{"id":3812,"date":"2022-09-22T04:05:47","date_gmt":"2022-09-22T04:05:47","guid":{"rendered":"https:\/\/imsfund.com\/?p=3812"},"modified":"2022-09-22T04:05:47","modified_gmt":"2022-09-22T04:05:47","slug":"how-to-stop-charging-below-market-rent","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2022\/09\/22\/how-to-stop-charging-below-market-rent\/","title":{"rendered":"How to Stop Charging Below-Market Rent"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\"><button class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<h2 class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/h2>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">Having an occupied property rented substantially below market price is a problem that\u2019s afflicted many real estate investors. Every month a property is rented below market rate is lost money (or at least, the opportunity cost of lost money). Yet, jacking the rent up will likely lead to a vacancy and even more lost rent, at least in the short term. You will also likely have an angry tenant on your hands and definitely might carry the bad karma of pushing someone to move out of the home they\u2019ve lived in, potentially for a long time.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So what should you do?\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Should you leave the rent in place? Not renew the tenant\u2019s lease? Bring the rent immediately to market price? Somewhere in between?<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Unfortunately, there is no perfect solution because much of it depends on your situation and what you are looking to accomplish. Fortunately, there are guidelines to help.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">How Below-Market Rent Typically Occurs<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">This article will not go into how to find and set the market rent price for a property. (For that, see\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/how-much-to-charge-for-rent\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">here<\/span><\/a><span data-preserver-spaces=\"true\">.) Instead, it will focus only on what to do when a tenant is paying well below market rent.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">First, however, there are typically three reasons why you will find yourself in this position. Knowing these can help you prevent yourself from getting into this position in the first place.<\/span><\/p>\n<h3><span data-preserver-spaces=\"true\">1. Inherited residents<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Sometimes we buy properties that already have a tenant in them. This is virtually always the case with multifamily properties. Fortunately, tenants often know that when a property changes hands, the rent will likely go up (especially if the new owner makes capital improvements). This is why many are nervous when hearing a property is up for sale. But it also means most won\u2019t be surprised when they see their rent increased.<\/span><\/p>\n<h3>2. <span data-preserver-spaces=\"true\">Not raising rents annually<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">I would argue that you should always raise the rent upon renewal, even if it\u2019s just $5 per month. You do not want your tenants to be surprised by a rent increase. Many smaller landlords find themselves with severely below market-rented properties because they refuse to raise the rent (or don\u2019t come close to keeping up with the market). They do this often because they\u2019re afraid of a vacancy. But it ends up costing a lot more to have a severely under-rented property. So, make sure to raise rents every year.<\/span><\/p>\n<h3>3. <span data-preserver-spaces=\"true\">Long-term month-to-month tenants<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Normally, landlords don\u2019t allow month-to-month leases upfront. In my company, if we switch to month-to-month at the end of a lease term, we charge $100 to $250 extra per month. Still, sometimes you find yourself with a long-term tenant on a month-to-month lease. And since there is no renewal date, there\u2019s no reminder for you to increase the rent. This has even happened to us with month-to-month tenants who have lived in the same property for three or four years, and all of a sudden, their previously above-market rent is now below-market.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Again, you can\u2019t be afraid to lose someone by raising the rent. So, make sure to put your month-to-month tenants on an annual rent increase schedule, just like with annual leases. Setting up a reminder in any property management software shouldn\u2019t be hard.\u00a0<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Why This is So Important<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">In the current economy, I would contend a fourth reason has entered the fray: It is very hard to keep up with this scorching hot market.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">It used to just be when we inherited a resident who lived in a property before we purchased it or an old month-to-month lease that fell between the cracks. But now, it feels like just about everything we lease is below-market rent. And I can say confidently that it isn\u2019t just us who feel this way.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Nationwide, rents haven\u2019t shot up as much as real estate prices, but they have still gone through the roof. A recent\u00a0<\/span><em><span data-preserver-spaces=\"true\">Realtor.com<\/span><\/em><span data-preserver-spaces=\"true\">\u00a0report found the median asking rent for properties on the market\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.realtor.com\/research\/april-2022-rent\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">has gone up 16.7% year-over-year<\/span><\/a><span data-preserver-spaces=\"true\">, substantially\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.shrm.org\/resourcesandtools\/hr-topics\/compensation\/pages\/2022-salary-increases-look-to-trail-inflation.aspx#:~:text=WorldatWork's%202021%2D2022%20Salary%20Budget,market%2C%22%20the%20organization%20reported.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">more than wage growth<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0and even more than inflation in a very high inflation year.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">This, of course, varies by the city and state, with some seeing even higher rates of rent growth. A recent Rent.com report\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.rent.com\/research\/average-rent-price-report\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">finds even faster rent growth<\/span><\/a><span data-preserver-spaces=\"true\">, with some metro areas having truly obscene year-over-year rent increases. From their analysis, for example, Newport, Virginia, and Greensboro, North Carolina, had increases of 74.2% and 60.7%!