Poll

How often should a landlord raise rents to match local comparables?

Every year
26 (56.5%)
Every three years
8 (17.4%)
Every five years
0 (0%)
Only when you have a new renter
9 (19.6%)
Only when you don't like the current tenants
3 (6.5%)

Total Members Voted: 44

Author Topic: How often should a landlord raise rents?  (Read 4008 times)

JG in Hangzhou

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How often should a landlord raise rents?
« on: October 08, 2016, 06:33:55 AM »
Hoping to get some feedback.  I've wondered how other people do this for over 10 years.

radram

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Re: How often should a landlord raise rents?
« Reply #1 on: October 08, 2016, 06:52:30 AM »
Combination of 4th and 5th choice, or no longer getting desired ROI while factoring my relationship with tenant.

My vote was new tenant.


Blindsquirrel

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Re: How often should a landlord raise rents?
« Reply #2 on: October 08, 2016, 08:33:50 AM »
     I agree. Turn over is expensive at times and I like most of my tenants. If a tenant is a pain in rear, their rent is going up every year. If you are a low maintenance tenant, pays within a reasonable amount of market rent,  I sure want to keep you happy. Much more often found in SFRs than elsewhere.

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #3 on: October 08, 2016, 08:36:20 AM »
Combination of 4th and 5th choice, or no longer getting desired ROI while factoring my relationship with tenant.

+1.

monarda

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Re: How often should a landlord raise rents?
« Reply #4 on: October 08, 2016, 09:42:00 PM »
every 2 years

Another Reader

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Re: How often should a landlord raise rents?
« Reply #5 on: October 08, 2016, 10:40:43 PM »
You don't set rents in a vacuum.  The market and the condition of your property set the upper limit on rents.

The majority of people that rent are employed.  At best they are likely getting a 2 or 3 percent increase  in income every year.  Therefore, we rarely raise rent more than 2 or 3 percent.  If the market is flat or vacancy is increasing, we don't raise the rent that year.

When a tenant moves, we assess the condition of the property and price it conservatively to get multiple applicants that will likely have strong rental histories and solid credit scores.


terratek

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Re: How often should a landlord raise rents?
« Reply #6 on: October 09, 2016, 06:42:10 PM »
See above.  The market  dictates if you raise rents.  Even an increase in tenants pay doesn't mean they will pay more rent for YOUR unit.  But I do agree that if you are already set below market, and considering the cost to the tenant to move, you could consider tenant salary changes.

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #7 on: October 09, 2016, 06:54:25 PM »
See, I would err on the side of keeping the tenants, not risk losing excellent ones to increase by, say, $1200/yr. This is because, where I live, landlords regularly face massive losses per bad tenant. Even when we ensure everything is in place to increase our chances of getting a good one, when a crap one gets through, we lose a lot more than $1200. I raise to current market levels each time a great tenant moves out.

fishnfool

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Re: How often should a landlord raise rents?
« Reply #8 on: October 09, 2016, 07:49:16 PM »
I only raise the rent between tenants if the rental market has increased. My last tenants were there for 9 years. Needless to say, our rental was way below the market when moved out. Feels good to catch up and increase cash flow! ;)

JG in Hangzhou

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Re: How often should a landlord raise rents?
« Reply #9 on: October 09, 2016, 10:12:24 PM »
My sincere thanks, so far for the responses.  Greatly appreciated.

Goldielocks

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Re: How often should a landlord raise rents?
« Reply #10 on: October 09, 2016, 10:41:54 PM »
Here, you can only increase rent by a prescribed amount each year, at a minimum 12 months apart or when a new renter shows up.  (only 2.2 to 2.9% per year for the past three years)

That is less than $30 per month on $1000 month rent...

If you don't raise rents EVERY year, you will be far behind on rents by year 5, especially if you started with slightly under market rent to get a great choice of tenants.

That actually happened to us -- the property management firm /pool was deliberately renting (letting place go vacant if needed to wait) to seniors for long term, easy to manage tenants.. for them..... but they tended to stay for 5-10 years.  No rent increases meant they were paying 30% or less than market rents.

ETA: And you need to give notice of rent increase 3 full months in advance.  Like dentist appointments, it is easy to get out of sync and miss the notice period, and then only be able to increase rents every 14 or 15 months instead, resulting in an even lower average annual increase allowed as a "standard rent increase" without an application form and approval.
« Last Edit: October 10, 2016, 12:11:27 PM by goldielocks »

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #11 on: October 09, 2016, 10:56:57 PM »
Here, you can only increase rent by a prescribed amount each year, at a minimum 12 months apart or when a new renter shows up.  (only 2.2 to 2.9% per year for the past three years) [...] If you don't raise rents EVERY year, you will be far behind on rents by year 5, especially if you started with slightly under market rent to get a great choice of tenants.

