Immediately Raising Rents After Purchasing A Property
I am in the process of purchasing a 3 family house that is fully occupied. The renters are all paying $775 a month, with heat included. Similar units rent for $750-$775 a month without heat included. I calculated that the heat would cost me $4k per year or $111 for each unit every month. I feel that I am justified in immediately raising the rents to around $875 per month, since this is what it would cost the renters to rent a comparable apartment with having to pay their own heat. From your experience, will I have a mutiny since I would like to raise rents $100 a month for each tenant at one shot?
Are thereurrent leases in place? That might prevent you from raising rents. 100 per month is pretty steep unless you plan on giving them something. I would guess that you could possibly loose more than you gain due to vacancies during the rent increase. Try 50 and then 50 again. I would think that would be better than having 30 to 60% of your current cash flow.
Good luck and make $$$
Tom
is there rent control that governs increases?
There is no rent control.
Check with your attorney first. Property is purchased SUBJECT TO existing leases. You have to honor the terms and conditions of the existing leases.
Rent increases can be given at lease expiration. A smart lawyer and a savvy tenant can tie you up in court and cost you far more that your premature rent increase would have generated.
Just to keep the peace, after checking your contractual responsiblities, I'd suggest waiting until fall to raise the rents. Your new tenants might think it just a bit opportunistic to do it now, when the heating bills are so far away. Could cause dissent and problems.
Leases always stay with the property. So if a tenant has a lease (either written or not written), it stays with the property even when the property is sold.
I am not a fan of raising rents immediately. Vacancies are really expensive. It takes me about 6 weeks to rerent a unit (I am very picky). If you are in a low rent area your tenants will just get up and leave with no notice so you will be out of rent for how long? Hey, how long will it even be before you know that they are gone. So I have loss of rent, I have to place an ad in the paper ($100), answer a zillion phone calls from unqualified kooks, meet more unqualified kooks at the property, repaint and repair the unit ($????) after the old tenant leaves, do the paper work and hassle with making a claim on the old tenants security deposit, maybe have to worry about storing left over belonging of the old tenant, turn on the electric in your own name to show the unit ($75), etc.
New tenants are an expensive hassle.
Brenda
Sounds like you have at least a $4000 incentive to separate the heating systems.
You can probably get all 3 apartments onto separate heating for less than $4000.
And when the lease is up, you tell them that they are responsible for their own heating.
Personally I would do this even if it cost more than $4k, but I was just illustrating the point that you will have earned back the cost of conversion in less than a year.
As for this year, you are bound by the lease. And may not be able to share the cost of their heating.
Good Luck,
N.
You want to know if you'll have a mutiny on your hands? Look at the income ranges of the tenants in your building. I would guess that most of them couldn't afford an extra $1300+ for their housing expenses.
A hard lesson I've learned in the last few months is that a higher rent is great if you have someone who's going to stay there and continue to pay. It doesn't do you any good if you raise the rent and your tenants leave. The true money maker is having your units always occupied. Think of an empty apartment as a loss $775 every month. I doubt you'd be able to pay the mortgage after too many of those types of months.
So, you figure on getting an extra $111 a month from each tenant. Well, if you have even 1 leave on you and you can't get someone else in that apartment in say 3 months you've just LOST $2100+. With only 3 incomes I'd say you should try to limit your rent increases. It's a feeling out game. It's also important that you communicate effectively with your tenants so they know why and your why better seem realistic.
Good Luck!
I too think that trying to get full market value on the rents is asking for trouble in all but the tightest markets. Generally a rent increase of $20 or less and people will stay (nuisance rent increase) over $20 and statistically unless they have one heck of a deal they will start to move.
I would separate the heat out if possible (ebay has a lot of furnaces cheap!) and get them to pay their own and keep the rent the same.
In most states you must let them know at least 30 days before an increase and at times 60.
Good Luck
[addsig]
Hello,
What we've done is raised the rent when the inherited tenant moves out.
We also include all costs in the rent. People in our area seem to really like that. We've also found that when we include utilities in the rent, we rent our units in about five days.
Thanks,
OTW :-D
I would consider the history of all the tenants. If they are good tenants (Pay on time, don't give trouble) then I would suggest that you wait a little while before you try to make drastic changes. Tenants are always worried that changes in ownership will be to their disadvantage and if you jack up the rents immediately, this will only serve to confirm their worst fears and make you out to be the bad guy.
Have you considered decreasing the rents to $750 or $730 and eliminating utilities? Let them pay for their own utilities if it is becoming a problem for you.
Lastly, I would suggest that you lokk at the numbers. Don't increase the rent just because you can, if the property is in a significant cash flow position already why rock the boat?
My 2 Cents!!
JS.