<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Yet these rather shocking statistics are a bit misleading. The issue is that they are only comparing new rental listings with those from last year. As\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.npr.org\/2022\/06\/09\/1103919413\/rents-across-u-s-rise-above-2-000-a-month-for-the-first-time-ever\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">NPR notes<\/span><\/a><span data-preserver-spaces=\"true\">,<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cGovernment consumer price data show that the average rent Americans actually pay\u2014not just the change in price for new listings\u2014<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/data.bls.gov\/timeseries\/CUUR0000SEHA?output_view=pct_12mths\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">rose 4.8%<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0over the past year, which is a higher than usual rate of increase.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So, if rents went up almost 17% last year, but the average tenant only paid just shy of 5% more for rent, then that would infer there are a lot of occupied properties with tenants paying below market rent these days.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Below-market rented properties are an endemic problem for landlords right now.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Understanding Tenant Psychology<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Tenants are not surprised to see rent increases. Unfortunately, they are surprised (and quite upset) to see really large ones. Indeed, we\u2019re starting to see more and more pieces in the media about\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.cnbc.com\/2021\/11\/01\/rents-are-bouncing-back-what-to-do-if-you-expect-a-big-increase-.html\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">the outrage of large rent hikes<\/span><\/a><span data-preserver-spaces=\"true\">.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">We have even heard prospects tell us they didn\u2019t renew their lease simply because the increase was too high despite the fact it was actually less than we were charging. Investor G. Brian Davis makes\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/sparkrental.com\/6-tricks-to-raise-rents-without-losing-tenants\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">a similar point<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0based on his experience,<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cA good rule of thumb: don\u2019t raise the rent by more than 5% per year. Any more and the sharp rent increase often jolts the tenant into moving\u2014even if you\u2019re raising the rent no higher than nearby market rates.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Of course, this is assuming the property was rented at market rates beforehand.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Still, Brian\u2019s thoughts fit with\u00a0<\/span><a class=\"editor-rtfLink\" href=\"http:\/\/www.buildium.com\/wp-content\/uploads\/2017\/06\/2017_Renters_Survey.pdf?ref=hackernoon.com\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">a survey of 1166 renters<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0Buildium did a few years back. As they found,<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cMost tenants will only tolerate a rent increase of 1-5% every 1-3 years, while nearly one-third feel a rent increase is never reasonable.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Even back then, a raise of 1-5% every 1-3 years wouldn\u2019t come close to keeping up with inflation. The average tenant (like everyone else) isn\u2019t always the most realistic.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But still, it\u2019s important to understand that people don\u2019t like big changes, especially negative ones. And in negotiations, if someone feels insulted, they will often refuse to do a deal even if it makes sense. While I don\u2019t recommend negotiating lease terms with your tenants, even a simple \u201ctake it or leave it\u201d request is a negotiation. And increasing the rent to market price in this rental market can come off as insulting.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">How to Decide<\/span><\/h2>\n<h3><span data-preserver-spaces=\"true\">Ethical considerations<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">So, what should you do?\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">First and foremost, some people feel guilty about raising the rent to market rates, especially if it\u2019s a long-term tenant who is paying substantially under market. And even more so if raising the rent to market will likely require them to move.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The most important thing to internalize here is that there is nothing immoral about charging the market rate. It may be jarring to some tenants, and they may even get mad at you. But you could simply turn it around and note that they have been living in that home at a discount for some time. Of course, the discounted rent was what had been agreed to, so they were not doing anything immoral either.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Thereby, I would lean toward seeing this as simply a business decision. That being said, if you are in a good and comfortable spot and can afford to charge your tenant less than market and feel that would benefit them more than the extra money would benefit you, then go ahead and charge less.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Just see it as an act of charity and not a business decision. But also, understand it is an act of charity you won\u2019t get any credit for.<\/span><\/p>\n<h3><span data-preserver-spaces=\"true\">Financial considerations<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">According to RealPage.com, on average,\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.realpage.com\/analytics\/apartment-renters-renewing-leases-record-levels-even-rents-increase\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">57% of tenants renew their lease<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0each year, up substantially from 2010.<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><picture class=\"wp-image-144791 sp-no-webp\" title=\"Are You Charging Below-Market Rent? Here's How to Get Out of It 2\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM.webp 745w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM-300x158.webp 300w\" sizes=\"(max-width: 745px) 100vw, 745px\" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM.png 745w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM-300x158.png 300w\" sizes=\"(max-width: 745px) 100vw, 745px\" type=\"image\/png\"><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM.png\" loading=\"lazy\" class=\"wp-image-144791 sp-no-webp\" title=\"Are You Charging Below-Market Rent? Here's How to Get Out of It 2\" alt=\"us renewal conversion\" height=\"392\" width=\"745\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM.png 745w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.56.43-PM-300x158.png 300w\" sizes=\"auto, (max-width: 745px) 100vw, 745px\"\/><\/source><\/source><\/picture><figcaption><em>U.S. Renewal Conversion and Renewal Trade Out (2019-2022) \u2013 <a href=\"https:\/\/www.realpage.com\/analytics\/apartment-renters-renewing-leases-record-levels-even-rents-increase\/\" target=\"_blank\" rel=\"noreferrer noopener\">RealPage<\/a><\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">That means, in normal times, you have a greater than one-third chance of having a vacancy each year.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Now, I think you can do better than that by offering a good property with quality maintenance. Indeed, our average stay is about four years, and Jeffrey Taylor (Mr. Landlord) has boasted of getting to six years with\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/2016-06-15-real-estate-investors-learn-mrlandlord\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">his unique property management ideas<\/span><\/a><span data-preserver-spaces=\"true\">.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But there are good ways and bad ways of getting low vacancy. And keeping your rents really low is a bad way.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">For example, let\u2019s say Bob and Fred both lease identical properties at $1000\/month. Bob increases his rent by only 1% each year while Fred increases it by 5%. Bob has no vacancies (best case scenario), whereas Fred has a move out every third year, and the vacancy lasts two months, and he incurs $1000 in turnover expenses above what the deposit covers. (We won\u2019t count maintenance or capital improvements as we\u2019ll assume they are the same.)\u00a0\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Here is what the ledger would look like:<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><picture class=\"wp-image-144786 sp-no-webp\" title=\"Are You Charging Below-Market Rent? Here's How to Get Out of It 3\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM.webp 630w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM-300x147.webp 300w\" sizes=\"(max-width: 630px) 100vw, 630px\" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM.png 630w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM-300x147.png 300w\" sizes=\"(max-width: 630px) 100vw, 630px\" type=\"image\/png\"><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM.png\" loading=\"lazy\" class=\"wp-image-144786 sp-no-webp\" title=\"Are You Charging Below-Market Rent? Here's How to Get Out of It 3\" alt=\"ledger under rented property\" height=\"309\" width=\"630\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM.png 630w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/Screen-Shot-2022-09-21-at-1.29.21-PM-300x147.png 300w\" sizes=\"auto, (max-width: 630px) 100vw, 630px\"\/><\/source><\/source><\/picture><\/figure>\n<p><span data-preserver-spaces=\"true\">Despite the extra vacancy, Fred still does better by over 10% and brings home about $15,000 more.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So, in general, with all things being equal, it makes sense to increase the rent to market. This is especially true with apartments as the value of an apartment is directly related to its income, unlike with a house or even a duplex. This is because the value of an apartment is based on its\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/cap-rate-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cap rate<\/span><\/a><span data-preserver-spaces=\"true\">, which is determined by taking the net operating income and dividing it by the purchase price.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">A lower rent means a lower net operating income which means a lower price.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">However, there are times when it\u2019s not wise to push rents to market. Everything depends on your situation, as I noted above.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">For example, if you have a glut of rehabs or turnovers right now, you should be more conservative with rent increases. This issue has haunted us at times as we are constantly growing. In such times, we know extra turnovers will cause additional holding costs as we don\u2019t have the resources to start more new projects.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So, if we get excess turnovers, we may have to leave properties empty for a month or more before work can start on them. By looking at our business holistically, we see that while it may make sense to increase the rent to market for that property by itself, it doesn\u2019t make sense for our business.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Another possibility would be if the property is not in particularly good condition. Perhaps it\u2019s being rented below market because, in part, it\u2019s not in marketable condition. In this case, the two options you have are:<\/span><\/p>\n<ol>\n<li><span data-preserver-spaces=\"true\">Increase the rent to market for its condition (i.e., from $500 to $750\/month instead of a market rate of $1000).<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Give the tenant notice to vacate. This is tough but often the best choice. If you want to be kind, you can offer to pay for some of their moving expenses. (Or you may have to\u2014see the next section.)<\/span><\/li>\n<\/ol>\n<p><span data-preserver-spaces=\"true\">Lastly, you may decide to move the tenant to market incrementally over several years. For example, if they are at $600 and market price is $1000, go up to $750 next year, then $900, then to market.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">This is tempting and can make sense sometimes. But I would recommend against doing it simply because it feels better than increasing the rent straight to market. If you do it incrementally, it should be because it\u2019s the most economically rational thing to do.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">In general, however, the rule of thumb is that you should lean on the side of raising the rent to its market level as quickly as possible.