In BC, don't we have a third option: to raise it to market if it's below? Is that no longer included in the law here?

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #12 on: October 09, 2016, 11:03:00 PM »
^ Though the larger point perhaps being: Definitely check and know the laws for the region you're renting in! :)

Goldielocks

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Re: How often should a landlord raise rents?
« Reply #13 on: October 09, 2016, 11:19:01 PM »
Here, you can only increase rent by a prescribed amount each year, at a minimum 12 months apart or when a new renter shows up.  (only 2.2 to 2.9% per year for the past three years) [...] If you don't raise rents EVERY year, you will be far behind on rents by year 5, especially if you started with slightly under market rent to get a great choice of tenants.

In BC, don't we have a third option: to raise it to market if it's below? Is that no longer included in the law here?
It wasn't possible when the problem arose for me on the apartment, but maybe that was a city rule, not a BC rule.  There was the option to raise rent with major renovation work...

ETA:  I checked with my DH,    and scrubbyfish is right, that rents out of alignment with local rents can be a reason for increase, BUT, like an increase due to renovation / improvement expenses, needs a formal application and approval.

Locally, increases due to market conditions were rarely approved, if the difference was withing 25% of surrounding rents, and not worth the application (which itself was a fee of $300+).   People with rents of $450 in a market area of $1000 were the typical ones of success, not those charging $800.    Providing supporting documents of financial hardship for the landlord were also often needed to support the rent increase.
« Last Edit: October 10, 2016, 12:05:57 PM by goldielocks »

marty998

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Re: How often should a landlord raise rents?
« Reply #14 on: October 10, 2016, 01:04:25 AM »
Here, you can only increase rent by a prescribed amount each year, at a minimum 12 months apart or when a new renter shows up.  (only 2.2 to 2.9% per year for the past three years)

That is less than $30 per month on $1000 month rent...

If you don't raise rents EVERY year, you will be far behind on rents by year 5, especially if you started with slightly under market rent to get a great choice of tenants.

That actually happened to us -- the property management firm /pool was deliberately renting (letting place go vacant if needed to wait) to seniors for long term, easy to manage tenants.. for them..... but they tended to stay for 5-10 years.  No rent increases meant they were paying 30% or less than market rents.

How is the property manager paid? If the PM is paid as a % of rent doesn't this impact their own income?

My PM recommends an increase to whatever she thinks the market justifies, regardless of how good or not the tenant is. And you don't want to piss off a good tenant by one day saying "oh sorry, I need to raise you $100 a week because interest rates have gone up and I can't afford the mortgage on this place without that extra". Keep the raises consistent and no one is surprised.

At the end of the day you need to maximise the return on your investment. You're purpose isn't to gift cheap rent to tenants.

MrRealEstate

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Re: How often should a landlord raise rents?
« Reply #15 on: October 10, 2016, 02:11:18 AM »
Someone recommended https://www.rentometer.com/ earlier and I thought it was interesting.

I'm about $10 over average, but fully furnish the rental. I Typically upgrade the unit somehow between tenants and raise rent accordingly. Still haven't had an issue with scheduling 5+ showings in the first few days. Also, if something isn't working properly I ask if they'd like me to repair it, or upgrade it to something even nicer for a modest rent bump(about $50).

DeanW5

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Re: How often should a landlord raise rents?
« Reply #16 on: October 10, 2016, 04:55:37 AM »
If your tenants rent on a month-to-month basis, you can increase the rent basically any time you feels like it.

Enigma

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Re: How often should a landlord raise rents?
« Reply #17 on: October 10, 2016, 05:38:43 AM »
I am of the mindset of not raising the rent on my tenants.  I recall a property that my father purchased around 35k over 20 years ago.  His elderly renter paid $350 a month even as the value of the property slowly went up.  After 10 years that renter had paid 42k...  She almost live to the 20 year mark of paying over 80k as a renter.

Advantage - I have had long term tenants put in their notice only to find out that the market rent had gone up everywhere.  Many quickly change their minds
Advantage - No gaps in any month of income
Advantage - More of a home to the tenant, take better care of the property, and even fix little things without constantly asking the landlord (Mostly because they realize they are paying below rental costs elsewhere).

Between renters I may raise rent.

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #18 on: October 10, 2016, 11:06:06 AM »
How is the property manager paid? If the PM is paid as a % of rent doesn't this impact their own income?

I've never seen that model for paying, so it hasn't applied in any case I've been involved in.

You're purpose isn't to gift cheap rent to tenants.

Those of us applying this approach aren't aiming to gift cheap rent. We're aiming to balance income with retention of excellent tenants, who are worth a lot (gifting us, in this language).

If your tenants rent on a month-to-month basis, you can increase the rent basically any time you feels like it.

Again, depends on your region's laws. BC laws, for example, do not allow this.

tralfamadorian

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Re: How often should a landlord raise rents?
« Reply #19 on: October 10, 2016, 11:21:22 AM »
I raise rents $20-25/mo every year at lease renewal.  I also rent for slightly below market (5-10%) according to rentometer to get the best pool of qualified applicants. 

ysette9

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Re: How often should a landlord raise rents?
« Reply #20 on: October 10, 2016, 12:20:24 PM »
This is a little off topic, but since there is an audience of landlords here I would like to pick your collective brain. We have been renting our SFH for a little over four years now in an area where real estate prices have been going from expensive to ridiculous. Our lease is month-to-month and we started somewhat under market. In the four years we have been here our rent has been raised once, by $100. For some context, we pay $2400 and comperable houses in our nehgborhood rent for $4000. Granted, our house is not the nicest, but we love the neighborhood and love the $ we are saving each month. :)
When I think of our situation I can only conclude that our landlord is unsophisticated. Certainly it can't be worth that much lost income to keep a stable family in a rental? We are great tenants and try hard to stay that way, but it does make me a bit uneasy sometime. The best I can do is keep the yard neat, pay on time, and keep my fingers crossed while shoveling money over to Vanguard!

Goldielocks

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Re: How often should a landlord raise rents?
« Reply #21 on: October 10, 2016, 12:34:12 PM »
This is a little off topic, but since there is an audience of landlords here I would like to pick your collective brain. We have been renting our SFH for a little over four years now in an area where real estate prices have been going from expensive to ridiculous. Our lease is month-to-month and we started somewhat under market. In the four years we have been here our rent has been raised once, by $100. For some context, we pay $2400 and comperable houses in our nehgborhood rent for $4000. Granted, our house is not the nicest, but we love the neighborhood and love the $ we are saving each month. :)
When I think of our situation I can only conclude that our landlord is unsophisticated. Certainly it can't be worth that much lost income to keep a stable family in a rental? We are great tenants and try hard to stay that way, but it does make me a bit uneasy sometime. The best I can do is keep the yard neat, pay on time, and keep my fingers crossed while shoveling money over to Vanguard!

If a landlord remains net positive in income and cashflow, quite a few choose to not raise rents.   If property taxes, maintenance costs or financing increase, then they increase rents but leave it alone otherwise...  Likewise, these landlords rarely put in capital to maintain the home above a basic level, so if you stay for many years, you do your own repairs.   

My great aunt rented a home for 20 years, and they never increased the rent a single time, but the 100 year old home at the end was in very rough condition. 

Obviously, I think this is a poor business model, and would rather gift tenants a free month of rent as a "reward" for a year or two of continuously being great tenants.

Also - you may have rent control in your area...  not being able to evict a poor tenant makes driving out a good one through continuous rent increases can keep the balance in your favour...

From https://www.sftu.org/rentcontrol/

RENT CONTROL - San Francisco

Annual Allowable Rent Increase
March 1, 2016 – February 28, 2017 = 1.6%

In San Francisco, most tenants are covered by rent control. This means rents can only be raised by certain amounts per year and the tenant can only be evicted for “just causes.” In addition, some rental units have restrictions on how much the landlord can charge the new tenant due to previous evictions. Tenants who do not have rent control can have their rent increased by any amount at any time with a proper written notice.

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #22 on: October 10, 2016, 12:37:13 PM »
Certainly it can't be worth that much lost income to keep a stable family in a rental?

There are multiple reasons a landlord might offer this. Some do indeed find it *that* worth it to keep good tenants. (I've seen a bad tenant do $30k, nonrecoverable, in damage in two weeks!) But, others have enough money that rental income is almost "neither here nor there", so they charge enough to cover costs and bring in a touch, but don't have a need to bring in more. Where I live, lots of places sit empty year round. Tenancy laws make it not worth it to have renters, and the owners are wealthy enough to afford multiple houses without having income on them. So yep, keep being a great tenant, keep investing the difference, and enjoy! That's what I do :)

FIRE_at_45

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Re: How often should a landlord raise rents?
« Reply #23 on: October 10, 2016, 12:47:33 PM »
Subscribed from the 'other side' of things as a tenant.  I've been renting my current place for 3 years without an increase.  I would consider myself a model tenant.  I only let me landlord know about real problems (toilet is leaking etc.).  I also get along well with the family who live in the downstairs suite so there is no drama.

