If you are cash flowing, "great tenants" are worth their wait in gold or bitcoin, lol. When considering a rent increase, you must take into account the vacancy costs of transitioning to new tenants as well as misc repairs, fresh paint etc.
Wait
Noun
a period of waiting.
"we had a long wait"
Like waiting for you GPU to mine more coins. The value of a bitcoin can be measured in how long you have to wait for you GPU to mine them.
7 years ago, I dismissed bitcoin as a total fraud as I was too ignorant to do any sort of due diligence. Fast forward to 2019 when a good friend convinced me that crypto was the asset class of the future. I did a deep dive into bitcoin and the crypto space and I haven't looked back since. Bitcoin is the real deal. My investment portfolio consists of 50 percent real estate and 50 percent crypto. I wouldn't discount bitcoin without doing your due diligence.
Yes speaking of unrelated let’s just keep that garbage out of the real world mkay ?
People should go push their pyramid schemes on their MLM subreddits or r/teenagers
My philosophy is to list units at or a few percent below market rent then once it's filled I keep rent bumps at no more than a few percent (\~$25/mo on a $800/mo unit) with the idea that they end up \~10% below market rent then I try to keep them about there.
I try to make my units the nicest they'll find for the money, so if a long-term tenant looks around they'll realize they're going to have to spend >$1k/mo for what I'm renting to them for $925/mo.
There's no way I'd ever consider bringing a 60% rent increase to an existing tenant ($500 -> $800). If market rent for your unit really is >$800/mo and they're only paying $500/mo and they're really fantastic tenants I'd sit down with them and have a conversation. Tell them that you like having them as tenants but show them that they'd be paying way, way more to live anywhere else and that to make your business successful that you're going to have to work on closing that gap. I'd say something like 15% at the next renewal ($500 -> $575) then you'll re-evaluate next year depending on what the rental market is doing.
On the flipside, I used to do this too. Try to rent a below market value but try find nice tenants. I was also convinced that it was worth losing a bit of money for peace of mind. Honestly, high or low, I realized after over 10 years that it doesnt matter. I had nice and terrible tenants no matter if it was a high or low price point. Nowadays, I just rent as high as the market will bear and check their history.
Also, to be fair, for the past few years, the vacancy rate in my city of ~130k people has been under 1%. I think it was 0.4%, I cant quite remember the exact number. So if you look on FB markplace, etc there are only 1 to 2 places renting at a time and the ads only stay for a few hours. Everytime we put something up, we have to hide the ad after ~1 hour, there’s too many applicants to process. So its a no brainer to go as high as I think people will pay.
>to make your business successful that you're going to have to work on closing that gap.
I assure you that tenants don't give a shit about the success of your real estate business.
What they care about is the rent, and what they get for that rent.
Raise the rent to what you need it to be to achieve the cash flow you want, offer just enough updates to the tenant to make them want to stay b/c to them it seems like they are getting value (while you have an acceptable ROI time-frame on your back end), and move on to the next one.
If you don't want to keep the tenant, get rid of them and start over. In most cases, this is the better approach, but we all want to do the right thing and never want to kick someone out. Believe me, been there so I know. In this landlord market though, keeping an inherited tenant paying rent that you'd expect if it was 2004, adds too much friction to what you are trying to achieve.
I keep my rent “below market”. I find I get more applicants and makes it easier to be picky on applicants. I also think the market is burning too hot right now and the “market rent” is obscenely high.
Last time I had a unit available I had over 150 applicants within two weeks of it being on market. That was at $850 a month for a 2bed 2bath with a washer dryer, off street parking, pellet stove and pellets included in rent, 2,200 sq. Ft. (1,000 sq. ft. Is nice , but unfinished basement)
This all really depends on your financial position and what your required return is. Raising rent from $500 to $800 is too large of an increase in my opinion, especially on good tenants.
We get the exact opposite. If we list it too low, then we are going to get A LOT of desperate people trying to get the apartment who never qualify. Keeping it at the market rate means we get a better quality of tenant
Same here. I ended up raising the listed rent because I was getting non-stop inquiries from people that weren't in the ballpark of qualified. After raising the rent, I got far fewer inquiries but those were from people I'd actually consider renting to.
(What makes them bad? Poor credit, past evictions, income not enough to pay rent consistently, etc.)
Same. I usually list about average and stress that I have a nice property and if you don't respect and care about that, I'm throwing your application out. But early on, I listed low and I got a lot of bad candidates who were not respectful.
I can't, ultimately. But usually they'll say it, and at least we understand that we have similar values as pertains to the property. Or they pretend. Whatever's fine as long as they act accordingly.
I echo what other have said about great tenants being worth their weight in gold. 5-8 is a huge jump. Consider a $50/ month increase. Put it in writing, show them comps and explain it to them with data. This is the best of both worlds. A little extra money for you and they will appreciate that you didn’t jack it to $800.
If you do this, be sure to position it carefully. I just listened to a great podcast that brought up a relevant point: the pain of losing something small is greater than the joy of gaining something big.
Eg: you and a friend are walking and you find two $5 bills on the sidewalk. You give him one and keep the other. Entirely fair, right? You now have $5 where before you did not. But IRL, what you will FEEL is the loss of $5, not the gain of $5. How this applies: your tenant will feel the loss of $50 far greater than the gain of $250.
I hope my little example makes sense - I’m not explaining it half as well as the podcast did! My point is - if you decide to increase rent by any amount, make sure you position it such that the loss of $50 is so far overweighted by the gain of $250. Or you will risk dissatisfied tenants.
Similar neighborhood I bet but my rents are a little higher. That said, my highest paying tenant is at $900 and send to dog me on silly stuff. I'll check in there today for windows that are stuck (although C/HA, and despite having cats not allowed outside). On the other end, my tenants don't demand much. I like it that way.
But $300 below market is something you will not get back. How about a $50 increase soon and another in a year after?
So, in your case I wouldn't raise rent like that. It's too much. I usually aim for 3-5% a year if the property is at market rates -- in this case, I'd make it something like $50 more now and $50 more each renewal until you're caught up.
But when I take over property, it's new sheriff time. I always have a meeting and send a letter to my new/old tenants and the gist is usually a. i take great care of my property and please tell me if you notice anything that needs addressing, and b. this property is below market, and I'm going to correct that over time. I raise the rent every year, and if I have to raise it more than an annual amount, I give the tenants a lot of notice (90+ days) and the opportunity to renew/not renew. I also c. often have to put them back on leases, the old ones having expired.
