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I'm a private LL, and last year (during the peak of COVID) I had 5 turnovers. It was an uncertain time, but we felt fortunate to fill the vacancies at market value (or maybe just a tad under market value).
Fast forward a year, and rents have gone through the roof. Now that the "year" contracts are up and most tenants are month-to-month, my husband wants the rents to be raised up to "full market value", which would be hundreds of dollars per month. I don't think that's fair, considering we qualified their income (3x the rent) at the lower rate last year, and wages have not gone up that much.
I know we need to do something, because our expenses have gone up in lawn care, HOA fees, taxes and insurance. In the past we've gotten by with minimal increases ($25/month), but they mostly weren't necessary because we adjusted to "market value" during turnovers. This year we only had one turnover, so I know we need to send out rent increase letters.
Any advice as to what is fair, given the huge discrepancy between "fair market value" last year vs. this year?
My suggestion is to limit the raise to $100. Your tenants will be hurt a bit, but they will look around and see they can't move into a cheaper place and you are still under market. Be sure to mention that rent is going up because taxes, fees, and expensive have gone up sharply. Then you will have to raise it again each year at renewal time.
I only gave a small increase last year but warned my tenants that when property taxes came out the taxes were likely to be higher and that would cause rent to go up. So my tenants know they will have a raise in rent next spring.
I really appreciate my good tenants who stuck with me and paid their rent every month, even though they could have refused to pay. I don't want them to move, but I also don't want to pay too much of their living expense out of my savings account. They are going to have to pay more because of higher expenses.
One thing to consider is how good the tenants are. If they are good tenants, do the $100 raise but if they are PITA tenants, do a much larger raise, because you don't really care if they move out. if they move out, you will re-rent for full market value, so it is not a problem if they decide to move.
Adding, if you are in a really high rent area, $100 is not much and you can probably do a 10% raise without the tenants moving. That might make your husband happier and still keep the tenants.
Thanks for your insight. To answer your question, I'm not in a traditionally "really high rent area" like NY or CA; I'm in Florida, and everyone and their brother is moving here right now and driving the entire real estate market sky high!
I was a landlord many years ago. I put in my contracts that the most I would raise rent per year was 5%. Still think that is fair on a one year lease since it’s twice the “beneficial” cost of living increase in the USA.
Any big increases come when the old tenant moves out.
My suggestion is to limit the raise to $100. Your tenants will be hurt a bit, but they will look around and see they can't move into a cheaper place and you are still under market. Be sure to mention that rent is going up because taxes, fees, and expensive have gone up sharply. Then you will have to raise it again each year at renewal time.
I only gave a small increase last year but warned my tenants that when property taxes came out the taxes were likely to be higher and that would cause rent to go up. So my tenants know they will have a raise in rent next spring.
I really appreciate my good tenants who stuck with me and paid their rent every month, even though they could have refused to pay. I don't want them to move, but I also don't want to pay too much of their living expense out of my savings account. They are going to have to pay more because of higher expenses.
One thing to consider is how good the tenants are. If they are good tenants, do the $100 raise but if they are PITA tenants, do a much larger raise, because you don't really care if they move out. if they move out, you will re-rent for full market value, so it is not a problem if they decide to move.
I like this idea.
For my part, I haven't increased the rent of my Honolulu unit since late 2019 when I first rented it out. Particularly during the pandemic, I didn't want to risk my tenant packing up and leaving over increased rent (when rents elsewhere in the area were decreasing or certainly not going up much) and me being faced with a potential nightmare, especially when my tenant had been exemplary. I kept that same mindset going into the two other lease renewals that I conducted with my tenant. I could have increased the rent by $50-$100 and hoped that the tenant stayed. If the tenant didn't say, however, I took a risk of having the unit vacant for a while and losing out on much more money. I won't be away from Hawaii forever, so not increasing the rent under the circumstances was a small price to "pay" in my circumstance.
My suggestion is to limit the raise to $100. Your tenants will be hurt a bit, but they will look around and see they can't move into a cheaper place and you are still under market. Be sure to mention that rent is going up because taxes, fees, and expensive have gone up sharply. Then you will have to raise it again each year at renewal time.
I only gave a small increase last year but warned my tenants that when property taxes came out the taxes were likely to be higher and that would cause rent to go up. So my tenants know they will have a raise in rent next spring.
I really appreciate my good tenants who stuck with me and paid their rent every month, even though they could have refused to pay. I don't want them to move, but I also don't want to pay too much of their living expense out of my savings account. They are going to have to pay more because of higher expenses.
One thing to consider is how good the tenants are. If they are good tenants, do the $100 raise but if they are PITA tenants, do a much larger raise, because you don't really care if they move out. if they move out, you will re-rent for full market value, so it is not a problem if they decide to move.
This...they are now proposing a 3% rent increase cap in my city...frustrating to us small landlords...I'll probably still only go up $50 on my good long term tenants (no increase last year due to covid). Try to keep rents a bit below market for good/long term tenants...but time to creep them up with all the expenses. One is moving out/retiring (hate to see them go). Going up to market rate on that one for sure...see no "for rent" signs in the neighborhood which is a plus.
Last edited by Fisherman99; 10-31-2021 at 04:26 PM..
I just raised rents on a dozen homes between 6%-10%. All long term tenants. All still 25%-30% below market rents. If I can’t keep up with cost increases houses will be sold and they will be paying far more elsewhere. Not a one balked. All were grateful they were allowed to continue renting. I am supplementing their rents enough as it is- my charitable contribution for the time being. I only wish a few of them would do me a favor and decide to move. Don’t be driven by fear. If they have a brain they know they’re getting a deal.
Find out what market rate is in your area, and raise your rents to just below market rate - maybe 95% of market rate. Send the tenants a notice stating that due to increased costs, you're forced to raise rent. Market rate for their unit is X, their new rent will be 0.95X. And that's it.
You cannot wait to raise rent until the tenant leaves, because as their rent falls more and more behind market rate, they will stay forever, since any new place will cost them so much more.
My tenants all (8 SFR) paid rent on time throughout pandemic. I will renew leases at the same as current rent, with no increase, or if they go mo to mo increase by 50.00. I think that is a fair compromise. If any move out, rent will be increased to market value.
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