How Often Do You Raise Rents?

[scine]

Hello all,

I am doing a LOT of research on purchasing a small apartment complex (2-4 unit) and one of the questions that I have wanted to know, but haven't heard a definitive answer to, is how often do you raise rents and generally by how much?

Obviously, I want to get the most out of whatever property that I purchase, but I also don't want to raise the rents so high that I end up pissing off my potential tenants to the point where they move out.

So I thought I'd ask the experts.

Thanks in advance!

 

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[Runum]

Welcome to the forum scine. You might want to post an intro in that section. I generally raise my rents once a year. I aim for about 5% increase each year. I usually don't raise the rent during the lease. I want to do what I can to be a man of my word and honor the lease. But I will raise the rents the next month the lease is up. I have heard of PM's telling their tenants to expect at least a 5% increase every year. Good luck

 

[scine]

Welcome to the forum scine. You might want to post an intro in that section. I generally raise my rents once a year. I aim for about 5% increase each year. I usually don't raise the rent during the lease. I want to do what I can to be a man of my word and honor the lease. But I will raise the rents the next month the lease is up. I have heard of PM's telling their tenants to expect at least a 5% increase every year. Good luck

Thanks for the info! I'll be sure to introduce myself shortly. I may have to do it tomorrow at the office, it's almost my bed time.

 

[^eagle^]

Hello all,

I am doing a LOT of research on purchasing a small apartment complex (2-4 unit) and one of the questions that I have wanted to know, but haven't heard a definitive answer to, is how often do you raise rents and generally by how much?

Obviously, I want to get the most out of whatever property that I purchase, but I also don't want to raise the rents so high that I end up pissing off my potential tenants to the point where they move out.

So I thought I'd ask the experts.

Thanks in advance!

On this scale you can do it on a tenant by tenant basis.

The better the tenant the smaller the increase.

If you have a great long term tenant and you want him to stay consider exchanging services for rent increases. things like pest control, grounds maintenace and nuisance repairs.

IF you got a habitually late tenant or riff raff then you can jack it as high as $50 or more per month. If they stay you win and if they go then you got another opportunity to get a quality tenant.

 

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[randallg99]

depending on township/city regulations, rent control limits the amount... sometimes rent control is determined annually based upon CPI

 

[M&T]

Don't ever be afraid to lose a tenant.If you fall in love with a tenant you are done! There are plenty of people out there looking for quality apartments. Having said that, 5% a year is the norm. I also wait untill the lease is expired to a month to month and then raise. I also agree with the good tenant bad tenant advice given here. If someone is slow paying or problematic, I will give a hefty raise and hope they just move on.
The single biggest way I raise my rents is when someone moves out. They leave and I throw a coat of paint on the place, clean the carpets and jack up the rent.The last place I did that too the little old lady that was in the building for 18 years. The previous owners fell in love with her and NEVER raised her rent. I waited out the winter and gave her notice. Now I get $165.00 more per month.

 

[lightning]

Don't ever be afraid to lose a tenant.If you fall in love with a tenant you are done! There are plenty of people out there looking for quality apartments. Having said that, 5% a year is the norm. I also wait untill the lease is expired to a month to month and then raise. I also agree with the good tenant bad tenant advice given here. If someone is slow paying or problematic, I will give a hefty raise and hope they just move on.
The single biggest way I raise my rents is when someone moves out. They leave and I throw a coat of paint on the place, clean the carpets and jack up the rent.The last place I did that too the little old lady that was in the building for 18 years. The previous owners fell in love with her and NEVER raised her rent. I waited out the winter and gave her notice. Now I get $165.00 more per month.

Good post! Something that is important to remember though, is that it seems the rental market nowadays can be a huge gamble. Most of my friends who are landlords have proven just how "hit or miss" it can really be. (ie some have horror stories, some have had nothing but good luck). IMO, having a long-term tenant who dosent complain and who pays consistently EVERY month while I build equity is worth its weight in gold. I would be willing to sacrifice a little money per year (like say, an extra $50 per month) to keep them happy and content, then risk having a place go unrented for a month while I make a mortgage payment (or two), which would take MUCH longer to recoop.

In your case $165 a month is a different story of course, as that is a huge difference. But personally, an old lady who would stay in the same place for 18 years and not cause trouble is the type of tenant I DREAM of finding in my future rentals.

 

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[EComGuy]

Good post! Something that is important to remember though, is that it seems the rental market nowadays can be a huge gamble. Most of my friends who are landlords have proven just how "hit or miss" it can really be. (ie some have horror stories, some have had nothing but good luck). IMO, having a long-term tenant who dosent complain and who pays consistently EVERY month while I build equity is worth its weight in gold. I would be willing to sacrifice a little money per year (like say, an extra $50 per month) to keep them happy and content, then risk having a place go unrented for a month while I make a mortgage payment (or two), which would take MUCH longer to recoop.

In your case $165 a month is a different story of course, as that is a huge difference. But personally, an old lady who would stay in the same place for 18 years and not cause trouble is the type of tenant I DREAM of finding in my future rentals.

Completely agree. Those are few and far between, and are usually good advertisment.

 

[kidgas]

I review the rent annually on my six SFH's. Where I am in Indiana, 5% might have been a little high the past year or two. There were a lot of rentals in the area. I ended up increasing in Jan '08 by 3% which kept me in line with the market.

I also use the time when tenants move on to jack up the rent to market level. I use the classifieds as my guide since I know the area and can judge by the number of interested callers what the market is bearing. I use the new year (January) as my time to review since most people won't want to move in the middle of winter and school year in this area.

 

[SteveO]

We constantly monitor market rents. Some years change more than others. Raise to market or slightly below at the end of the lease term.

 

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[cmoneyt8ker]

The bottom line depends on your market. 5% in my area would leave you with empty apartments in my area. Just see what comparable apartments are renting for....look at it as if you were the one looking for an apartment...

 

[scine]

The bottom line depends on your market. 5% in my area would leave you with empty apartments in my area. Just see what comparable apartments are renting for....look at it as if you were the one looking for an apartment...

Yeah I'm thinking the same thing. I don't want to alienate good tenants if they are paying on time and the mortgage and expenses are more than covered.

 

[hakrjak]

You can't always count on rent increases. In my neck of the woods they have problems simply keeping the apartments full, and some have reduced their rents over the past few years. My SFR's have had maybe 1 rent increase in 7 years.

Cheers,

- Hakrjak

 

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[MsMoney]

Have you thought of talking to other local investors in your area? Since each city is different as to what works, the laws/restrictions, etc....I would see if I could talk to other "old timer" PM's in my neighborhood & get their feedback/advice. I, personally, raise them at a 5% yearly rate too.

 

[hakrjak]

Definitely depends on the area. Raising the rent by 5% a year seems pretty pie-in-the-sky to me, in my military/government dominated rental market.... On my $700 a month properties that would push the rent to $735 the 2nd year, and $771.75 the 3rd year. I don't think my mainly military renters are getting raises of 5% per year, and with the price of gas right now things are tight enough already that they're already jumping around every 12 months looking for a cheaper deal. I rarely get anybody to renew their lease even if I don't raise rent after they've stayed for 12 months. It's like 1 in 10

Not to mention, if you own lower income properties like I do -- You can plan on them going down in quality, and not up as you move through the years. (This means you'll be lucky to get the same rent you got last year) Just look at the before pictures of Hakrjak's Flip #2 that I just posted in a seperate thread. You would think a bomb hit the place, or it was a vacant house right? Nope... Just had 3 years of low income tenants living there.... Fun fun fun, I love the real estate business! haha

- Hakrjak :banana: