Podcast 356: How to Raise Rent in Today's Market

Podcast Host, Andrew Schultz, goes over the best practices for raising rent in today’s crazy real estate market.

Next, a tenant calls you about a leak on your property, so you rush over to see what the issue is. But, what comes after that? Do you call insurance, find your tenant temporary housing?

Last, but not least, is it common for the tenant to request that you are on the property when a contractor is making a repair? Find out now.

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Show Transcription:

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number 356, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about how to raise rents when you were below market value, the steps you should take when your rental needs repairs and what to do when a tenant requests, the landlord’s presence during repairs, we’ll get to all that right after this.

Voice Over: (00:25)
Welcome to the Rent Prep for Landlords podcast. Now your host, Andrew Schultz.

Andrew Schultz: (00:30)
Jump into today’s episode. Don’t forget to check out the Rent Prep for Landlords Facebook group. It’s a great free resource for you to network with housing providers from around the country. And if you have a question or a situation that you’ve never dealt with with over 12,300 members, chances are someone in the group has been there before and can lend a helping hand if you haven’t checked it out yet, do it today. Over at facebook.com/groups/rent prep. Don’t forget to mention the podcast when answering the questions. So we know how you found us

Voice Over: (00:58)
Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (01:06)
We’re going to start this week off with two of our water cooler wisdoms. Our first one comes to us via the landlord subreddit. And this one is a pretty interesting question about what to do when rents increase and you have existing tenants in place. Let’s go ahead and jump right in. I have a few multifamily properties in a medium-sized city and rents are blowing up between all of my properties in that area. I’m an average of $250 below market value. Rents are 1400 to 1500 per month. The average is higher than last month because I just raised a couple of units by 50. This jump all occurred in the last year. At this point, I want tenants to move so I can raise rents. I somewhat regret only raising rent by $50 for two of the units. Where do you find the balance of running a business and not being a bad landlord?

Andrew Schultz: (01:51)
How do you close the gap? Do you have a formula that you stick to regardless? So this is a bit of an interesting one because we’ve seen some pretty substantial jumps in the rents here in Western New York as well. And rising rents is always a bit of a balancing act, especially when you’re also dealing with a global pandemic at the same time. My strong recommendation is to raise rents every single year because expenses go up every single year. And I will mention, I’ve seen a lot of people ask about raising rents during the pandemic. We have continued to raise rents during the pandemic as well. We have not stopped our rent raises because expenses go up every year in the past year, we’ve seen massive increases in the cost of labor building materials, insurances, both for property, as well as workers’ comp and unemployment insurances, and everything else.

Andrew Schultz: (02:39)
Even the cost of housing stock has gone up drastically in the past year. At this point, I would also say it’s probably a pretty fair assessment that taxes are going to go up over the course of the next few years as well. So that’s something you have to keep in mind, obviously, the goal with any sort of a rental property or any sort of a cash-producing asset is to ensure that the expenses are covered and that you’re profitable without causing a turnover. Keep in mind. I know you mentioned in the post that you are fine with the tenants moving, but you probably don’t actually want the turnover turnover’s result in vacancy turnover costs such as maintenance, cleaning, marketing expenses, maybe paying a leasing agent, et cetera, et cetera. Turnovers are the most expensive part of owning a rental property. When you’re talking about the actual operation cycle of the property, turnovers are very, very costly.

Andrew Schultz: (03:27)
Vacancy is a profit killer. So you want to ensure that your rent increased doesn’t cause the tenant to move. So I typically recommend a three to 5% increase in rent on a yearly basis. Some states will limit the amount that you can increase. So you need to know what’s going on in terms of your state laws, make sure that you’re following those laws. So you don’t wind up in hot water. We say that constantly. It’s my favorite broken record saying, but you definitely need to know what you’re doing in that regard. So let’s give out an example using the data that we have here in front of us, you have about a $250 difference between your current rents and your market rents. If you bump that rent up by $250 on a $1,400 a month rent, that’s almost an 18% increase in the rent on a one-year basis.

