sucks more, finding a new rental or a new job, but both suck a lot.


I raised my rent on a 1250 unit by $30. 2.4% this year, because that is how much the property tax went up. $30x12 = $360. The tenant can fact check me and stay, fact check me and leave, but my costs went up so there's will to. It's only a problem for the tenants that don't realize it's a business.

Oh I also raise rents if I want a bad tenant out. But that's not the only way to get a bad tenant out, I know a few, one is clever.


Ironically enough, right now my rents are very closely priced to about $1/sq ft . Not totally relevant but interesting fact. This is true for my father as well who has a few rentals.

Funny, I have been considering this strategy as well.

 

[HawkeyeNFO]

ALL REAL ESTATE IS LOCAL. Where in the DMV are you?
If the property is in Arlington, you should be able to raise the rent.
If PG County, that's different, as is Mont. County, PW County or Fairfax County.
Using national data and rules of thumb is not going to help you much.

The room dimensions on the 1960's listing card ( I have the original 3x5 card) are in decimals. I wonder if that is an abbreviation for inches. So 10.2 would be 10 feet 2 inches?


But my sq ft total is pretty close to the tax record, once I figured out how to dig down to that page.


I've lost confidence in the PM company... I need them to demonstrate that they are paying attention. Changing PMs would be a real pain even if I keep the tenant.

Sounds like you don't know what you are doing. I've owned property in MD and VA, and all of this data is easily looked up on the interwebs. I do agree that you ought to get a new PM. Unfortunately, a good one is tough to find in the DMV for SFH rental properties. Most of them don't do much more than eat into your profits.

Renting out SFHs inside the Beltway is not generally a good long-term strategy for the property owner, due to the high cost of real estate relative to rent. Condos and apartments are different.

 

[Winemaker]

If you run your tax return through Turbo Tax, after you fill out each Schedule E, there is a question that can send you to see rents in your county, and whether you are in range.


We just had a public housing complex built in neighboring township, and is income based. My 2 bedroom apartment goes for $600/month plus utilities, and the public housing unit goes for $800 plus utilities. One of my 2BR tenants works 2 jobs, 60 hours, as a certified nursing attendant for 2 nursing homes, her daughter who has been unemployed for over 2 years, lives in the $800 public housing unit. Her mom would never be able to afford the $800/month unit.

 

[knucklehead 61]

yikes, you're paying 9% for a pm?
I pay 5% on 1/3 of my units & 4% on 2/3 of my units with no added costs or fees, just a % of rents collected.
my vacancy rate last year was right at 1.25% total.
the year before, our town voted on a new school bond that raised all my property taxes.
I raised all the rents accordingly as this is a business to me.
while this is a very low income area (median income is around 33k/yr) there are almost no available rental units, so it's a landlords market for the last few years.
my biggest regret is not buying more cheap houses between 2012-2015.
you could buy decent houses for 60-80k from banks for cash put 5-15k into them & rent for 1k/mo. the similar ones I did buy are all worth 175-225k now.

 

[jkern]

Very solid point. You want the tenant to say, well it sucks my rent went up, but I know why because the landlords costs went up, and I like this place enough that I will pay the increase without the hassle of moving.


I don't know what sucks more, finding a new rental or a new job, but both suck a lot.


I raised my rent on a 1250 unit by $30. 2.4% this year, because that is how much the property tax went up. $30x12 = $360. The tenant can fact check me and stay, fact check me and leave, but my costs went up so there's will to. It's only a problem for the tenants that don't realize it's a business.

Oh I also raise rents if I want a bad tenant out. But that's not the only way to get a bad tenant out, I know a few, one is clever.


Ironically enough, right now my rents are very closely priced to about $1/sq ft . Not totally relevant but interesting fact. This is true for my father as well who has a few rentals.

I know of the raising rent part and telling the tenant their lease will not be renewed. What other clever ways do you have to get a bad tenant out?

 

[jkern]

I like to offer a choice like:
2 year lease - no rent raise or very modest (assuming they are a good tenant)
1 year lease - 4% increase
6 month lease - 6%
month to month - 10%

This is not exactly what I do but this type of approach. I'd rather lock a good tenant up long term as vacancies will kill your return!

I suppose the current rental market determines vacancy times. Me personally, I usually have zero days vacant. Walk through with old tenant in the morning, walk through with new tenant in the afternoon. My last turnover did require paint and new carpet. I had three vacant days with that one.

 

[Scrapr]

I know of the raising rent part and telling the tenant their lease will not be renewed. What other clever ways do you have to get a bad tenant out?

maybe a 30/60/90 day notice? Some areas require landlord to pay moving costs to the tenant. Portland voted that in after a renter got elected to the City Council. If you terminate a rental after 1 year I believe you pay moving costs. I don't know how that is figured though

 

[kevdude]

If you’re in a larger city, it’s pretty easy to determine what market rents are. Someone mentioned rentometer, but you can also use Zillow and Craig’s List. If you’re not enamored with the tenants and don’t mind if they move, put the rents at or above market. If you want them to leave you can always terminate their tenancy, as long as you do it legally. If you want them to stay, maybe put their rents slightly below market. If they think the increase is too much, you can always negotiate.

