Landlord advice - how you raise rent

[laurence]

I've got a townhouse (3 bedroom, 2.5 bath, two car garage) in a higher end neighborhood that I rent to three young women (they each rent one room). They are great, but juggling all three, cashing checks, dividing utilities, etc. is a bit of work, and I think I'd get more renting the whole house out to a family (really good schools). What's your thoughts on changing who I rent to and in either case, what's the appropriate way to raise rent? So far I've had enough turnover since I bought it 2 years ago that I just charge a higher price to the new renter (I do six month lease then month to month). I've read about just raising rent $10/month, but they rooms go for $700-$900 now, that seems silly small. Thoughts?

 

[Meadbh]

Yes, that is just over a 1% increase.

A quick Google search tells me that San Diego does not have rent controls. Therefore, since your lease has expired, you should be able to raise the rent by a meaningful amount, say $50 per person per month (5-7%) with a couple of months' notice. That gives your tenants time to move if they can't afford the increase. I would increase the rent every year to attain and keep up with comparable properties.

 

[Dash man]

You have to follow the terms of the lease. My tenants are a family whose one year lease converts to month to month at the end of this month. Any changes require a 60 day notice in writing that they can choose to accept or move out. This is within the parameters of PA state law, which of course also has to be followed. So decide what you want to do and send a certified letter with return receipt with either an addendum to the existing lease or an entirely new lease, or a notice of terminating the existing lease.


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[rodi]

There is *some* rent control in San Diego (I have a rental here). You have to give proper notice and that's dependent on the size of the rent increase.

If it's 10% or less you have to give 30 days or more notice. If it's more than 10% you need to give 60 day notice.

We have a couple that rents our granny flat - the lease is signed by both, so they are a package. I'm not sure I'd be comfortable having separate leases.

 

[Sunset]

The nice thing about you renting out rooms is that it evens out your cash flow vs rent to a family and all is great until they move out and the place is empty with $0 income. Of course it's more work, but could be a higher net rent ?

As to rent increases, I do it once per yr with 60 days notice. I always increase the rent even when I don't feel a need to do it. Once I didn't increase the rent, and the next year I felt perhaps that was a dangerous thing to do, better to have the tenant used to the idea rent would increase even if by just a small amount.

 

[aaronc879]

Good tenants are worth a lot. Don't increase too much and drive out good people who pay on time and don't cause problems. That being said, I think a once a year $25/mo increase would be very reasonable. Then when they eventually move out you could increase the rent by a larger amount. Ask for more than you think it's worth, you just might get it.

 

[laurence]

Yes, that's why I did three room rentals at first. When someone moves out I lose two weeks rent on one room, not the whole place. So far everything has been great, but the continuous horror stories everyone has for me has made me feel like I might sell at some point in the near future if the price is right.

Looking at what people are asking to rent similar units in the area, I think I'm actually getting $100-$200 less a month than I could renting the whole place to one party. I'm getting $2300 combined and I've seen $2500, even $2700 - but who knows if they are actually getting it. But the local university up the street keeps supply plentiful.

O.K., so if anyone stays for a year I'll give 60 days notice on a rent increase. I have managed to raise the rent $100 month on all three rooms since I bought it by increasing the price between renters, I just haven't raised rent on an existing renter. With high turnover I may never have to...

 

[Dash man]

As to rent increases, I do it once per yr with 60 days notice. I always increase the rent even when I don't feel a need to do it. Once I didn't increase the rent, and the next year I felt perhaps that was a dangerous thing to do, better to have the tenant used to the idea rent would increase even if by just a small amount.

Personally, if the rent is paid on time each month and my inspections show they are taking good care of the place, I never raise the rent unless taxes or association fees increase significantly. The cost of finding a new tenant that may or may not work out far outweighs any gains from a rent increase if they decide to move because of it.


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[laurence]

Personally, if the rent is paid on time each month and my inspections show they are taking good care of the place, I never raise the rent unless taxes or association fees increase significantly. The cost of finding a new tenant that may or may not work out far outweighs any gains from a rent increase if they decide to move because of it.


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See, that was my thought at first, but I wondered if I was being naïve as a first time landlord and leaving money on the table.

 

[Meadbh]

Deleted

 

[calmloki]

This year we bumped our rents up for just about all the tenants. Rents had been going up with each tenant turnover, but that made for some wild disparities for similar apartments occupied by tenants of shorter or longer tenancies. We had tenants who hadn't seen a rent bump in 5-6 years. We anticipated a huge hullabaloo but had very little response in actuality. Had 8 move outs within a couple months, but only 2 seemed related to the higher rent. Gave us a (very busy & expensive) time to repaint/re-carpet/renew those apartments. Also bumped our income up by $1450/month, which is pretty noticeable. We are continuing to raise rent as new vacancies arise and are filling the vacancies fast, so I hope to do another rent raise next year and make that a pattern. On a $500 one bedroom $25/month rent increase really isn't enough to make all but the most desperate tenants go through the hassle of moving.

 

[Senator]

The past year was one of the first I have raised rents. When I rent a similar unit in a building for $100+ more, I think a $25 increase is not out of the question.

I bump rents to market after every turn, typically after ~24 months, which is my average tenant stay.

For longer term tenants, I have been known to tell them I need to bump just a bit, and ask what they would still be comfortable with. Often, they say more than what I was thinking.

Raise too high and you have a turn, which cost a lot more than you gain.

 

[clifp]

The past year was one of the first I have raised rents. When I rent a similar unit in a building for $100+ more, I think a $25 increase is not out of the question.

I bump rents to market after every turn, typically after ~24 months, which is my average tenant stay.