Andrew Schultz: (04:10)
That tenant is absolutely going to start looking for a new place. Now, how much has that vacancy turnover, all of those other things, how much is that going to cost you? If it’s more than two 50 a month for that lease term, it’s probably not worth bumping that rent up by $250 and having to go through that entire turnover process. Now, obviously, you can go for a less of an increase of 5% increase. For instance, would come out to 1470 a month. That’s a lot easier for a tenant to swallow at $1,400 a month, a bump to 1470, a 5% increase. That’s what, a little bit easier to swallow than an 18% increase to, you know, 16, 50 a month. Yes, you may still be down that 180 a month, but you’re likely going to save way more than that in time and in trouble on the turnover.

Andrew Schultz: (04:54)
If the unit was to turn over at that point, I would move it up to market rents. Obviously keep in mind that if you’re in a rent control area, you need to understand what the regs are regarding that. Um, but my recommendation is always whenever you get a vacancy, that is a good time to bring your rents up to market value. If you’re in a state that will allow you to do so, adjust your rents every time you come up for a lease renewal as well. So that you’re always as close to market rent, as you can be. I see a lot of people saying that they don’t like to raise rent on good tenants. Whenever the topic of raising rents comes up and to them, I say, you need to reevaluate your stance. Eventually, you’re going to find yourself so far under market value that catching up is going to be an absolute nightmare.

Andrew Schultz: (05:34)
Or you could find yourself in a position where your expenses have increased to the point where it simply does not cash flow anymore. And that’s not a situation you want to find yourself in either. So definitely do what you can to keep increasing your rents on a yearly basis or on a per renewal basis, such that you know, that your expenses are going to be covered and that you’re still going to be profitable into the future. If you do find yourself in a situation where the property does turn over because of a rent increase or really for any reason, it could just be a natural move-out. That’s a good time to go in and do whatever updates you want to do to increase your rents. Bring those rents up to market value. I mean, if you’re, if you’re saying right now that you can get, let’s say $1,400 a month for the same apartment that you’re getting less than that on right now, maybe it makes sense for you to increase the offerings in that apartment when it does vacate, maybe you can get 15 or $1,600 a month out of that same space just by doing some minor upgrades or swapping out a floor or, you know, a fresh coat, whatever the case may be.

Andrew Schultz: (06:34)
There’s lots of ways to improve an apartment that can increase the value and can increase what you’ll be able to bring in on a monthly basis. But typically when we are looking at lease renewals, our goal is to not force the artificial turnover, unless we’re really looking to rehab that unit. And if that was the case, we would probably just issue a termination notice and have the tenant move out. Naturally, that way our next water cooler wisdom comes to us also from the landlord subreddit over at reddit.com. This one is all about unexpected maintenance work. Unfortunately, a Canada seasoned landlord helped me out. My tenant just told me that there is a kitchen sink leak into the downstairs neighbors bathroom. I’m not sure how long this has been going on beyond calling a plumber. What should I do next call my insurance company? I think I will have to pay for that.

Andrew Schultz: (07:19)
Is that correct? Um, this is a pretty good question. And I want to start by saying there’s a fair amount. Like there’s an undertone of panic in the way that this question was being asked. And my first recommendation is always don’t panic. What’s done is done at this point and you’re onto repair and remediation. You’ve already called the plumber. So they’re going to go out and assess the situation and repair, whatever the leak is from the upstairs unit to the downstairs unit. And that’s the most important part here because letting the leak continue is just going to cause further damage to not only your unit but the downstairs unit, which it doesn’t sound like it. You may not own that one. It sounds like this may be a condo association or something along those lines where you have ownership of your unit, but maybe not the unit underneath of you.

Andrew Schultz: (08:04)
So the most important part is get that leak stopped because that’s going to stop you from continuing to cause more and more damage and continuing to make the situation worse on yourself. Now, while that plumber is there, they should be able to give you at least some sort of an assessment or at the very least some photos of what is actually going on. This may be something as simple as, okay, you have some drywall damage in the downstairs unit, uh, as a result of water that found its way from upstairs to downstairs, or you may have collapsed ceilings and rotten floors, but you’re not going to know that until you get into the situation and start figuring out what exactly has happened and essentially why some repairs are worth contacting your insurance on. And some just simply aren’t, if this is a situation where it’s literally a drywall repair, we’re just going to fix the neighbors drywall, send them a nice fruit basket and you know, as an apology and move on with life, you know, there’s, there’s no reason to contact your insurance company for a simple repair like that.