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">However, this particular rental market may be an exception. Rents are going up at an unsustainable rate. You can get a substantial rent increase and likely do so without a vacancy, even without going all the way to market levels. In this abnormal market, it probably makes sense to have your rent increases be a bit under market. (Maybe 10% instead of the national average of 16%, for example.) Rent increases will inevitably slow, and you should be able to catch up soon. And this way, it\u2019s less likely to offend your tenant and have an unnecessary vacancy.<\/span><\/p>\n<h3><span data-preserver-spaces=\"true\">Legal considerations<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Lastly, it\u2019s important to understand that some cities and states restrict how much a landlord can charge in rent or increase the rent per year. For example, in New York City,\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/hcr.ny.gov\/rent-control#:~:text=Control%20Rent%20Increases-,Rent%20Control%20Rent%20Increases,rent%20for%20each%20individual%20apartment.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">some apartments have rent control<\/span><\/a><span data-preserver-spaces=\"true\">. And in Oregon, they\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/bungalow.com\/articles\/oregons-rent-control-law-explained\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">passed a law<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0restricting rent increases to \u201c7% plus inflation annually.\u201d In addition, if landlords give a \u201cno fault\u201d eviction notice, it must be served 90 days in advance, and the landlord must pay a relocation assistance fee (one month\u2019s rent).\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So, make sure to check your local and state laws and act accordingly.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">How to Actually Raise the Rent<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">One of the most important things to understand in business is that people get more upset about their expectations not being met than bad things happening. This is why it\u2019s so important to set expectations right from the get-go. You should tell people during their lease signing that rent will likely go up each year. It\u2019s not a bad idea to say a similar thing to the residents after you buy a property with inherited tenants too.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">When you do send a rental notice (usually 60-days before their lease ends), I would do so in writing and not over the phone. It\u2019s probably wise to both mail and email the notice. The notice should be respectful and professional and include a brief explanation if it\u2019s more than a 1-3% increase. For example, \u201cinflation has increased substantially\u201d or \u201cthe property has not seen a rental increase in four years.\u201d Say \u201cproperty,\u201d not their names. Otherwise, it sounds like you\u2019re accusing them of mooching or something like that.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">This will allow them a chance to cool off if they get mad about it and also not commit themselves to moving if their first response is anger. (It\u2019s also important to have everything in writing.) If they do call angry, stay calm (people will mirror the tone of voice of the person they\u2019re talking to) and explain the reasons for the increase. Like with the letter, I would try to keep the explanation short and to the point.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">An example letter can be found\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rent-increase\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">here<\/span><\/a><span data-preserver-spaces=\"true\">.\u00a0<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Conclusion<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Generally, it\u2019s important to keep up with rent increases to avoid finding yourself in this situation. But particularly in this market, you will find yourself with a below-market rented property from time to time. The key is treating the tenant fairly but approaching this as a business decision. Because in the end, that\u2019s what this is, business.\u00a0<\/span><\/p>\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block    has-background has-slate-200-background-color has-text-color has-slate-900-color\">\n<div class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 w-full \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Run Your Numbers Like a Pro!<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. <em>Real Estate by the Numbers<\/em> makes real estate math easy, and makes real estate success inevitable. <\/p>\n<p><\/main><\/div>\n<div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n<picture class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md sp-no-webp\" title=\"Are You Charging Below-Market Rent? Here's How to Get Out of It 4\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Real-Estate-by-the-Numbers_final-front-scaled-e1661971447625.webp\" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Real-Estate-by-the-Numbers_final-front-scaled-e1661971447625.jpg\" type=\"image\/jpeg\"><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Real-Estate-by-the-Numbers_final-front-scaled-e1661971447625.jpg\" class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md sp-no-webp\" title=\"Are You Charging Below-Market Rent? Here's How to Get Out of It 4\" alt=\"Real Estate by the Numbers book cover\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Real-Estate-by-the-Numbers_final-front-scaled-e1661971447625.jpg\"\/><\/source><\/source><\/picture><\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-stop-charging-below-market-rent\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article Having an occupied property rented substantially below market price is a problem that\u2019s afflicted many real estate investors. Every month a property is rented below market rate is lost money (or at least, the opportunity cost of lost money). Yet, jacking the rent up will likely lead to a vacancy and even [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":3813,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/09\/below-market-rent-1024x517.jpg","fifu_image_alt":"","footnotes":""},"categories":[9],"tags":[],"class_list":["post-3812","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/3812","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/comments?post=3812"}],"version-history":[{"count":1,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/3812\/revisions"}],"predecessor-version":[{"id":3814,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/3812\/revisions\/3814"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media\/3813"}],"wp:attachment":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media?parent=3812"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/categories?post=3812"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/tags?post=3812"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}