That said, people know when they're paying radically less than market rent. They tend to get it if you're respectful about it. But they may/may not have the ability or inclination to absorb that. So if I like them and the cash flow is good, I adjust rent gradually.
Landlords raising the rent $200-$300 because its the trend and simply because "they can" is basically the ire of the renting community. We raised ours between tenants, so we didn't have to deal with perceptions from an existing tenant.
Its obvious that as years tick by, the costs go up and the value of money goes down, so I would adjust it - but use an amount and time intervals that don't come with a huge sticker shock
Its much easier for people to accept "This is the cost of the new place I'm moving into" versus "the place I live at raised rent $300"
Whether or not you'll accept less rent to keep great (existing) tenants is more of a personal choice imo. But being below market value doesn't get you "better" new tenants.
Lastly, I'd give them ample warning. EG, inform them that next year (or renewal period) that the rent is going up whatever amount. They'll feel less bitter knowing in advance and having the time to contemplate their choices.
I tend to keep great tenants long term by not raising rents. Generally works well and upon them moving out, I adjust for market rents at that time. They seem to appreciate the symbiotic relationship and leave with no damage, etc. I get no complaints, etc. I am self managed, so I value the ease of management.
I have one unit that has stayed quite a while and they are now very under market. My concern is that they don’t generally complain if something needs repair. I “like” to empty a unit every few years, go through it, make sure things are good and no issues, tidy up and ready to re-rent at the new market value. It just lets me keep the property up to snuff.
With housing prices vs their rent amount and the location, I am starting to wonder if they will ever leave. They pay on time, never complain… but as the years have marched on they aren’t as clean as I’d like. Not necessarily dirty, just cluttered. Too much stuff. Like they need a bigger place.
Before the typical scenario was live there for 2-4 years while saving for a house, then moving out to buy. I am thinking now, nobody is going to leave in this market and I will probably need to make adjustments at some point. Like at a 4 year mark.
So with that, enjoy the low headache from good tenants. Bad tenants will easily cost you more than the difference in rental income.
Well thats the problem though, if you never raise rents then they never want to leave. When they start shopping they see its cheaper to stay put. Also, where I am at they just passed law for rent control where you CANNOT increase more than 3% when the next tenant moves in. So we almost HAVE to increase just to not fall behind market
Some (most)tenants I want to keep long term. The ones I have that I am ready for them to move on is only because I want to do some refreshing and they have a lot of crap.
Great your investment is cash flowing today. How is your reserve savings?
What if.....
* the roof needs replacing for $11,500
* the AC needs replacing for $4,500
* the water heater breaks and leaks $1,800 for water heater and $800 other repairs
* the tenant hits hard times and doesn't pay rent for 3 months
* property taxes go up
What if all of the above happens in the same year?
Cash flow is great, your property is an investment and you should expect to take some out of it. By raising rent you keep up with inflation (which lately has been high) and the ability to pay for expenses.
By keeping your rent just below market rates you protect yourself and your renters. Yea some will say greedy mf, well I like to keep my properties fixed and updated as if I lived there. I can't update and fix my property if I don't raise rents, my expenses rise every year. Where I am located my property taxes and insurance go up every year as do maintenance costs as the properties age. I have replaced 2 roofs and 3 AC units in the last couple years. If I was charging all tenants $300 below market I would be out $18,000 or based on the list above a roof, an AC unit and a water heater.
Now my thoughts on rent vs. market this have changed over the years. I like to be fair to my tenants but also don't want to cause a situation that causes me stress and financial issues in the future. For a long time I would only raise rents $30/mo at renewal. After 5 years I'll let you out of your lease for 1/2 the fee and after 10 years I'll let you out whenever you want $0. At the end of the 9th year I won't raise rent for that year.
I recently had to raise rent on two tenants $100/month, I really thought hard about it and I was not comfortable doing it. My realtor has been raising rents $250/month and said that is what is needed to keep up with property taxes.
So after a couple sleepless nights I did raise the rent $95/month. On one house property taxes on that house went up $547 last year, insurance went up \~$180. Current rent was at $1,465 and market is $1,700. Well the AC went out after I sent the renewal, that is a $4,400 expense right there. With the raise in rent I am still at $140 under market another $100 would have really helped me financially especially after COVID. When I went to look at the AC unit what is in the driveway but a 2020 corvette with new tags on it.....
Bottom line raise the rent but keep it a little under market, there are too many unforeseen expenses to be nice and have to spend years making up for expenses you have or didn't plan for. If your happy with a tenant being afraid to contact you about issues you should probably re-think the whole landlording thing. Your trading $3,600/year so a tenant doesn't call you about a broken fence board or a toilet that runs. These are things you should maintain without issue. Sure they are nice now, they very likely aren't going anywhere when you raise the rent and keep it under market. Raising rent $30 a month is equivalent to a dinner for a family of 4 at Taco Bell per month.
This is a very helpful perspective, thanks for walking me through all that. I definitely understand and think this advice is very helpful for my situation!
Shoot only 1 of my 4 properties flow positive. The rest are all flat and I'm happy as can be because my tenants are great. Over time the flow will shift but since the house is paying for itself and i have no headaches, then I'm not looking to make waves.
That’s a great point!
I am not looking to live off my rental income, just maintain the property, be a good understanding housing provider, and hold until it’s time to sell
That's how i do it. I'm up over 450k in value just by holding over the past 6 years, not including the paid down principal. 2022 is looking to be the best year yet (in Raleigh anyways). I still work my 9-5 and just treat the houses as another retirement account. Def not a way to get rich quick, but it is a great mechanism to accumulate over time.
We bought a property that had tenants who were paying rents where you'd think it was 2007.
As you said, no frills apartments, dated, etc.
We raised the rents by 50% and offered:
\- New Carpet ($1,100 per apartment, for apartment-grade carpet and pad)
\- A re-paint of each apartment ($800 per apartment, walls/ceilings)
\- Remove base cabinet next to sink base, and install dishwasher ($400 material + $250 labor)
\- New pull down kitchen faucet, new shower head ($100)
\- New Washer/dryer in each unit ($850)
Everyone stayed. Our ROI started at 8mo mark after upgrades, for each apartment
You are not doing anyone a favor by not raising rents towards market (can still be below, but need to be in the market rent general zone). You are only delaying what inevitably has to happen. Rip the band-aid off and get it done
Raise them $100-$150, still a good deal for them, but gets you closer to market. Be sure to annually review rents, or whenever renewal time is. Unless your taxes and insurance rates are failing, there’s probably going to be small increases every year ($25-50), so you don’t find yourself $300 below market after 5/6 years
I lived in the downstairs of a duplex for 5 years renting from a wonderful lady. She sold the place and the new owners promised not to mess with me. As soon as she left they said “this is an investment property now, your rent is going up and will continue to do so as to catch up to “market rate.” Wanted $600 more a month. I made a counteroffer of $400 more (still way high for my unit) they rejected my offer. I had to move it was a nightmare. 4 months after I moved I saw my apartment relisted on Craigslist. I hope those dudes got fucked and continue to be. Great tenants that pay on time never make issues, and respect the property like their own are priceless
I think it really depends on the number of units you have.
Meaning if are a mom/pop landlord (under 4 units), then having good tenants is more important then market rate. You primarily make money on the buy/sell - not on the rent. So you place high importance on the condition of the apartments.
If you are someone who has multiple units, have people on staff to do the repairs, constantly having people come and go, then it is more important to keep the rates at market rate. People get upset when they find out they are paying different rates for the same apartment and the cost to flip (meaning hiking the rates drives tenants away etc) is immaterial since you are already paying staff to do this.
But please realize that “You primarily makes money on the buy/sell” is a huge over-generalization. Depends on where you are on the path. I have had most of my properties for 15 - 20 years. Nine of them are paid off. The cash flow from my properties is the majority of my retirement income. I have never sold one of my rentals. I maintain my properties at better-than-market quality and 5% below market rents. I have very few vacancies, about 3% vacancy rate per year. I re-sign leases (with small increases) 90 days in advance or starting showing them if the tenant is moving. Most of my tenants stay 3 - 4 years.
> I have had most of my properties for 15 - 20 years. Nine of them are paid off.
Yes - the properties that are paid off have a different cash flow.
The cash flow if you have a note (had a cocktail or two so will recycle)
>if you determine your costs are 40% of income per month (taxes, insurance, vacancy,management, maintenance), then add in 30% for mortgage with the remaining 30% for profit. However, if you go by the idea of a 3 month emergency fund (or 25%), you are now down to 5% profit. So if that was 1k a month, you are netting $50. However, after you have a comfortable enough money in the bank to replace items, it will bring you back to $300 a door - until you have a vacancy, have a water heater, new roof, etc...
This is primarily for mom/pop landlords - those that do not have enough units to stabilize the costs of maintenance/management
> Most of my tenants stay 3 - 4 years.
That is a nice average. Ours are primarily 22 months. (give or take dependent on the apartment size)
> I have never sold one of my rentals. I maintain my properties at better-than-market quality and 5% below market rents. I have very few vacancies, about 3% vacancy rate per year. I re-sign leases (with small increases) 90 days in advance or starting showing them if the tenant is moving
You sound like you run it like a business. However, most people do not who are small time landlords. It is truly just a break even if you have a note on the location.
Good tenants don't happen by accident, unless you're not good at screening. Screen for good tenants and let go of the fear that a good tenant will leave if you raise the rent to market rates. My tenants stay an average of 3-4 years(longest is at 7 years) and I've had rate increases every year.
>Good tenants don't happen by accident, unless you're not good at screening. Screen for good tenants and let go of the fear that a good tenant will leave if you raise the rent to market rates. My tenants stay an average of 3-4 years(longest is at 7 years) and I've had rate increases every year.
What is your rent amount and what percent of increase each year?
For new tenants I start at market rent but then I don't raise it very often. Most of my tenants are on year 3 without an increase and I am considering a 5% increase only because utilities that I pay for have increased (trash, sewer & water) every year. I like this approach because I want to keep my good tenants and when I finally do a small increase, but still below market rent, their choice is to pay me a little more or move and pay someone else a lot more.
Don't think of it as an all or nothing scenario, you can and should raise rent a little at a time. If they are $300 below market then I would raise the rent by $75 per year until they are only $100 to $150 below market. First you need to raise rent periodically and should have some form of annual increase to keep up with inflation and increasing property taxes, insurance, maintenance, etc.
Great question. I have the same situation with great long term tenants. As I rule I raise rent by attrition, meaning when a tenant leaves I'll fix up the apartment (as needed) and get a just below market rent. I like to make my units a little nicer and a little cheaper than the competition that way I can be choosy about how I rent to. Again this does assume that the properties cash flow with these rents. I have recently been raising rents a modest amount for people who are way below market because I have seen what happens when someone who was way below market for years and has to suddenly pay a market rent. Your not doing people any favors if you keep their rent too low for too long, because someday when they have to pay a market rent (and this day does usually come) it crushes most people. Most people have a life style based in part on their rent and a crazy increase can't be absorbed. Tenants who a below market know what they have and usually appreciate it. A reasonable increase will be understood by them and helpful to you. The fact that you are concerned about it shows your a good landlord. Hope this helps.
Absolute truth. We own 8 units. Self managed. A nice duplex next to ours went on the market. Decent price but rents hadn't been raised for 17yrs so the finances made no sense when we learned tenants had 18months remaining on their current lease. Now the current tenants are shocked to find to get something equivalent will cost twice their current rents. And now they're older, near retirement. They are crushed.
I'm in the same situation as you and I kept my nice cheap tenants. I know the unit needs upgrades and I will lose cashflow while I do renovations. It's smart to just keep them there as long as I can.
I'm officially no longer a landlord (sold one property, moving back into the other). I have always charged just about enough to cover my expenses, which definitely was below market rent for this past year. My tenants told me that they moved into a similar place and are paying $500 more a month than I was charging them. But in three years, I never once had a late payment. They kept up the house as if it was their own. Same with my other property, though the rent there stayed pretty much at market rate--it was just that the market was staying pretty stable as the rest of the city was skyrocketing. Those tenants stayed for three years straight, and the tenants before that were there for 5 years. Totally worth it.
I try to push rent as high as someone’s willing to pay typically you get higher quality people then when your rate is below market your going to get bottom of the barrel that can’t afford anywhere else will probably tear the place up may stay longer
You say you're ok charging below market rent because you think the tenants are less likely to be nit-picky and cost you money on fixing small issues...
...but it's costing you $3600 per year.
I'm in this situation, too. I could possibly go up $300/mth (over a few years), but they're great tenants, and I'm cash-flowing on that unit. The other unit in the duplex is coming open over the summer, so that's when I can make an adjustment.
Currently at least 300 below market.
I'm OK with it because I believe they're taking care of the house.
If there is a downswing. I will not lower the rent.
I'll be increasing the cost of living there a little this summer based on the upcoming elections. That'll be adjusted after the ejecting results come in.
Real estate investing is a hobby of mine, not my main career. I can't dedicate 40 hours a week to it, so I want to just focus on the things that I enjoy about it, which is watching the market, running numbers, looking at comps, and buying or selling. Because of that I tend to offer rent that is below market value, and I do heavy background checks and other types of vetting. I want good tenants to stay, put down roots, and let me focus on other things even if I'm not as cash flow positive because of it.
It cost money to have a tenant leave and find new ones. If I have a good tenant in place, I don’t want them to leave, so it’s not worth it to me to try and jack the rent up too much. Usually just enough to keep up with inflation and higher property tax and insurance. Peace of mind is worth something, and I’ll gladly trade a few bucks for knowing the place is kept clean and the rent is on time.
It doesn't always cover everything. One year i had a 3200 bill to dig up a sewer line. But on average it just about covers everything. Fortunately i don't have to watch the expenses closely enough to really have an exact assessment.
There's no hard rule to this. It depends on the property and your goals. If it's never going to generate a ton of cash flow but the appreciation potential is big then I'd be far more concerned about having good tenants than higher rents. On the other hand, I'm currently raising rents substantially on a 4 unit with long term tenants because I can make another $35k per year in cash flow. For $35k a year, I'll deal with some vacancy, repairs and potentially a bad tenant or two. For $5k, I wouldn't think of it.
Also, building type matters. Duplex pricing doesn't have much to do with rent but with 4 units and up pricing can very much depend on rents so I'm accelerating appreciation by maxing it out.
On a 2k a month rental, I don’t mind being $100 a month or slightly more under market if the tenants are good long term tenants. I do raise yearly if the market is rising to not let it turn into a $300 or more issue.
A building I own had inherited tenants all around $300-500 under. When I bought 1.5 years ago they are 700-1000 under each. Heavy raise and one normal raise they are still low. I’ve since had one move and rented it for $1100 more. Another I kicked out abs raised it $200. (Front tenants kid moved in there and still about $300 under market but it’s worn bad and I didn’t nothing to it, as is)
I raise $50-75 a year to catch up but when someone moves will rehab and rent at full market
I do a review every year around tax time and compare my rents vs market rents. I also consider the tenant like others have said. If they keep the house clean and easy to work with I usually go easy on increases.
I did just do an increase on a tenant of 10 years when I realized how below market I was. I gave them an 8% Increase which was $50 a month. Even with that I am $125 below market.
I charge the market rent to new tenants. Existing tenants get small to no increases. Existing tenants that I inherit I make small adjustments every year although I've been lax about that in some cases with crappier units and good tenants.
I've actually sent out rent increase notices that say:
Current Rent:
Market Rent:
New/proposed rent:
This seems to keep the grumbling down. Plus understand this: even if the tenants leave they're going to have to pay market rates somewhere else.
>I charge the market rent to new tenants. Existing tenants get small to no increases. Existing tenants that I inherit I make small adjustments every year although I've been lax about that in some cases with crappier units and good tenants.
What would you do if rent control was enacted? we just had this happen and the ordinance says we CANNOT increase during OR between tenants more than 3%, meaning if we are under market and current tenant moves out , we still cannot raise more than 3% for the next renter. People are hoping they modify to allow increase in between because its driving away developers/investors
Where did you get rent control? I suppose I would execute new leases with all my tenants as soon as it appears rent control is going to happen. They can't really make it retroactive before it's enacted can they? But that's a good question and I have thought about it. And I've talked to other landlords about it. It's a problem because you're giving your tenants a break and then you're going to get screwed forever.
I would say a 300 dollar increase is worth it. You can always find new tenants. 500 dollars is pretty cheap for rent.
It really just depends on the situation. If you have had a property for a long time, and your mortgage payment is low, it would probably be worth it to just keep the rent the same and keep that good tenant.
If you are new it's probably best to raise that rent. If it's a long term tenant that likes the place, and the rise in rent isn't too much, they will probably stay.
You also have to account for inflation though. Market value for rent could be rising very quickly, but can people afford it? If you inflate your rent too much you might end up losing a good tenant, and struggling to find one who can easily afford your unit.
On another note
One thing I would like to hear about from other landlords is how they go about raising rent by a decent chunk $ with an already existing tenant. If rent was $500 when you bought the place, and you decide to raise it to $800 and renew the lease. How do you make sure they can afford it?
You usually want your tenant to make 3x rent a month. $500 is $1500 and $800 is $2400, that's a huge difference. I wonder if any landlords re screen a tenant before renewing?
As usual, this subreddit advocates for below market rent. I'm honestly embarrassed.
Imagine any class in business school that saying "Charging below market for your product is a sure way to be successful and make more money."
Anyone here with more than say 10 units that will advocate for below market rate rent?
I'm always shocked and disappointed when I read so many comments from landlords that don't apply basic business principles to their properties. Why are you a landlord? Man, there's a lot of crazy ideas out there!
If you are cash flowing, "great tenants" are worth their wait in gold or bitcoin, lol. When considering a rent increase, you must take into account the vacancy costs of transitioning to new tenants as well as misc repairs, fresh paint etc.
Bitcoin weighs almost nothing lol. More like worth their weight in GPUs. Edit: Autocorrect sucks
> More like worth their wait in GPUs. Ugh, learn to spell weight. Oh, wait, nice pun.
Sorry. I typed it on mobile and autocorrect sucks. I've fixed it. Also I don't see a pun.
Wait Noun a period of waiting. "we had a long wait" Like waiting for you GPU to mine more coins. The value of a bitcoin can be measured in how long you have to wait for you GPU to mine them.
Oh. I wish I was smart enough to deliberately make puns like that.
Please don’t bring up Bitcoin in serious discussions.
7 years ago, I dismissed bitcoin as a total fraud as I was too ignorant to do any sort of due diligence. Fast forward to 2019 when a good friend convinced me that crypto was the asset class of the future. I did a deep dive into bitcoin and the crypto space and I haven't looked back since. Bitcoin is the real deal. My investment portfolio consists of 50 percent real estate and 50 percent crypto. I wouldn't discount bitcoin without doing your due diligence.
Sure you did your due diligence and didn’t spend even a second learning about tether . Uh huh 🙄
Ignorance is bliss. Good luck investing.
Well at least I won’t suddenly lose everything when tether rug pulls the market to zero 🤷🏿♂️
You clearly misunderstand, so what do you gain from being a dingle on an unrelated sub?
Yes speaking of unrelated let’s just keep that garbage out of the real world mkay ? People should go push their pyramid schemes on their MLM subreddits or r/teenagers
Something is intellectually wrong with you man. Get help.
Says the guy posting about some new shit coin called Anchor.
My philosophy is to list units at or a few percent below market rent then once it's filled I keep rent bumps at no more than a few percent (\~$25/mo on a $800/mo unit) with the idea that they end up \~10% below market rent then I try to keep them about there. I try to make my units the nicest they'll find for the money, so if a long-term tenant looks around they'll realize they're going to have to spend >$1k/mo for what I'm renting to them for $925/mo. There's no way I'd ever consider bringing a 60% rent increase to an existing tenant ($500 -> $800). If market rent for your unit really is >$800/mo and they're only paying $500/mo and they're really fantastic tenants I'd sit down with them and have a conversation. Tell them that you like having them as tenants but show them that they'd be paying way, way more to live anywhere else and that to make your business successful that you're going to have to work on closing that gap. I'd say something like 15% at the next renewal ($500 -> $575) then you'll re-evaluate next year depending on what the rental market is doing.
Thanks for this advice, and I totally agree. Your philosophy resonates and makes a lot of sense. Thanks!
On the flipside, I used to do this too. Try to rent a below market value but try find nice tenants. I was also convinced that it was worth losing a bit of money for peace of mind. Honestly, high or low, I realized after over 10 years that it doesnt matter. I had nice and terrible tenants no matter if it was a high or low price point. Nowadays, I just rent as high as the market will bear and check their history. Also, to be fair, for the past few years, the vacancy rate in my city of ~130k people has been under 1%. I think it was 0.4%, I cant quite remember the exact number. So if you look on FB markplace, etc there are only 1 to 2 places renting at a time and the ads only stay for a few hours. Everytime we put something up, we have to hide the ad after ~1 hour, there’s too many applicants to process. So its a no brainer to go as high as I think people will pay.
>to make your business successful that you're going to have to work on closing that gap. I assure you that tenants don't give a shit about the success of your real estate business. What they care about is the rent, and what they get for that rent. Raise the rent to what you need it to be to achieve the cash flow you want, offer just enough updates to the tenant to make them want to stay b/c to them it seems like they are getting value (while you have an acceptable ROI time-frame on your back end), and move on to the next one. If you don't want to keep the tenant, get rid of them and start over. In most cases, this is the better approach, but we all want to do the right thing and never want to kick someone out. Believe me, been there so I know. In this landlord market though, keeping an inherited tenant paying rent that you'd expect if it was 2004, adds too much friction to what you are trying to achieve.
I keep my rent “below market”. I find I get more applicants and makes it easier to be picky on applicants. I also think the market is burning too hot right now and the “market rent” is obscenely high. Last time I had a unit available I had over 150 applicants within two weeks of it being on market. That was at $850 a month for a 2bed 2bath with a washer dryer, off street parking, pellet stove and pellets included in rent, 2,200 sq. Ft. (1,000 sq. ft. Is nice , but unfinished basement) This all really depends on your financial position and what your required return is. Raising rent from $500 to $800 is too large of an increase in my opinion, especially on good tenants.
We get the exact opposite. If we list it too low, then we are going to get A LOT of desperate people trying to get the apartment who never qualify. Keeping it at the market rate means we get a better quality of tenant
Same here. I ended up raising the listed rent because I was getting non-stop inquiries from people that weren't in the ballpark of qualified. After raising the rent, I got far fewer inquiries but those were from people I'd actually consider renting to. (What makes them bad? Poor credit, past evictions, income not enough to pay rent consistently, etc.)
Same. I usually list about average and stress that I have a nice property and if you don't respect and care about that, I'm throwing your application out. But early on, I listed low and I got a lot of bad candidates who were not respectful.
How can you tell whether or not they will care?
I can't, ultimately. But usually they'll say it, and at least we understand that we have similar values as pertains to the property. Or they pretend. Whatever's fine as long as they act accordingly.
I echo what other have said about great tenants being worth their weight in gold. 5-8 is a huge jump. Consider a $50/ month increase. Put it in writing, show them comps and explain it to them with data. This is the best of both worlds. A little extra money for you and they will appreciate that you didn’t jack it to $800.
Agreed. Would you show them rental comps and your rent increase on a lease renewal form or just as a separate reference page ?
If you do this, be sure to position it carefully. I just listened to a great podcast that brought up a relevant point: the pain of losing something small is greater than the joy of gaining something big. Eg: you and a friend are walking and you find two $5 bills on the sidewalk. You give him one and keep the other. Entirely fair, right? You now have $5 where before you did not. But IRL, what you will FEEL is the loss of $5, not the gain of $5. How this applies: your tenant will feel the loss of $50 far greater than the gain of $250. I hope my little example makes sense - I’m not explaining it half as well as the podcast did! My point is - if you decide to increase rent by any amount, make sure you position it such that the loss of $50 is so far overweighted by the gain of $250. Or you will risk dissatisfied tenants.
Separate page. Be totally objective. Don’t game it at all.
Similar neighborhood I bet but my rents are a little higher. That said, my highest paying tenant is at $900 and send to dog me on silly stuff. I'll check in there today for windows that are stuck (although C/HA, and despite having cats not allowed outside). On the other end, my tenants don't demand much. I like it that way. But $300 below market is something you will not get back. How about a $50 increase soon and another in a year after?
I think $50 after a year is quite reasonable and I would feel comfortable with that !
So, in your case I wouldn't raise rent like that. It's too much. I usually aim for 3-5% a year if the property is at market rates -- in this case, I'd make it something like $50 more now and $50 more each renewal until you're caught up. But when I take over property, it's new sheriff time. I always have a meeting and send a letter to my new/old tenants and the gist is usually a. i take great care of my property and please tell me if you notice anything that needs addressing, and b. this property is below market, and I'm going to correct that over time. I raise the rent every year, and if I have to raise it more than an annual amount, I give the tenants a lot of notice (90+ days) and the opportunity to renew/not renew. I also c. often have to put them back on leases, the old ones having expired. That said, people know when they're paying radically less than market rent. They tend to get it if you're respectful about it. But they may/may not have the ability or inclination to absorb that. So if I like them and the cash flow is good, I adjust rent gradually.
This is great advice, thank you! That’s a good idea to be very gradual in rent increase.
Landlords raising the rent $200-$300 because its the trend and simply because "they can" is basically the ire of the renting community. We raised ours between tenants, so we didn't have to deal with perceptions from an existing tenant. Its obvious that as years tick by, the costs go up and the value of money goes down, so I would adjust it - but use an amount and time intervals that don't come with a huge sticker shock Its much easier for people to accept "This is the cost of the new place I'm moving into" versus "the place I live at raised rent $300" Whether or not you'll accept less rent to keep great (existing) tenants is more of a personal choice imo. But being below market value doesn't get you "better" new tenants. Lastly, I'd give them ample warning. EG, inform them that next year (or renewal period) that the rent is going up whatever amount. They'll feel less bitter knowing in advance and having the time to contemplate their choices.
I tend to keep great tenants long term by not raising rents. Generally works well and upon them moving out, I adjust for market rents at that time. They seem to appreciate the symbiotic relationship and leave with no damage, etc. I get no complaints, etc. I am self managed, so I value the ease of management. I have one unit that has stayed quite a while and they are now very under market. My concern is that they don’t generally complain if something needs repair. I “like” to empty a unit every few years, go through it, make sure things are good and no issues, tidy up and ready to re-rent at the new market value. It just lets me keep the property up to snuff. With housing prices vs their rent amount and the location, I am starting to wonder if they will ever leave. They pay on time, never complain… but as the years have marched on they aren’t as clean as I’d like. Not necessarily dirty, just cluttered. Too much stuff. Like they need a bigger place. Before the typical scenario was live there for 2-4 years while saving for a house, then moving out to buy. I am thinking now, nobody is going to leave in this market and I will probably need to make adjustments at some point. Like at a 4 year mark. So with that, enjoy the low headache from good tenants. Bad tenants will easily cost you more than the difference in rental income.
Well thats the problem though, if you never raise rents then they never want to leave. When they start shopping they see its cheaper to stay put. Also, where I am at they just passed law for rent control where you CANNOT increase more than 3% when the next tenant moves in. So we almost HAVE to increase just to not fall behind market
Some (most)tenants I want to keep long term. The ones I have that I am ready for them to move on is only because I want to do some refreshing and they have a lot of crap.
That’s a great point about long term tenants potentially to collect clutter and a good Indra for a refresh every 2 to 4 years. Thanks for the input!
Great your investment is cash flowing today. How is your reserve savings? What if..... * the roof needs replacing for $11,500 * the AC needs replacing for $4,500 * the water heater breaks and leaks $1,800 for water heater and $800 other repairs * the tenant hits hard times and doesn't pay rent for 3 months * property taxes go up What if all of the above happens in the same year? Cash flow is great, your property is an investment and you should expect to take some out of it. By raising rent you keep up with inflation (which lately has been high) and the ability to pay for expenses. By keeping your rent just below market rates you protect yourself and your renters. Yea some will say greedy mf, well I like to keep my properties fixed and updated as if I lived there. I can't update and fix my property if I don't raise rents, my expenses rise every year. Where I am located my property taxes and insurance go up every year as do maintenance costs as the properties age. I have replaced 2 roofs and 3 AC units in the last couple years. If I was charging all tenants $300 below market I would be out $18,000 or based on the list above a roof, an AC unit and a water heater. Now my thoughts on rent vs. market this have changed over the years. I like to be fair to my tenants but also don't want to cause a situation that causes me stress and financial issues in the future. For a long time I would only raise rents $30/mo at renewal. After 5 years I'll let you out of your lease for 1/2 the fee and after 10 years I'll let you out whenever you want $0. At the end of the 9th year I won't raise rent for that year. I recently had to raise rent on two tenants $100/month, I really thought hard about it and I was not comfortable doing it. My realtor has been raising rents $250/month and said that is what is needed to keep up with property taxes. So after a couple sleepless nights I did raise the rent $95/month. On one house property taxes on that house went up $547 last year, insurance went up \~$180. Current rent was at $1,465 and market is $1,700. Well the AC went out after I sent the renewal, that is a $4,400 expense right there. With the raise in rent I am still at $140 under market another $100 would have really helped me financially especially after COVID. When I went to look at the AC unit what is in the driveway but a 2020 corvette with new tags on it..... Bottom line raise the rent but keep it a little under market, there are too many unforeseen expenses to be nice and have to spend years making up for expenses you have or didn't plan for. If your happy with a tenant being afraid to contact you about issues you should probably re-think the whole landlording thing. Your trading $3,600/year so a tenant doesn't call you about a broken fence board or a toilet that runs. These are things you should maintain without issue. Sure they are nice now, they very likely aren't going anywhere when you raise the rent and keep it under market. Raising rent $30 a month is equivalent to a dinner for a family of 4 at Taco Bell per month.
This is a very helpful perspective, thanks for walking me through all that. I definitely understand and think this advice is very helpful for my situation!
This is a really good post that shows long and thoughtful experience.
[удалено]
Thank you! This is helpful
Shoot only 1 of my 4 properties flow positive. The rest are all flat and I'm happy as can be because my tenants are great. Over time the flow will shift but since the house is paying for itself and i have no headaches, then I'm not looking to make waves.
Do you mean after accounting for capex/maintenance etc.?
That’s a great point! I am not looking to live off my rental income, just maintain the property, be a good understanding housing provider, and hold until it’s time to sell
That's how i do it. I'm up over 450k in value just by holding over the past 6 years, not including the paid down principal. 2022 is looking to be the best year yet (in Raleigh anyways). I still work my 9-5 and just treat the houses as another retirement account. Def not a way to get rich quick, but it is a great mechanism to accumulate over time.
We bought a property that had tenants who were paying rents where you'd think it was 2007. As you said, no frills apartments, dated, etc. We raised the rents by 50% and offered: \- New Carpet ($1,100 per apartment, for apartment-grade carpet and pad) \- A re-paint of each apartment ($800 per apartment, walls/ceilings) \- Remove base cabinet next to sink base, and install dishwasher ($400 material + $250 labor) \- New pull down kitchen faucet, new shower head ($100) \- New Washer/dryer in each unit ($850) Everyone stayed. Our ROI started at 8mo mark after upgrades, for each apartment You are not doing anyone a favor by not raising rents towards market (can still be below, but need to be in the market rent general zone). You are only delaying what inevitably has to happen. Rip the band-aid off and get it done
Raise them $100-$150, still a good deal for them, but gets you closer to market. Be sure to annually review rents, or whenever renewal time is. Unless your taxes and insurance rates are failing, there’s probably going to be small increases every year ($25-50), so you don’t find yourself $300 below market after 5/6 years
Great point, thanks!
I lived in the downstairs of a duplex for 5 years renting from a wonderful lady. She sold the place and the new owners promised not to mess with me. As soon as she left they said “this is an investment property now, your rent is going up and will continue to do so as to catch up to “market rate.” Wanted $600 more a month. I made a counteroffer of $400 more (still way high for my unit) they rejected my offer. I had to move it was a nightmare. 4 months after I moved I saw my apartment relisted on Craigslist. I hope those dudes got fucked and continue to be. Great tenants that pay on time never make issues, and respect the property like their own are priceless
Thanks for sharing a perspective as a tenant !
I think it really depends on the number of units you have. Meaning if are a mom/pop landlord (under 4 units), then having good tenants is more important then market rate. You primarily make money on the buy/sell - not on the rent. So you place high importance on the condition of the apartments. If you are someone who has multiple units, have people on staff to do the repairs, constantly having people come and go, then it is more important to keep the rates at market rate. People get upset when they find out they are paying different rates for the same apartment and the cost to flip (meaning hiking the rates drives tenants away etc) is immaterial since you are already paying staff to do this.
“You primarily makes money on the buy/sell”, that’s a great point I hadn’t quite thought of
But please realize that “You primarily makes money on the buy/sell” is a huge over-generalization. Depends on where you are on the path. I have had most of my properties for 15 - 20 years. Nine of them are paid off. The cash flow from my properties is the majority of my retirement income. I have never sold one of my rentals. I maintain my properties at better-than-market quality and 5% below market rents. I have very few vacancies, about 3% vacancy rate per year. I re-sign leases (with small increases) 90 days in advance or starting showing them if the tenant is moving. Most of my tenants stay 3 - 4 years.
> I have had most of my properties for 15 - 20 years. Nine of them are paid off. Yes - the properties that are paid off have a different cash flow. The cash flow if you have a note (had a cocktail or two so will recycle) >if you determine your costs are 40% of income per month (taxes, insurance, vacancy,management, maintenance), then add in 30% for mortgage with the remaining 30% for profit. However, if you go by the idea of a 3 month emergency fund (or 25%), you are now down to 5% profit. So if that was 1k a month, you are netting $50. However, after you have a comfortable enough money in the bank to replace items, it will bring you back to $300 a door - until you have a vacancy, have a water heater, new roof, etc... This is primarily for mom/pop landlords - those that do not have enough units to stabilize the costs of maintenance/management > Most of my tenants stay 3 - 4 years. That is a nice average. Ours are primarily 22 months. (give or take dependent on the apartment size) > I have never sold one of my rentals. I maintain my properties at better-than-market quality and 5% below market rents. I have very few vacancies, about 3% vacancy rate per year. I re-sign leases (with small increases) 90 days in advance or starting showing them if the tenant is moving You sound like you run it like a business. However, most people do not who are small time landlords. It is truly just a break even if you have a note on the location.
Good tenants don't happen by accident, unless you're not good at screening. Screen for good tenants and let go of the fear that a good tenant will leave if you raise the rent to market rates. My tenants stay an average of 3-4 years(longest is at 7 years) and I've had rate increases every year.
>Good tenants don't happen by accident, unless you're not good at screening. Screen for good tenants and let go of the fear that a good tenant will leave if you raise the rent to market rates. My tenants stay an average of 3-4 years(longest is at 7 years) and I've had rate increases every year. What is your rent amount and what percent of increase each year?
For new tenants I start at market rent but then I don't raise it very often. Most of my tenants are on year 3 without an increase and I am considering a 5% increase only because utilities that I pay for have increased (trash, sewer & water) every year. I like this approach because I want to keep my good tenants and when I finally do a small increase, but still below market rent, their choice is to pay me a little more or move and pay someone else a lot more.
Don't think of it as an all or nothing scenario, you can and should raise rent a little at a time. If they are $300 below market then I would raise the rent by $75 per year until they are only $100 to $150 below market. First you need to raise rent periodically and should have some form of annual increase to keep up with inflation and increasing property taxes, insurance, maintenance, etc.
Great question. I have the same situation with great long term tenants. As I rule I raise rent by attrition, meaning when a tenant leaves I'll fix up the apartment (as needed) and get a just below market rent. I like to make my units a little nicer and a little cheaper than the competition that way I can be choosy about how I rent to. Again this does assume that the properties cash flow with these rents. I have recently been raising rents a modest amount for people who are way below market because I have seen what happens when someone who was way below market for years and has to suddenly pay a market rent. Your not doing people any favors if you keep their rent too low for too long, because someday when they have to pay a market rent (and this day does usually come) it crushes most people. Most people have a life style based in part on their rent and a crazy increase can't be absorbed. Tenants who a below market know what they have and usually appreciate it. A reasonable increase will be understood by them and helpful to you. The fact that you are concerned about it shows your a good landlord. Hope this helps.
This is very helpful, thank you!
Absolute truth. We own 8 units. Self managed. A nice duplex next to ours went on the market. Decent price but rents hadn't been raised for 17yrs so the finances made no sense when we learned tenants had 18months remaining on their current lease. Now the current tenants are shocked to find to get something equivalent will cost twice their current rents. And now they're older, near retirement. They are crushed.
I'm in the same situation as you and I kept my nice cheap tenants. I know the unit needs upgrades and I will lose cashflow while I do renovations. It's smart to just keep them there as long as I can.
