Raising Tenant Rent: Strategy and Tactics

[Coronita]

[quote=scaredyclassic]The next renter, no problem raising the rent. It’s psychological though for the current guy. Make him feel unappreciated. I disagree though, maybe a 2 or 3 % Inc is a good compromise. I was a good tenant same place 5 years LL raised it I think 2 perc. One year….. didn’t bother me at all. $30.00 FOR YOUR GUY. DOUBT THAT WOULD HURT OR BE QUESTIONED. Sorry for the caps.[/quote]

I don’t raise prices because my costs necessarily go up. I raise prices if my rent falls behind the prevailing rent prices by more than 10% comparable to someone else.

[Coronita]

One side note… What I do think is *fair* game at lease renewal time is changing what is considered “included” in the rent, if something changes..

An example would be utilities.

Suppose you property is in an attached community with initially water/trash included, and in your original lease agreement….

In your lease agreement, hopefully you included a statement that says that water/trash is free only to the extend that it is provided for free by the HOA….

If you didn’t do that in your first lease, and let’s say water/trash is no longer free, I would put that into the lease renewal that water/trash is now paid by the tenant… (You shouldn’t be in this situation to begin with, frankly…)

[Coronita]

.

[FlyerInHi]

[quote=flu]
I don’t raise prices because my costs necessarily go up. I raise prices if my rent falls behind the prevailing rent prices by more than 10% comparable to someone else.[/quote]

it’s all about prevailing rent, not about your costs.

That’s why it’s important to buy low. buy at the trough, save money, then buy again at the next trough. You have about 4 cycles in your lifetime. then you die.

[paramount]

[quote=FlyerInHi]

it’s all about prevailing rent, not about your costs.

That’s why it’s important to buy low. buy at the trough, save money, then buy again at the next trough. You have about 4 cycles in your lifetime. then you die.[/quote]

What is prevailing market? The zillow rent estimate?

Right now I’m 6% under market based on zillow.

The reason the $100 is an issue is because the numbers don’t work.

I bought this property over 1 decade ago (early 03) – probably time to sell.

I owe 210k – I can probably get 310k.

Appreciation is slowing – the time may be right to sell while:

*Pricing strength still decent
*We’re in the selling season
*My carrying costs are up, now a liability

[spdrun]

G-d bless you, I like your way of thinking. May there be many more people who think like you in SD in the upcoming year!

[paramount]

[quote=spdrun]G-d bless you, I like your way of thinking. May there be many more people who think like you in SD in the upcoming year![/quote]

If a property is a liability, why keep it?

Tax benefits? The only significant tax benefits in my experience come from depreciation. All depreciation does is defer tax liability.

[Coronita]

[quote=paramount]
What is prevailing market? The zillow rent estimate?

Right now I’m 6% under market based on zillow.

[/quote]

Craiglist, minus seasonal adjustments due to availability…

For example, rent differential is +- $100/month for a 1/1 depending on if you’re trying to rent it out close to summer may/june/july or trying to rent it out in the winter… october/nov/dec..

(In MM, it also depends I guess on Qualcomm’s hiring mood :))

I dodged a bullet recently…Rented out my place at a time when the inventory was low and demand was higher due to a flux of new hires… Right now there’s more inventory on the market right now, though it’s still pretty tight…Price differential is about $100-$150/month right there….

[quote]
The reason the $100 is an issue is because the numbers don’t work.

I bought this property over 1 decade ago (early 03) – probably time to sell.

I owe 210k – I can probably get 310k.

Appreciation is slowing – the time may be right to sell while:

*Pricing strength still decent
*We’re in the selling season
*My carrying costs are up, now a liability[/quote]

How much did you pay for it (total)?

What’s your loan rate?, payments?

Assuming around $300k, 5% cash on cash for it isn’t terrible.

[Coronita]

[quote=paramount][quote=spdrun]G-d bless you, I like your way of thinking. May there be many more people who think like you in SD in the upcoming year![/quote]

If a property is a liability, why keep it?

Tax benefits? The only significant tax benefits in my experience come from depreciation. All depreciation does is defer tax liability.[/quote]

Someone else is building your equity…for you…Are you actually negative each month?

[svelte]

A true story about this.

This line of thought is what caused us to buy our first place. Owner of a large apartment complex in Mira Mesa was in the office when my wife stopped in to pay rent. He said they were going to raise rent by (can’t remember amount but $100 sounds right).