For longer term tenants, I have been known to tell them I need to bump just a bit, and ask what they would still be comfortable with. Often, they say more than what I was thinking.

Raise too high and you have a turn, which cost a lot more than you gain.

I hope one of these days to have tenants who stick around long enough to be able to ask them. But I like the idea. The WSJ reports that rents are up 3.5% a year. That seems to fit nicely with a $25 increase and I think you want to have annual increase. The boiling frog theory of rent increases.
I did try $50 and they tenants countered with $40 which was fine with me.

I am curious if anybody has experimented with incentivizing tenants to do their own repairs, running toilets, replacing screen doors.

Something like if you have 1 or less minor service call I'll raise your rent $25, otherwise it will be $50. I don't want them not to contact me for things which are serious problem, but sending out servicemen is expensive.

 

[Fishingmn]

I do 12 month leases only (no change to month to month after 1 year). Each year I research market rent and try to raise to less than the market for good tenants. I send them links to other units on zillow or craigslist to show them what I'm seeing. I don't think I've ever really lost a tenant based on a rent raise.

Here's an example of an e-mail I've sent to a tenant if that would help -

As you know, your lease expires at the end of November. I would love to have you stay if interested.

I did some research on recent rental rates on units in Chaska/Chanhassen. There aren't a lot of similar units available but those that are out there seem to be going for around $1,145-1,195 (links below).


In order to keep current tenants I try keep my rental rates a little lower than the current market rate. Therefore, if you are interested in renewing a 12 month lease I would do so starting 12/1/14 for a rate of $1,095/month. This is an increase of 2.34%.

This report shows that average rents are up 5% in the past year - http://www.rentjungle.com/average-rent-in-minneapolis-rent-trends/


Please let me know ASAP as I would like to start marketing your unit soon if your plan is to move out in November.

Best regards,

 

[Another Reader]

What the market says and what any particular tenant can afford are two different things. If I want to keep a tenant, I raise the rent no more than two or three percent. That's likely how much their salary or other sources of income increased. The cost of a turnover is much higher than keeping the rent a little below market in a rising market. For vacancies, I like to come in at the lower end of the range to get the property rented quickly.

In general, I don't want tenants doing their own repairs. There are too many problems with the work and they can create hazards for which I am ultimately responsible.

 

[Quest4Fire]

Personally, if the rent is paid on time each month and my inspections show they are taking good care of the place, I never raise the rent unless taxes or association fees increase significantly. The cost of finding a new tenant that may or may not work out far outweighs any gains from a rent increase if they decide to move because of it.

+1. Or with any increase the rent is still below market

 

[retiredinnyc]

Don't get greedy

I was a tenant for 17 years , I paid the rent , I was always early and paid in cash, my building in nyc got sold. Landlord raised the rent enormously so we moved, I bought a home in nyc. The very next tenant , a single working girl ( we are a working couple with a dog), moved in her boyfriend, they paid the rent for 2 months, they then stopped paying took 11 months to throw them out and the landlord had to pay them 14,000 to leave and they wrecked the place, they blamed hurricane sandy for the damage Lol. I bet he misses us and our cash every month, it will take him probably 10 years to break even even with the rent increase.

 

[Sunset]

A bit more info, just so everyone knows I'm not squeezing the life out of my tenants.

The same folks have rented there for 12 yrs.
It is a rent controlled area so when I increase the rent it is always less than the controlled or allowed amount.

Because its a rent controlled area, all tenants expect the rent to be raised, and frankly the costs (insurance, taxes, water) have all risen more than what I raised it.

It is allowed for me to raise the rent above the controlled amount, when my cost for something like taxes/insurance rises at a higher rate.
I don't do this, so really the place rents a little low now, might be missing out on $50 a month.

I'd rather have them long term than try to max the monthly rate.

 

[Fedup]

I don't have a house in a rent control area but has been a landlord for almost 20 years. I raise the rent gradually so I never have to get caught with the 10% rule. I rarely have any vacancy. Property tax is going up every year so you have to at least keep up with inflation. I have a property manager and I have to tell him to raise rent. He is not interested in doing so but I need to remind him up front.


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[VFK57]

Check rent control allowable increases (in my city it is 8% per year max) as mentioned above. If tenants are timely with rent and do not cause troubles, it worth to let them pay less than average to keep them in. I monitor rental prices at my rental property neighborhood and once a year make a decision on rent increase.

 

[rodi]

I'm of the mindset that you don't raise the rent too often on good tenants. I have good tenants and we didn't raise the rent this year.

As far as incentivizing tenants to do their own repairs... Our tenants let us know whenever things go wrong - then the male tenant offers to fix it if it's something in his capabilities. My husband either agrees or does the work himself. We always pay for parts. But we do our own maintenance - so no pricey service calls. Our situation is probably a bit different since we're sharing the same lot as the rental property.

 

[Urchina]

I'm with Rodi. We haven't raised the rent on our tenants, and they've been in the unit 18 months.

We were already renting at the high end of the spectrum (our rental has a fenced yard, is in a great school district, has pool access and we allow dogs). When the lease ended (we're month-to-month now) we did a market evaluation and we're right in the middle of the spectrum now.

I suspect that in a year or two we'll be at the bottom of the spectrum. We may or may not raise the rent at that time. Our tenants are fabulous and we'd like to keep them for as long as possible.

We don't ask them to do their own maintenance. They don't have the skills or the interest. If we can fix it ourselves, we can. Otherwise, we pony up for our trusted tradespeople to do it quick and right. Like I said, we're interested in keeping these tenants happy.

Although... with a 1% vacancy rate in our town, getting good tenants is easier here than in some other places.