Andrew Schultz: (09:04)
If it’s a little bit more, you know, in-depth, if you have badly damaged floors or if the ceiling has collapsed in the downstairs unit, that’s a little bit more serious situation at that point, you may want to contact your insurance company and go that route. Really what it’s going to depend on is your insurance policy and your deductible. You’re going to need to find out what needs to get done, get quotes, and then make some decisions based on that. There’s really where you’re at at this point in the game is damage control. As far as who’s responsible to pay for this, that question is a bit more nuanced. If this is a situation where the tenant caused a leak to occur and then didn’t record, excuse me, it didn’t report the leak. For instance, they bumped the trap underneath the bathroom sink and excuse me, underneath the kitchen sink and knocked it loose.

Andrew Schultz: (09:50)
And the water’s just been running under the kitchen sink for months. Okay, well, that’s definitely on your tenant. They should have reported that maintenance issue. They’re going to be responsible for these repairs. And my recommendation at that point would be go after their renter’s insurance policy. Your insurance can also fight with them on that. It’s not your job. Ultimately, if, if it winds up being the tenant’s concern, your best bet is to call your insurance company, give them the tenants, insurance company’s information, let your insurance company have that battle. That’s not a battle that you need to both be involved in and it’s certainly not your job. So that would be my recommendation is, you know, when you’re trying to determine who should be picking up the tab, it’s a little bit more nuanced as to do the tenant, cause this is it, you know, uh, as a result of normal wear and tear I E pipe finally just wore through over the course of time and was leaking as a result or whatever the case may be.

Andrew Schultz: (10:41)
There’s a little bit more nuanced too when it comes to who’s responsible, but ultimately at the end of the day, the work needs to be done. And I don’t recommend, you know, getting into an argument over who’s responsible. I recommend getting the work, fixed, getting the job, you know, taken care of. And then you can worry about that on the backend. So that would be my recommendation from that perspective, either way, you’re probably going to wind up out of pocket on the front end of this, to get the work done. And then you may be reimbursed on the backend by insurance or whatever the case may be, just get the job done. And then you can start worrying about, okay, well who’s responsible, et cetera, et cetera. That would be the best way to handle the situation. At least from my perspective,

Voice Over: (11:24)
Quorum forum, where we scour the internet for ridiculous posts from landlords and tenants,

Andrew Schultz: (11:32)
It’s a very maintenance, heavy episode of the Rent Prep for Landlords podcast. We are actually going to jump into our forum quorum segment here, and this one comes to us from the Rent Prep for Landlords Facebook group. Here’s something new from a long-time property manager. I have a tenant that wants me to be present during any type of repair work from service industries. We simply don’t have time for that. How would you go handling this? This one’s actually pretty simple. Uh, just say, no, it’s, it’s literally that simple. Just say no. When we send a vendor out to the property, that vendor has been vetted, we know that they’re insured and in most instances, they’re caring or licensure for whatever it is they’re doing. You know, if they’re applying or an electrician or an HVAC guy, they’re definitely carrying some sort of a license just to be able to do their job.

Andrew Schultz: (12:16)
And we also know that they have their insurance in place because we keep a copy of it in our office. So we always give the tenant the option of being home if they wish, but we don’t require them to be home. We generally don’t stand around while a vendor fixes a light or changes a furnace filter or, you know, whatever the maintenance item may be. My recommendation is to provide the tenant with proper notice for your state, whatever that notice may be, and give them that option of being present themselves. If they choose not to be present, ultimately that’s up to them. One thing that always seems to pop up when questions like this are asked, asked is OMG, you let vendors in the houses without the tenants being home. Yeah, we do. We trust our vendors to do their jobs professionally, regardless of if someone is watching over their shoulder, most of our vendors have been with us for an extended period of time.

Andrew Schultz: (13:05)
We’re talking multiple, multiple years and we know a lot of these guys more than just I’m calling Roto Rooter and getting plumber of the day that shows up in his van. Like we know most of our vendors and we’ve been working with them for an extended period of time. As I mentioned, all of our vendors are insured. And in most instances, they’re licensed. We have a lot of trust in the vendors that we work with to do their jobs professionally, regardless of whether or not someone is in the home with them in the 12 years I’ve been in the industry. We’ve had two instances that I can remember where a vendor was accused of theft. And in both instances, it was determined that there were some inaccurate statements that were made to the police about the, um, about the theft. So your mileage may vary.

