Posted by rm on January 25, 2005 at 12:57:50:
Thanks.
With all the talk of “raising the rents” it was starting to sound like they were re-writing the terms of existing leases.
A RENT RAISING QUESTION - Posted by william
Posted by william on January 22, 2005 at 20:33:38:
I just purchased a seven unit building in November.The rents are way below market and I would like to learn the
best way to raise them. There are two at $540.00 which should be $725.00. One at $750.00 should be $850.00. One at $600.00 should be $700.00 The building needs about $50k in work and I would like to avoid moveouts the tenants are really good people, but I understand that the building lacks up keep due to the previous owner not keeping the rents at market.
Re: A RENT RAISING QUESTION - Posted by RJB-MA
Posted by RJB-MA on January 23, 2005 at 01:17:15:
Many years ago, I bought a 10 unit apartment building that had just finished a 4 month uprising by the tenants…9 out of 10 had refused to pay rent because of deferred maintenance and a ham-handed owner’s rough approach. Pictures of the building and stories of the rent strike were on the front page of the local newspaper. The week after the rent strike was finally settled, I bought the place; the tenants were hostile, to say the least. One of them was the president of the Massachusetts Tenants Organization. Their rents were all low. I delivered a letter to them that introduced myself as a professional property manager who was going to run a tight ship and explained that rents were too low to properly maintain the building, so they would have to be increased. I told them that I respected the fact that this was their home, and didn’t want to disrupt their lives any more than I had to, but the rents were going to go up substantially. Therefore, there would be an immediate increase of about 20 % followed by another increase in six months. There was much weeping and threatening of legal action or another strike ( this group had already won one battle) but I held my ground. Two moved out right away, giving me empties to fix up and bring up to fair market rents; another two moved out before the six month mark. By the time of the second increase, only half the building was hostile; by the end of the first year, only two of the original 9 strikers were left and they were gone by the 18 month mark. My rehab was spread out enough so I could handle it and by the end of the first year, rents were up to market and I was clearly in charge of the building…not the tenants.
Tell them what you are going to do (without too many specifics), two-step your increases, respect the fact that you are dealing with a highly emotional situation, and be firm. Do not tolerate no-pays. By the way, the one little old lady who had refused to join the rent strike was rewarded with exceptionally low rent until I sold the place 14 years later.
Re: A RENT RAISING QUESTION - Posted by JT-IN
Posted by JT-IN on January 22, 2005 at 23:06:35:
You only mnetioned that the rent on 4 specific units are low, but I would imagine that it is all 7…
There are many ways to handle this, but the right way should be based more on what you can stomach personally and financially, as well as what the mkt will bear… Keep in mind that if you can increase the rents by 10K in annual gross rents, which it sounds like mkt rents would produce, the value of the bldg would/should increase by 100K to 125K in mkt value. You shouldn’t slight yourself at another’s expense.
What you might try is to raise the rents 50% of what the mkt rate really should be… this will allow you a shot at maintaining the current tenants, since the comparable rents will still be low… and finding another comparable place to live at a lower rate would be tought… This should allow you a shot at keeping tenants… then raise the rents again next year for current tenants… For those that move, you will be able to increase to mkt rate immediately… but it is the tenants call… if you give them the opportunity to stay.
I think that you need to look at this as first off needing a decent return on your invested funds… which you are ntitled to… Second off, you attempt to keep the tenants based on a lower than mkt rate rent, for a comparable spot… If they move, so be it… This is of course based on the fact that you can afford for them to move… If you can’t handle the short term vacancy, then you may be forced to handle this in a different manner…
Good luck on maximizing the return on the investment… You are entitled to no less.
JT-IN
Re: A RENT RAISING QUESTION - Posted by David Krulac
Posted by David Krulac on January 22, 2005 at 21:55:42:
The amount of the rent increases is significant and you will probably get move outs, unless there are no other cheaper places to move.
There are so many mom and pops in the business that there are many places that are under rented. Many people feel that if they raise the rent all the tenants will move out. At the opposite end others believe that rents should be constantly raised to reflect market conditions. I’m probably in the middle. I like to have significant rent increases between tenants, but little or no rent increases for existing tenants.
If you’re going to spend the $50k in improvements then you need to be at or above market rents. It would be a good time to upgrade besides maintain to establish higher rents if the neighborhood can stand the increases. For example adding central air to places without it, or all new kitchens, new carpet, floor coverings, or even added baths. I just finished adding a bath to a place increasing the baths from 2 to 3 so that there was a bath on each floor. I expect that it will increase the rent and rentability.
If the $50K is mostly in individual units you could proceed with one unit at a time. Raise the rent on 1 unit only, if the tennat moves then rehab that unit and re-rent at the higher rent. If the tennat doesn’t move then you get the higher rent without the rehab. Continue on with the next unit. This is a pretty conservative avenue doing only one unit at a time and not starting the next unit until the first is rented. That would insure that only one unit is vacant at a time due to the rent increases.
I’ve only been renting for 4 decades so I don’t know everything yet.
Good luck to you.
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Re: A RENT RAISING QUESTION - Posted by Joe (Oh)
Posted by Joe (Oh) on January 24, 2005 at 15:22:28:
Hehe, I like that- “Rent Strike” what will they think of next. is there any way for us to join a “Tax Strike” without going to jail? Hehe j/k
Re: A RENT RAISING QUESTION - Posted by rm
Posted by rm on January 24, 2005 at 13:56:38:
Okay, I’m embarrassed to even be asking this question, but I’ve never bought a property with a paying tenant in it, so here goes…
My understanding was that leases run with the land, so can you raise rents immediately, or do you have to wait until their lease expires?
Re: A RENT RAISING QUESTION - Posted by RJB=MA
Posted by RJB=MA on January 24, 2005 at 16:52:05:
You must honor the lease. If they are tenants at will (month to month), then you can raise immediately. Give them at least one month’s notice (to raise the rents on March 1, terminate their existing tenancy as of February 28 and offer them a new tenancy as of March 1. Do this by January 31)This may vary by state.