Management companies do not always act in your best interests, which is one reason why we self-manage (we have 24 units in the Seattle area). I agree 9% is a lot to pay, maybe you can negotiate it down or replace the management company. I imagine there is a landlord’s association in your area, as most areas have one.

Good luck to you!

 

[CaliKid]

yikes, you're paying 9% for a pm?
I pay 5% on 1/3 of my units & 4% on 2/3 of my units with no added costs or fees, just a % of rents collected.
my vacancy rate last year was right at 1.25% total.
the year before, our town voted on a new school bond that raised all my property taxes.
I raised all the rents accordingly as this is a business to me.
while this is a very low income area (median income is around 33k/yr) there are almost no available rental units, so it's a landlords market for the last few years.
my biggest regret is not buying more cheap houses between 2012-2015.
you could buy decent houses for 60-80k from banks for cash put 5-15k into them & rent for 1k/mo. the similar ones I did buy are all worth 175-225k now.

Those are extremely low PM fees. I would be interested what all of your fees are. New tenant fees, re-rent fees, up charges on repairs, etc.... It's important to compare all fees before deciding who has the better deal. I have never heard of 4% for full service property management unless someone has 100+ units at one location (i.e. an apartment building).

 

[nwsteve]

We used to subscribe to the turnover costs money, keep a good tenant with low constant rents idea. We ended up with a number of units with long term tenants and a problem: rents had jumped up and our comparable new rents were 15-20% higher than the old rents. I started raising rents once/year, and some of the longer term tenants felt very picked upon - even though their new rent was lower than the rent I was getting for new rentals. Pointing out that they would have paid much more had I raised the rent by a couple percent every year of their tenancy didn't help. Experience shows me that a regular *modest* rent increase every year becomes expected and more acceptable.

EDIT: *modest* - slow and steady wins the race - seems familiar..

+1

We raise every unit something every year. For renewing tenants the rate is 50-65% of new tenant rates. We always start at market rates and adjust new tenant rate to be slightly below dominant rents. For example, if market rate is $500/bedroom (we live in a college town) we shoot for 475-485 for new and renewals at 450/bedroom.

 

[knucklehead 61]

Those are extremely low PM fees. I would be interested what all of your fees are. New tenant fees, re-rent fees, up charges on repairs, etc.... It's important to compare all fees before deciding who has the better deal. I have never heard of 4% for full service property management unless someone has 100+ units at one location (i.e. an apartment building).

I pay 5% of rents collected on 1/3 of my units & 4% on the other 2/3 of my units for full service property management. (I am their largest client)
I own 29 total rentals. (15 sfr & 7 duplexes)
Zero other fees, zero new tenant fees, zero re-rent fees, zero up charges on repairs, zero other fees.

Fun fact: I raised 13 of the rents last month, & one more in April.
That will net me approx. $16,000 per year more than last year.
That amount is roughly equal to having purchased another duplex for cash, but without spending a dime.

 

[Bongleur]

it ate a post it took 30 min to write.. test test

 

[Bongleur]

PM is pushing me to make a decision.

When I put Mom into residential care I didn't have the time or energy to learn how to calculate rent vs sell because of the Trust, so rented. Now it looks best to "shut down" the B trust so after I inherit I will get a full step-up in basis. Otherwise lots of taxes "now."

PM says tenant looking to buy but I think they are boxed in. They qualified for the rental because 2 of the 3 people "almost" qualified on their own. But for a mortgage, can you do that? Wouldn't co-habitators have to qualify on one income? So they can't get as nice a place. Plus cost of moving is same as a rent increase. And stock down, prices up because the Amazon speculators already bought everything.

PM says people want "updated" to granite countertops, SS appliances, nice bathrooms, fresh paint (!) and especially better windows - we have 1958 wood sash with removable storm windows.

I think my AGENT should be doing these strategic calculations to get the most money possible for US.

And if tenant looks up rates, they should find:
https://www.rentcafe.com/average-rent-market-trends/us/va/alexandria/
"The average rent for an apartment in Alexandria is $1,709, a 3% increase compared to the previous year, when the average rent was $1,659."

BUT mine is a single family not apt, and on the high end for price. So does my type of property as a rule of thumb track the "average" or less? Otherwise it supports 2x3 = 6% for me to "catch up."

PM proferred only 2 comps. But my neighborhood is south of the waterway shown:
https://matrix.brightmls.com/Matrix/Public/Portal.aspx?ID=3600584720

1st was on market 130 days, seems excessive? Dropped from $3k to $2500.