Andrew Schultz: (13:48)
Don’t hand out keys willy-nilly to people that you don’t know. Obviously don’t use uninsured vendors, obviously understand what you’re giving up. When you hand someone a set of keys to a building and then make an assessment as to whether or not that fits your particular risk profile for us, it simply does not make sense to have a person from the office accompany, every maintenance technician on every single job just doesn’t make sense. Our guys have to send us before and after photos so that we know that the job is complete. That also gives us a rough idea of when they got there. And when they left, does that mean that they necessarily didn’t take anything from, you know, uh, from the house while they were there? No, of course not. But that’s where the trust factor has to come in and again, giving your tenant that option of being home that certainly, you know, gives them the ability to make sure that Hey, nothing was removed from the place because I was home and I controlled the space the entire time I was in it.

Andrew Schultz: (14:41)
No concerns there. So that’s, you know, the best possible scenario is give your tenant the option of having the, of being home when the vendor is onsite. Um, but as far as personally visiting the site and being on site during that period of time, I don’t think it’s necessary. And, and frankly, I don’t think the vendors gonna want it either. Most vendors want to get in and get out and do their job. So that would be my recommendation. I will say that there is a chance that something bad could happen in anything that you do. There’s a chance that something bad could happen. As a matter of fact, we had a house that was listed for sale, and we had several agents that had been through the property, you know, showing the property to prospective buyers. And at some point, someone removed a glass of orange juice, uh, from the refrigerator or a bottle of orange juice from the refrigerator.

Andrew Schultz: (15:31)
There were a couple of other things that were done onsite as well. That led us to believe that someone had been in there probably without scheduling a showing we’re thinking they may have used a key box code or something like that after they had already received it for their showing. And then gone back into the property after the time that they’re showing was scheduled. There’s some more to the story that I can’t particularly share there, but it does highlight the fact that yes, there is a certain risk factor whenever you are giving someone else access to someone else’s property, that’s, you know, par for the course, it’s part of the risk profile of owning a rental property. This is something you might want to talk to your insurance company about and see if they have any concerns, um, or see if they, you know, will still cover you for insurance purposes.

Andrew Schultz: (16:15)
If you give keys to someone who is not a member of your organization or whatever the case may be and tell them, yeah, you can go ahead and do whatever you need to do. Generally speaking, because the vendor you’re using is insured. You should be covered, but you may want to have a conversation with your insurance company just on the off chance that something is not always, as it seems. What does hiring a property manager costs nowadays? And how do you go about hiring one, check out our latest guide on all things, property management over at rent, prep.com/blog today? That pretty much wraps things up for this week’s episode of the rent prep for landlords podcast. Thank you all so much for listening. We truly do appreciate it. Our goal with the podcast is to help as many people as possible make educated decisions when it comes to real estate, and you can help us to reach our goal.

Andrew Schultz: (17:02)
If you heard anything in this week’s episode or any other episode of the podcast that will help someone, you know, do us a favor and share this with them. If you’re looking to get in contact with me, I can be reached over at whatsdrewupto.com from there, you’ll find links to everything going on with me over at Own Buffalo, as well as other projects that we’re working on. In addition to the Rent Prep for Landlords podcast, I also host a weekly show called ask a property manager. You’ll find a link on my YouTube page over at whatsdrewupto.com. And from there you can access the growing catalog of 75 plus episodes. Take a look and don’t forget to subscribe. If you’re looking for top-tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including a tenant-paid option. And if you’re over 50 doors, ask about the enterprise-level programs and pricing. I’ve been an enterprise user of Rent Prep for years now, and it’s definitely changed the way that we screen our tenants. Check that out today, over at rentprep.com. Again, thank you all so much for listening. We’ll be back in a couple of weeks with an all-new episode you won’t want to miss until then. I’m Andrew Schultz with ownbuffalo.com for rentprep.com. And we’ll talk to you soon.