My place in a 1980 style place that leaks like crazy and is in very modest condition.  I have my fingers crossed that my rent doesn't increase.  I was just at a friend's place last night and he is a land baron.  He owns a place almost identical to mine and he just cranked the rate up to $400 more than I pay.  He made this change with a new tenant who he describes as 'Walmart, here we are'.  So, he may encounter a few challenges. 

My concern with renting is the uncertainty of when my landlord will pull the trigger and sell.  It seems he missed the top of the market now so I can breath again.  It would be different if I could find numerous places that are similar but I haven't had much luck yet and I search CL regularly to know my options.   

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #24 on: October 10, 2016, 12:56:56 PM »
It would be different if I could find numerous places that are similar but I haven't had much luck yet and I search CL regularly to know my options.

https://financialtipsforthebroke.com/2016/06/23/how-to-avoid-paying-market-rent/  :)

FIRE_at_45

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Re: How often should a landlord raise rents?
« Reply #25 on: October 10, 2016, 02:09:36 PM »
Thanks @srubbyfish that's a great article.  I've been thinking about downsizing from a 3 bedroom place to a 2 bedroom place.  I'm single with a boy/girl that I have shared custody.  Most people would say this is just crazy talk.  Everyone needs to have a bedroom but I'm thinking I could buy a bed that folds out of the wall and share a closet with my son. 

Okay, back on topic....

Enigma

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Re: How often should a landlord raise rents?
« Reply #26 on: October 11, 2016, 06:04:36 AM »
...We have been renting our SFH for a little over four years now...  our rent has been raised once, by $100. ...we pay $2400 and comperable houses in our nehgborhood rent for $4000. Granted, our house is not the nicest ....  Certainly it can't be worth that much lost income to keep a stable family in a rental?....

This is an example of why I would never raise the rent on you.  First you pay on time and you are worried of moving, second you are attached and will probably never move.  The longer a landlord has owned their rental property the cheaper they bought it.  Also there is a better chance it is paid off.  As long as your landlord is profiting why should he raise the rent?  You stated a comparable house rents for $4k...  Which means there are some on the market for that much.  So hypothetically if the landlord raised the rent they could do so for 3.4k (roughly 1k more than they make now).  If you moved out the lost income would be 2.4k/month.  Added to that if it took 2 months for upgrades/repairs the landlord would loss 4.8k in lost income (At a 1k gain per month it would take almost half a year to break even and then start profiting more).  Also I didnt get into how much the repairs would be...  You hinted that the house isnt the 'nicest' on the block so maybe upgrades are needed (roof, siding, painting, landscaping, etc)...  To a landlord you moving might be a financial nightmare...

Another quick note...  Paying 2.4k/month for 4 years...  $115k has been paid in rent.  I am sure the landlord is quite pleased
« Last Edit: October 11, 2016, 06:10:44 AM by Enigma »

Another Reader

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Re: How often should a landlord raise rents?
« Reply #27 on: October 11, 2016, 08:10:07 AM »
If you look at the rentals as a business, it generally makes sense to raise rents for existing tenants, at least modestly.  Your operating expenses, such as taxes, insurance, HOA fees, and the cost of capital improvements, generally increase a few percentage points annually.  We balance increasing costs with market rents and market wage increases.   

We have made an exception for one elderly couple that lost their retirement home to foreclosure in 2010 and are living on Social Security and a small pension.  They are now in their mid-80's and could not pay market rent or handle a move.  The house is neat and clean with little wear and tear.  Eventually one or both will have to go to nursing care.  They have no children or living siblings so they are alone and defenseless.  We consider the rent loss as charity for people truly in need.  We can afford to do this because this property is one of many.

scrubbyfish

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Re: How often should a landlord raise rents?
« Reply #28 on: October 11, 2016, 09:04:43 AM »
We have made an exception for one elderly couple that...

So beautiful, Another Reader! :)

Goldielocks

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Re: How often should a landlord raise rents?
« Reply #29 on: October 11, 2016, 09:10:41 AM »
We have made an exception for one elderly couple that...

So beautiful, Another Reader! :)

Totally sucks when your rental pool of 47 units has 25 of these situations!  ( still bitter at that management company.. We only had one unit with them).

:)

Beautiful when you make it a conscious decision. Crappy when the kids that inherit decide to 'resolve ' the situation.

ysette9

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Re: How often should a landlord raise rents?
« Reply #30 on: October 11, 2016, 02:40:24 PM »
Quote
This is an example of why I would never raise the rent on you.  First you pay on time and you are worried of moving, second you are attached and will probably never move.

I appreciate your perspective. I don't think this applies 100% to our situation but is close enough to help me understand and sleep a little more easily at night. We won't be here forever because ultimately I want things like insulation, dual-pane windows, and central heat, but the deal is good enough that we have already stayed a good three years beyond what our original plan was with no end in near sight.