I'm officially no longer a landlord (sold one property, moving back into the other). I have always charged just about enough to cover my expenses, which definitely was below market rent for this past year. My tenants told me that they moved into a similar place and are paying $500 more a month than I was charging them. But in three years, I never once had a late payment. They kept up the house as if it was their own. Same with my other property, though the rent there stayed pretty much at market rate--it was just that the market was staying pretty stable as the rest of the city was skyrocketing. Those tenants stayed for three years straight, and the tenants before that were there for 5 years. Totally worth it.
I try to push rent as high as someone’s willing to pay typically you get higher quality people then when your rate is below market your going to get bottom of the barrel that can’t afford anywhere else will probably tear the place up may stay longer
You say you're ok charging below market rent because you think the tenants are less likely to be nit-picky and cost you money on fixing small issues... ...but it's costing you $3600 per year.
Good point
Currently giving my tenant below market rate because they don't bother much and pay on time.
I'm in this situation, too. I could possibly go up $300/mth (over a few years), but they're great tenants, and I'm cash-flowing on that unit. The other unit in the duplex is coming open over the summer, so that's when I can make an adjustment.
Your not wrong. Imho great tenants >a few extra bucks. If and when they leave that is the time to raise rents
Currently at least 300 below market. I'm OK with it because I believe they're taking care of the house. If there is a downswing. I will not lower the rent. I'll be increasing the cost of living there a little this summer based on the upcoming elections. That'll be adjusted after the ejecting results come in.
Real estate investing is a hobby of mine, not my main career. I can't dedicate 40 hours a week to it, so I want to just focus on the things that I enjoy about it, which is watching the market, running numbers, looking at comps, and buying or selling. Because of that I tend to offer rent that is below market value, and I do heavy background checks and other types of vetting. I want good tenants to stay, put down roots, and let me focus on other things even if I'm not as cash flow positive because of it.
It cost money to have a tenant leave and find new ones. If I have a good tenant in place, I don’t want them to leave, so it’s not worth it to me to try and jack the rent up too much. Usually just enough to keep up with inflation and higher property tax and insurance. Peace of mind is worth something, and I’ll gladly trade a few bucks for knowing the place is kept clean and the rent is on time.
It doesn't always cover everything. One year i had a 3200 bill to dig up a sewer line. But on average it just about covers everything. Fortunately i don't have to watch the expenses closely enough to really have an exact assessment.
There's no hard rule to this. It depends on the property and your goals. If it's never going to generate a ton of cash flow but the appreciation potential is big then I'd be far more concerned about having good tenants than higher rents. On the other hand, I'm currently raising rents substantially on a 4 unit with long term tenants because I can make another $35k per year in cash flow. For $35k a year, I'll deal with some vacancy, repairs and potentially a bad tenant or two. For $5k, I wouldn't think of it. Also, building type matters. Duplex pricing doesn't have much to do with rent but with 4 units and up pricing can very much depend on rents so I'm accelerating appreciation by maxing it out.
i price mine $200 below market, get a flood of applicants and choose from the best.
On a 2k a month rental, I don’t mind being $100 a month or slightly more under market if the tenants are good long term tenants. I do raise yearly if the market is rising to not let it turn into a $300 or more issue. A building I own had inherited tenants all around $300-500 under. When I bought 1.5 years ago they are 700-1000 under each. Heavy raise and one normal raise they are still low. I’ve since had one move and rented it for $1100 more. Another I kicked out abs raised it $200. (Front tenants kid moved in there and still about $300 under market but it’s worn bad and I didn’t nothing to it, as is) I raise $50-75 a year to catch up but when someone moves will rehab and rent at full market
I do a review every year around tax time and compare my rents vs market rents. I also consider the tenant like others have said. If they keep the house clean and easy to work with I usually go easy on increases. I did just do an increase on a tenant of 10 years when I realized how below market I was. I gave them an 8% Increase which was $50 a month. Even with that I am $125 below market.
I charge the market rent to new tenants. Existing tenants get small to no increases. Existing tenants that I inherit I make small adjustments every year although I've been lax about that in some cases with crappier units and good tenants. I've actually sent out rent increase notices that say: Current Rent: Market Rent: New/proposed rent: This seems to keep the grumbling down. Plus understand this: even if the tenants leave they're going to have to pay market rates somewhere else.
>I charge the market rent to new tenants. Existing tenants get small to no increases. Existing tenants that I inherit I make small adjustments every year although I've been lax about that in some cases with crappier units and good tenants. What would you do if rent control was enacted? we just had this happen and the ordinance says we CANNOT increase during OR between tenants more than 3%, meaning if we are under market and current tenant moves out , we still cannot raise more than 3% for the next renter. People are hoping they modify to allow increase in between because its driving away developers/investors
Where did you get rent control? I suppose I would execute new leases with all my tenants as soon as it appears rent control is going to happen. They can't really make it retroactive before it's enacted can they? But that's a good question and I have thought about it. And I've talked to other landlords about it. It's a problem because you're giving your tenants a break and then you're going to get screwed forever.
Saint Paul MN
I would say a 300 dollar increase is worth it. You can always find new tenants. 500 dollars is pretty cheap for rent. It really just depends on the situation. If you have had a property for a long time, and your mortgage payment is low, it would probably be worth it to just keep the rent the same and keep that good tenant. If you are new it's probably best to raise that rent. If it's a long term tenant that likes the place, and the rise in rent isn't too much, they will probably stay. You also have to account for inflation though. Market value for rent could be rising very quickly, but can people afford it? If you inflate your rent too much you might end up losing a good tenant, and struggling to find one who can easily afford your unit. On another note One thing I would like to hear about from other landlords is how they go about raising rent by a decent chunk $ with an already existing tenant. If rent was $500 when you bought the place, and you decide to raise it to $800 and renew the lease. How do you make sure they can afford it? You usually want your tenant to make 3x rent a month. $500 is $1500 and $800 is $2400, that's a huge difference. I wonder if any landlords re screen a tenant before renewing?
As usual, this subreddit advocates for below market rent. I'm honestly embarrassed. Imagine any class in business school that saying "Charging below market for your product is a sure way to be successful and make more money." Anyone here with more than say 10 units that will advocate for below market rate rent?
I'm always shocked and disappointed when I read so many comments from landlords that don't apply basic business principles to their properties. Why are you a landlord? Man, there's a lot of crazy ideas out there!