2nd "agent related to owner" on market 18 days -- that sounds really short, so why?


SO seems my agent should focus on rent PRICE history. My price 3 years ago -- what did it change to after 2 years when the lease ran out?

Shouldn't PM find data on DOM in the _neighborhood_ and for similar _prices_ all around?

Anybody want to give a tutorial on how to analyze comps? Alexandria assesses the full market value of the property, so I can't compare value bacause i don't understand how Fairfax is taking only a fraction.

5816 Doris Dr
List Price $2,499.00
Price/SqFt $1.55
FAIRFAX Tax Assessed Value $35,600.00
Availability Date 07/02/18
Lease 12 mo
Listing Details
Original List Price $2,999
Previous List Price $2,699
DOM 130
Listing Term Begins 07/01/2018
Off Market Date 11/14/18
Agreement of Sale Date 11/02/18
Close Date 11/02/18
Close Price $2,499.00


3901 Wheat Ct
List Price $2,700.00
Price/SqFt $1.57
FAIRFAX
Availability Date 03/27/18
Lease Term 12 Months
Original List Price $2,700
DOM 18
Listing Term Begins 03/24/2018
Off Market Date 04/10/18
Agreement of Sale Date 04/10/18
Close Date 04/10/18
Close Price $2,700.00

 

[Bongleur]

Seems like $ per sq foot should be a key metric?

OUR RENT $2490
Above Grade Living Area (Sq. Ft.): 1,755 = $1.419 per sq foot
Below the comps by 13-15 cents so $230 to $263 to equal.

OR
Total Basement Area (Sq. Ft.): 585
TOTAL = 2340 sq ft = $1.064 per sq foot
***

5816 Doris Dr
List Price $2,499.00
Price/SqFt $1.55

DOM 130 - seems like a lot. Why?
***

3901 Wheat Ct
List Price $2,700.00
Price/SqFt $1.57
renovated: Stainless Steel appliances. Upgraded bathrooms. Fresh paint. New bsmt carpet.

 

[Dash man]

For me, if the tenants take care of the place and pay their rent on time every month, I’ll only raise the rent the amount taxes and insurance have increased, if at all.

 

[Bongleur]

Renewal needs to be signed by May 1st, 30 days before lease ends at the end of May. How much time should I allow the tenant to decide on my offer, whatever it turns out to be? Don't want to allow him "enough" time to fully examine all his options, but don't want him to feel pushed.

 

[calmloki]

Bongleur, it looks like you are doing a bunch of stirring around. I figure a property manager isn't going to do much and you don't want to depend on his "research". You are trying to pull the perfect rent from sources that just don't matter: what you can get is what you can get. Have your expenses gone up 3%? 2%? When is your property appraised for taxes? Pull a number out and You tell the PM what you are now charging.

Cold thought: what kind of time frame till you inherit? I'm guessing and thinking it would be best tax and complication-wise to sell as soon as that occurs.

 

[Sunset]

Bongleur, it looks like you are doing a bunch of stirring around. I figure a property manager isn't going to do much and you don't want to depend on his "research". You are trying to pull the perfect rent from sources that just don't matter: what you can get is what you can get. Have your expenses gone up 3%? 2%? When is your property appraised for taxes? Pull a number out and You tell the PM what you are now charging.

Cold thought: what kind of time frame till you inherit? I'm guessing and thinking it would be best tax and complication-wise to sell as soon as that occurs.

+1
OP is putting way too much thought into this, as there is no correct answer, every answer has a plausible reasoning.
My answer is raise it 2% , include a nice letter how the rent is being raised only $X , in appreciation of how well the tenants take care of the place. Even though the expenses of property taxes, insurance, water?, management have increased every year.

Of course, if they are not taking care of the place, then just raise it.
I would also look around for a new PM, be sure not to sign anything extending the PM term (if you even have one).

 

[Bongleur]

I cannot reconcile the tax record with the actual dimensions of the house.
Even if the tax record still thinks that the Rec Room is unfinished (eg "basement").
The house is bigger. calculating...

outside dim 58 26
If garage is 13 feet wide:
non garage est 45 26 1170
both floors 2340
minus unfinished -287
FINISHED: 2053
Do closets & hallways count as "finished space?"

Subtract for hallways, closets, interior walls: RENT AT $1.40
max finished size......... $2490 /2053 =$1.21 ...........$2,874
at -10% at current rent $2490 /1848 =$1.35 ............$2,587
at -20% at current rent $2490 /1642 =$1.52 ........... $2,299

The COMPs are at $1.55 sq foot for 1600-1700 sq feet.
So are the comps actually comparable?
Shouldn't we now look at houses with larger Finished Areas for comps?
even subtract eight 3x3 closets = 72