Just finalized a deal. The current rent on lot only is at least 50 percent below market value. It has been the same for 10 years. I’m thinking about raising it 25-40 percent after the first month. Any advice on how to handle this.
Thanks
You basically make a well written letter along the lines of “This park is currently the bottom of the market in terms of rent, and rents will be raised to approach market.” but said in a much nicer way. I would not raise the rent more than $75 in one whack, try to spread it out in 3 or so increases.
Additionally (Edit): You will have tenants complain, call you, or otherwise threaten to move out. Ignore all complaints and do not falter. You’ll come out ahead even if people move out, which they almost always won’t.
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Raising Rents-
Since you have inherited legacy residents with below market rents: Now is the time to passthrough the utility expenses to your residents in leu of of a gigantic leap to market rates.
In addition taking the utility component out of the rental equation:
- Increases the value of your MHP;
- More marketable to future tenants;
- More marketable to the next MHP owner.
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had the same issue, my new park was $160 and market was $250, we went to $250 only AFTER cleaning up the park, providing smoke alarms to every tenant,bringing in dumpsters to entice tenants to clean their yard, in other words we wanted to build value before we went in and raised rents, i agree with the post suggesting to pass thru water/sewer/trash if you have NOT first.
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That is a really good suggestion. I find some tenants bitch at every little thing including raising rent. Some even complained with I paved the roads. I had an employee who taught me how he was trained to answer customer complaints. Listen and if they are doing the talking just let them talk until they run out of steam and get if off their chest. Then you just present some facts, rents have not been raised in 10 years, the cost of everything goes up, the last owners owned the property free and clear and you have a mortgage.
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I closed in November on a deal with rents 50% under market. I spent first two weeks cleaning up the park and getting rid of abandoned homes to show the tenants that we are providing value. Then I sent the increase letter together with charging back for utilities. The letter also showed the market rents of all other parks in the market. Rents went up from $290 to $350 and charged back $55 for water/sewer. I am still the lowest cost park from all the comps. I lost 15% of the tenants, but anyways they were the ones not paying rent to prior owner. Also, got a lot of complaints as other people posted. Just need to manage the complaints and eventually they wind down.
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I purchased a park with under market rents. When I bought it, I walked around the park and knocked on every door to introduce myself. I let them know I was going to clean up the park, do improvements and their rent was increasing. I followed up with a 60 day rent increase notice of a little over 18%. Year 2 increased it again and put them on notice that submeters would be installed for water and sewer. Also added a $50 premium for doublewides.
Had one person move out in year 1 where it started being a non-paying pad. Had another but they bought their own SFH and sold the MH to somebody else.
What ended up in the main newspaper was an out of state company buying MHC and immediately raising rents by 58% and 69% without doing anything.
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We purchased a major turnaround park several years ago. During due diligence, I learned that several years prior to us buying it, the previous owner had raised rents $175.00 at one shot. The tenants obviously did not like this but I was told only one tenant actually moved out. We got a really good price on the park and didn’t need to raise rents right away…so we didn’t. We focused on cleaning up the park, evicting, improving aesthetics, etc. 2 years later, we raised the rent $20 and guess what happened? The tenants lost their mind over the “ridiculous” $20 rent raise. Which by the way, was really not more than a cost of living raise considering it was spread out over 2 years.
My point is this. What’s fair is fair. Be reasonable with the raise but understand that, regardless of the amount, the following will happen:
- Tenants will be furious
- Some tenants will complain and some may borderline harass you
- Some tenants will threaten you will lawsuits and the typical “I’m calling the AG!” phone call
- If you have a Facebook page or google business, tenants will leave negative comments
I would echo others by recommending incremental steps to the raise. However, no one likes and rent raise, no matter how “reasonable” it is. But, it must be done.
Good luck!
Jon
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We just bought a park in late April 2020. We collected our first rent in May. We said due to COVID, we would raise rents in August. We raised rents by 26% with no push back. Hope that helps
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I am on the opposite end, I am considering selling my park that I have owned since 1978. It is in Northern, Ca. my rents are the lowest is Shasta and neighboring Lassen Counties. Prop 13 and no loans makes it work for me. I have a few tenants that may become homeless with a big rent increase, which is why I have turned done a few offers. My tenants balk at a $10 increase. I have a few who are living on fixed SS income of $799 a month. Raising the minimum wage to $15 an hour will cause inflation that will put these 80 y/o tenants on the streets.
MHP’s are the last resort before Homelessness. For Americans who worked their entire lives, relying on Social Security to take care of them in their final years. Do you know who is the largest holder of our National debt? It is Social Security. Our own BGov’t has borrowed $3.3 Trillion from Social Security with no intention of ever paying it back. I bought my Park in 1978, I want to sell it, but my conscious stops me every time, because i am an American, Retired FireFighter, and cannot in good conscious sell my Park to someone who will raise the rents and make some very good people homeless by raising the rents.
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You my friend have a charitable heart, May God bless you
The unfortunate likely outcome of this altruism, however, is worse than a rent raise for your tenants, it’s redevelopment. When the property does change hands, the lower the income valuation is relative to the land value itself, the more likely it is whoever purchases it will simply evict all tenants and go for highest and best use.
If rents are at market, it won’t be so disproportionately valued to build the case for investment in tear down by a developer.
This may sound harsh, but it’s the reality of the economics of the situation. The same thinking has lead to the removal of multiple parks throughout the country to redevelopment.
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Be aware a large rent increase may trigger state legislators, as it is now in the midwest, to step in with rent increase restrictions and other oppressive anti-owner laws. Its real! Small yearly increases avoid this. But I also know this doesnt fit seminar teachings.
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I just wanted to add - be sure to check (and comply) the MHP state laws.
The State laws are all different on what park owners must do.
For example, I am a park owner in Illinois -
and in Illinois 90 days written notice is required prior to a rent increase.
765 ILCS 745
Obligation of Park Owner to Offer Written Lease (d) The park owner shall give 90 days’ notice of any rent increase and no rent increase shall go into effect until 90 days after the notice. Upon receipt of the notice of the rent increase, a tenant shall have 30 days in which to accept or reject the rent increase.
sounds like your running a charity.