Why my Tenant asked for a 37% Increase in Rent!
Click Here for the audio only version on the Lady Landlords Podcast.
Last Friday, I closed on another Duplex in NY! I was extremely happy to find another cash flowing property right near one of my other rentals in the Hudson Valley.
But there was one major problem....
The rents were way too low! For this property, I was actually looking to inherit tenants. I have some other projects going on so I was not looking for a major rehab. I wanted something closer to turnkey with stable, paying tenants. And this Duplex had all of that...except for long term tenants that were paying waaaay under market!
So here is what I did to make this Deal work:
First thing I needed to do was to actually get the property. I was able to negotiate an under ask sale price based on the low rents in place. Woohoo! Offer accepted. Then, I researched the Binder Method to get the rents increased once I closed.
So what's the Binder Method you ask? Well, this week's guest on the Lady Landlords Podcast, Dion McNeely, developed this system to be able to purchase properties from the MLS that don't otherwise make sense financially.
Here's how the Binder Method works:
1. Make Simple Improvements
When you close on the new property, make sure to speak with the tenants in place to learn about the property. Ask them if there are any problems with their units and what upgrades they were hoping for. I know this sounds like opening a can of worms, but usually tenants come back with smaller issues that could really make an impact on their day to day living. Just for one example, when I did this a few days ago, the tenant pointed out just one pane of glass that she was hoping to have replaced before winter as she felt a draft coming in. By making these upgrades, the tenants will see you as reasonable and in a good light. Make sure to make these improvements in the first few weeks of buying the property.
2. Compile Comps
Next, plan a sit down with the tenants. It should be a month or two later and after you have made some of the quick, minor upgrades as mentioned above. Prepare for this meeting by doing some homework first. Print out the listing sheet of the rental you just bought that shows the purchase price, taxes, and other general information. Then, compile comps for the area to show your tenants what else is available out there. Be sure to point out the rent rates and also the likeliness to their current home. You can literally but this in a binder for them!
3. Include your Tenants
Then, simply ask your tenants what they feel is a fair rental amount. On average, tenants ask for a 20-28% increase in their rent. Mine asked for almost 40%! The reason? It includes them in the decision making process. Rent isn't being dictated to them, especially when they are the ones that have already been living there. It includes them in the conversation which allows them to feel valued. Not only will they ask for a raise in rent, but they will even thank you for it in the end!
Make sure to listen to the full episode about the Binder Method on this week's episode of the Lady Landlords Podcast here.