That pissed us off.

We started our search and bought a condo about a month later. Went to the apartment office to give notice and miraculously the owner (who typically wasn’t around, left office duty to a manager) was there again. He was shocked when my wife said we were leaving – and disappointed no doubt as there were no better tenants that us.

He asked why we were leaving. My wife replied – as only she can do – because you’re raising the f(2!ing rent!

One of those classic moments that are burned into my memory forever.

Lessons are obvious here.

[EconProf]

My policy is to look at market comparables and put your rents slightly below the average. Rental comps are just like for sale comps–location, size, condition, neighborhood, etc. all factor in to one right price for your rents. The reason you should come in slightly under the market rent is to keep your vacancy periods to a minimum, and to keep good tenants happy.
What is utterly unimportant is many of the factors people have been bringing up here: higher costs, your mortgage rate, how long you have had it, taxes, etc. The market doesn’t care. Supply and demand results in one single number for your market rate, and that is what you need to discover. Craigslist is a great tool for that. And yes, people, just like appraisers, disagree about that number. So you have to really do your research, and take a cold-eyed, clinical view of the evidence. With that ammunition, raise your rents as much as the market allows, minus a decent margin, more for a good tenant, less for a bad one.
This way a good tenant will have no reason to move, especially if they are rational consumers and also look at comparables.
I run 35 apartment units in a depressed part of the country. I have not raised my rents in six years, because the market remains weak and it won’t let me. My tenants think I am a nice guy for not raising rents. I’m not. I’m just listening to the market.

[FlyerInHi]

[quote=EconProf]
I run 35 apartment units in a depressed part of the country. I have not raised my rents in six years, because the market remains weak and it won’t let me. My tenants think I am a nice guy for not raising rents. I’m not. I’m just listening to the market.[/quote]

Very interesting input.

I think that a landlord could do the opposite and charge slightly higher than market.

If you have a typical rental with eggshell walls and beige carpet then you’re right at market.

It all depends on the mix of rentals available. If your rental are located in a high demand neighborhood such as UTC or Mira Mesa, then you could do slightly over market.

If most rentals are 80s and 90s rentals and your units are nicely renovated and inviting, then you can charge more than market and tenants are happy to pay. Tenants who are willing to pay more for quality are better tenants.

Once a good tenant is in, I would avoid raising rents more than 3%/yr to avoid them leaving. Prior to renewing a lease, drop in on the tenant to ask if they are interested in renewing. See how they keep up your place then decide if it will break your heart if they leave.

[EconProf]

I guess I didn’t make myself clear.
The market rent for one’s particular unit incorporates all the factors you bring up. The market rent for an extra nice unit, or a better location, or an ocean view, etc. will naturally be higher. A unit with negatives would command a lower market rent.
Accordingly, one should never charge “above market rent”. Again, the hard part is “price discovery”–to objectively look at comps and find your proper rent.

[Coronita]

[quote=EconProf]My policy is to look at market comparables and put your rents slightly below the average. Rental comps are just like for sale comps–location, size, condition, neighborhood, etc. all factor in to one right price for your rents. The reason you should come in slightly under the market rent is to keep your vacancy periods to a minimum, and to keep good tenants happy.
What is utterly unimportant is many of the factors people have been bringing up here: higher costs, your mortgage rate, how long you have had it, taxes, etc. The market doesn’t care. Supply and demand results in one single number for your market rate, and that is what you need to discover. Craigslist is a great tool for that. And yes, people, just like appraisers, disagree about that number. So you have to really do your research, and take a cold-eyed, clinical view of the evidence. With that ammunition, raise your rents as much as the market allows, minus a decent margin, more for a good tenant, less for a bad one.
This way a good tenant will have no reason to move, especially if they are rational consumers and also look at comparables.
I run 35 apartment units in a depressed part of the country. I have not raised my rents in six years, because the market remains weak and it won’t let me. My tenants think I am a nice guy for not raising rents. I’m not. I’m just listening to the market.[/quote]

I brought up the subject of mortgage rates not because it is a factor of rent prices. But in OP’s contemplation whether “he should sell right now” (if indeed it has “turned into a liability” and he’s running negative each month….)

[scaredyclassic]

If $100 a mo. Gets you this upset maybe it’s time to sell just because the investment is too irritating.

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