For anyone who is interested in helping a local Georgia investor, I would greatly be appreciative. I have owned rental properties for the last 2 years now and now own 15 residential rentals. The market is ok out here but my question is this: When and how often should you raise rents? Most of my properties are on lease purchases, so the tenants have an “interest” in them. The thing is, I originally did 1 year contracts to begin with and they are now expired, going on a month to month basis and these people still have junky credit and can’t buy. I just had a tax increase on a few properties making each of my payments go up (killing my cashflow where I am breaking even, losing money, or making just a couple of bucks). I need a seasoned investor to tell me their opinion on when is the best time to raise rents and what should I do with my lease purchasers who still live in my properties; should I go up on them and how should I go about it? Also, could you recommend any books, audiobooks, or other websites to check out on this subject?
brandgt,
You now know the truth about lease options. Lease option “buyers” are really nothing more than renters. Someone with bad credit today is very likely to have bad credit tomorrow, next year and ten years from now. The reason is that bad credit is usually a symptom of a character flaw, not external factors.
Therefore, it is absolutely essential that you operate lease options like any other rental property. Buy low and ensure that you will have positive cash flow. The lack of cash flow is the number one reason that the vast majority of new landlords don’t make it.
Raising the rent is much more difficult in reality than the guru nonsense. Rents are market driven. If you rents are already at market rates, raising rents will result in vacancies that are difficult to fill. So, the answer to your question is to immediately start raising the rents if your rentals are underpriced. If your rents are at market rates, you’re stuck.
Good Luck,
Mike
Mike,
thanks for the reply! I have finally realized that lease optioners are nothing more than “glorified” renters. The thing is that I really don’t know about how I should go and raise the rents to make my cashflow better. I know that all of my properties can go at least $50-$100 more than they did when I originally bought most of them 2 years ago. Should I send the tenants letters or should I call them personally? If I should type letters and send them out, what kind of verbage should I include? I use the John Adams Killer lease, so I can actually just raise the rents anytime I want; I just never have done it yet! Thanks for taking the time to help me out with your mentoring.
Here’s the issues for me:
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Market rent. I’ll check it out first before raising them. In the last 24 years here, it’s usually up, except in the last down market where it dipped for while.
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Is it worth my while if the tenant moves?? If I want $50.00 more on a $1,200 unit, and it takes me one month vacancy to turn it around, plus the cost of cleaning and painting, I’m not ahead of the game, and it’ll take me a few years to make it back.
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Where I am, depending on market rents, adding $100.00 or more may cause a tenant to move, unless I’m waaaayyyyy below, which I’ve been in the past, like $400 below market. In this case, I had the tenant there over 12 years, fixed roofs, gutters for free, and even respackled all the sheetrock joints when the house settled, and opened up. Did not ask for re-imbursement.
Fifty dollars or under increases is not worth moving expenses for the tenant.
- Mention to the tenant expenses are up. I was providing mowing and tree trimming service, and to keep expenses down, my tenant volunteered to do lawn and trimming service. I had tenants do it in the past, did a terrible job, so I stressed it’ll have to be up to professional standards.
brandgt,
I would put the rent increase in writing, then either send it to them or hand it to them. Just make it short and to the point.
Dear xxx,
You are a valuable client. We do everything possible to keep rents low. However, despite our best efforts, expenses continue to rise and we will therefore be raising your rent to help offset the additional costs. Please be advised that beginning with the April 2007 payment, your rent will be $700. Thank you for your understanding.
Sincerely,
brandgt
Looks good Mike, shows the tenant you’re not raising it to get rich but as expenses grow so must the rent. Most people with a brain no the cost of living is way up so hopefully most would understand based on that letter.
Thanks for everything, everybody that replied. This does help and I am probably going to enforce some raised rents here shortly; $25-$50. Thanks for all of the help