How much can you raise rents in year 1?


#1

Hi all-

i have the opportunity to buy a park that is part of a major MSA that is 90% occupied, city bills all uitilies directly to tenants (water, sewer, etc…), almost all tenant-owned-homes, etc… The lot rents are $150/mth when the market rents are $300/mth+.

The long-time owner collects a % of the rent in cash and doesn’t claim it on his tax returns… so traditional financing will be tough right now. He knows this and while he wants all cash, is open to do some short-term seller financing for me to get clean books, get financing… and then pay him back.

My question is how much can i raise rents the 1st year? Is $100 doable? $150 too much?

Thanks in advance! Looking forward to hopefully meeting some of you at the December Boot Camp…


#2

Where is the home located? Is there rent control? Rent raises usually occur on the anniversary date of the lease signing, when was the last rental increase if there was any?


#3

Complex question here… Whats the market occupancy at ? Wheres your heart at? Do you have an obligation to investors? What is your strategy flip /hold?.

If the mkt is strong and parks full with mkt at 300, could you raise the rents 150, i would think you could.

Are you going to make improvements to the park? Or just jack the rents?

Are there legalities in your state on an increase/the amount?

Do you have any concern as doubling rent on the property?

I personally don’t think short term financing is good idea. It would be best to place in longer term debt if possible. If you can get short term seller carry, see if you can get longer term ( maybe provisioned extensions with lump sum principal payments on an extension if needed -believe this is franks tip)

@erikhanson probably has some good advice on a bank appraisal when lot rents are really low and how that might be factored into the valuation. I think i remember this from a podcast or the forum here if you cant do seller carry.

Do you have investors that you have to answer to and maybe explain why your rents are artificially low if you put them on tiered rent increase schedule to get to market?

Those are some points to consider. I think there is an array of ways that different operators would answer this question so wont answer it personally but give you some variables to consider when weighing the options.


#4

There’s no rent control in this state. I don’t believe rent has been raised in years…


#5

Thanks for the advice. Like the idea of the provisioned extensions with lump sum principal payments. The market seems fairly full at $300+. I don’t believe there are many improvements to make but i will see when i go to visit the park. There are no investors on this particular deal so no one to answer to. My thoughts were to increase rents over the next 12-24 months to right below market… and then either get financing to pay off the Seller… or sell the property to someone else now that i had 1-2 years of clean books, tax returns, etc…


#6

Frank has always said, and I agree, to go straight to market rents. If you baby step it, they bitch about you constantly raising rents.