Rent Increase 1/2 way to market

I know that many of you advise once taking over a park that is well below market rents to move rents half way to market right away then all the way to market after one year. When doing the initial increase, do you let the tenants know that you will be again raising it in one year to a specific amount( so they know you are being kind in not initially raising it all of the way) or just make what appears to be two separate increases?

If you decide on making the tenants aware what you will be eventually moving it to, would you create leases that shows the market value rent with a special provision of paying the discounted rate for one year?

Thanks for all of your help.

Just rip off the bandaid and do the full increase to bottom of market rates. This will only be complicated if your state has rent controls or you are operating a 55+ age Park.

The tenants will figure out there is nowhere cheaper when they look around. Doing it in two stages just creates two events of moaning and groaning instead of one. Justify the increase with visible improvements to common areas and better maintenance, responsiveness, management etc.

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@Clinton, as per your question:

  • “When doing the initial increase, do you let the tenants know that you will be again raising it in one year to a specific amount (so they know you are being kind in not initially raising it all of the way) or just make what appears to be two separate increases?”

I agree with @jhutson:

  • “Just rip off the bandaid and the full increase to bottom of market rates.”

In our stable MHP we raised rents in multiple steps (tiny amounts not trying to offend them) just to get the rents to a little below market.

I agree fully with @jhutson that:

  • “Doing it in two stages just creates two events of moaning and groaning instead of one.”

When we raised the rents we wrote a letter to the Tenants indicating some of our expenses to justify the rent increase.

Honestly, the Tenants could care less what our expenses were.

One Tenant told me that the MHP expenses were not their concern.

What matters to the Tenants is the price of other MHPs (we did list other MHPs Lot Rents that were/are still much higher).

If the Tenants can find the same value of your MHP for a lot less Lot Rent in another Park, the Tenants “might” consider moving their Mobile Home.

However, moving a Mobile Home is not cheap and is not easy, so they have to be very determined to do this.

If the Tenants cannot find the same value of your MHP for a lot less Lot Rent in another Park, the Tenants might moan and groan a bit (some will moan and groan as it is in their DNA) but they will not be moving their Mobile Home from your Park.

We wish you the very best!

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I would say that it depends. If you are talking about a park at $250 that needs to go to $450, then you’re going to end up in the newspaper. If you don’t mind that, then go for it. However, assuming you buy it correctly, then it might be less brain damage on you to take it halfway and then push it up to market over time.

It’s a personal preference thing. If you have investors, you had better get started maximizing it completely because you have an obligation to them to do so. If you are invested with your own money, then you might consider pushing it a little less aggressively as long as the 1/2 way marks hits/exceeds your personal targeted returns. It’s not a black and white issue and sometimes it comes down to doing what you personally feel is right and sticking with it.

We typically push our parks up to market day one, but I will caveat that with the biggest jump being from $175 to $240. We’ve talked about scenarios involving bigger jumps and we have our own personal opinions about what may or may not be ethical. We’ve also had these conversations with other large owners and they’ve made compelling cases for either side on this issue.

Thank you all for your advice.