Is it okay if we increase rent over market?

If a resident is paying close to market rent, and has been paying it for over a year, is it okay if we increase their rent over market?

Yes you can as long as you do for all. it’s just not good to do that unless you raise market rents.

agreed. Just raise market rent so that there is no question. Easy peasy

What does your lease say?

it says that we cannot increase their rent over 5% every 12 months.

So once the year is up you can....don't forget you have to give 30 day notice of the increase....or the amount of notice your lease says...we recertify everyone once a year unless income has increased more then $200 per mo.... (government funded????)

Why?

their rent is $1,675 and market is $1,695. They’ve been paying $1,675 for 18 months. We just increased them $25 up to $1,700 which is $5 over market. Is that bad?

my question is why would you treat an existing customer “worse” than you do someone walking in off the street. No problem charging them, bit is that whatnot really want to do. If the market rate has increased then up the market rent.

If you just increased their rent according to your lease wouldn't you have to wait for a year to add additional increase

Was this a decision by the property owner to raise rents?
For good tenants who aren't late with rent and no complaints by neighbors, I would have left his rent alone for one more year. Then provide a 3 month warning of increase near the end of the lease.

I would increase the market then increase all

Yes upon renewal

Wow I am so glad that I have retired from this industry. In a COVID crisis you are actually contemplating increasing someone rent.... i get this in other situations but this industry is one of the most heartless when it comes to getting that extra dollar. And depending on the management company it doesn’t even benefit the under paid employees. But keep increasing the rent. That’s great for retention! In this climate.

While I completely understand your overall point and agree (somewhat), the fact is that we are paid to operate a for profit business. If there is a way to increase profits it's part of our job to do that. Presumably anyone that's had issues to this point with COVID losses has worked those out, and anyone still staying is relatively unaffected? We had a resident reach out to us asking for no fee to break their lease 'in these trying times'....because they'd bought a house. As an aside, I've noticed that this isn't a reaction I see much when other industries increase their prices (which they all do, right?), but for some reason it seems to be acceptable for the multi-family housing industry.

first your statement regarding recovery is sketchy. Second management companies increase rent without increasing benefits. Most industries that increase their prices upgrade their product. You cannot sell a 1994 Honda Civic with no paint job, no tune up, no new transmission or no new anything else for more than it was worth in 1994. However, in property management you can. Even if the asset has not improved in anyway. IJS

Very good point! And YES! Corporations can be pretty heartless, for sure! But they do work for the owner as well. But yes, there is a bit of a blood-sucking nature to this industry. But it is true that each year the cost of operating a community does go up. And we do live in a capitalist system, which means the-more-money-the-better. The owners where I work at are very caring, and we're one of the only communities that pays for ALL the utilities, except for electric. Their motto is that we should be increasing someone's rent once a year, but their increases are VERY low.

but that Civic hasn’t had the tax liability for it go up. It’s the same if you were to BUY a house. My 2002 house would fetch almost double what it was bought for in 2002.
Cars immediately devalue as soon as the drive off the lot, real estate generally does not decrease. Cars are not a great comparison.

well that that makes sense. I understand a rent increase when all utilities are included.

I thought this industry would struggle during the pandemic but it is the complete opposite. My property is 100% occupied and 100% leased in AZ. My renewal increases have not been much. Anywhere from $20-$40 depending how below market they already are.

you are correct cars depreciation in value. However, when you are leasing a home this is not consider and asset and said apartment will decrease in value if a management company does not upgrade or improve the unit. Going back to my analogy you cannot lease a 1994 Honda for more money period. Hence, the car analogy works.

plus I am pretty sure that these owners are getting tax credits and are able to write off a lot of this debt.

we are increasing rents, it's not right im my eyes but I'm not the owner so I must

I see your point, it is gross when no improvements are made. However, I see the financials at a class A-B and there’s A LOT of costs. It’s not as much income as you’d think. Of course, we are constantly making improvements and fixing stuff....

I understand. I remember those days and how you have to justify the increase in rents while there are 6 open work orders on that same apartment that have been pending for weeks. My heart goes out to you.

We have been increasing rents by 3 to 4%

Time to raise rent across the board if you're collecting near market rent. It means your neighborhood and demographics can withstand a higher rate

I wouldnt charge an existing resident more than what a new move in would pay. So either increase your rents/market or give the existing resident an increase only up to market but not over .

We just started and there's absolutely nothing wrong with it. This pandemic could go on and on and we have to start getting back to business. Waiving late fees for months and months, giving away concessions, etc. Non paying tenants for months on end with no evictions filed...it's time.

As you can see from above comments there are different scenarios and lease issues to move into the mix. Personally I have always been taught to have a minimum increase. If that pushes them over, so be it. Good for us at closing some of the loss to lease. If they are under. Good for us to still creep towards closing that gap. Luckily I have owners that have put a ton of money into improving the property and will continue to do so to help validate the increase. Not only that but we are doing budgets and seeing increases in many expense categories which means we need to increase rent.

Why would you do that? Do you really think they don’t go on your website and see what’ the going rate is? If you have someone paying rent why would you chase them to your competition?

What is “Market Rent”? That’s the first question. I’m asking a purely theoretical question. I don’t care what the actual number is. Personally I think it should be MSRP (like a new car) - Managers Suggested Rental Price. Revenue management systems, like LRO or Yieldstar, pay no attention to the supposed Market Rent.

Market Rent is what the market will absorb. Your property is that “market”. Get that gain to lease Tony!

Your boss is reading this, you better say yes. With that said, I do pass through increases but not without speaking to residents first. Sometime we negotiate the increase.

Yes, absolutely increase if you think you can get it. Your market should fluctuate with demand. There’s no reason not to unless you’re working toward occupancy. In light of the current climate, have you forecasted your occupancy into 2021?

Tony, unless every one of your units is in the exact same condition, with the exact same views, and the exact same floor level, and the exact same everything, than technically your apartments should be priced the same. But if the apartment in question has something as simple as a pretty tree outside the window, you can easily justify a $25 increase at $5 over market. If they insist on market pricing, offer a transfer to a "market rate apartment" with less features so they can save that $5 a month. Or offer them a carpet cleaning or ceiling fan or some upgrade in their apartment if they renew.

That’s just not right.

Maybe it is time to increase market rent?

Yes, that is OK. That is great! You will now have a gain to lease for that unit. I have people under market, at market and over market. It all depends on when they rented and what the rates were at that time. If you have someone renewing and you are able to get an increase....great. If it's now over market rate...even better! You're making money for your company and retaining the resident.