Annual Rent Increases

Once your park’s lot rent is brought to market rate, do most of you do an annual rent raise to keep up with inflation? How much is typical? 4%? 5%? And is the amount tied to anything like the CPI or inflation rate for the previous year?

First, what is market rent? Market rent is the rent that somebody is willing to pay. Assuming your competitors are all at $325 and you go to $350 and you still maintain occupancy, well you just reset the market rent to $350. If you went to $400 and people continue to pay, then then you reset the market rent again. I doubt if anybody would move their home out for $7,000 for a $25 to $50 increase.

Once you go too high, you may find it to be harder to maintain occupancy. At that point, your rents are high enough that tenants will consider better alternatives including single family homes or apartments. If you start losing occupancy, then people are not willing to pay that price meaning you have exceeded the market rent.

I look at CPI to be sure to hit at least that number, but do not use it to base the rent increase. Some states like Delaware have rent control for mobile home lots, and they have a formula that requires rent increases to be justified by CPI or some other methodology.

I’m not saying this is good practice in our industry, but in the self storage industry, rent changes monthly depending on capacity. If a property is fully occupied, the rent goes up. If occupancy drops too much, the rents may drop or move-in incentives may become more generous.

3 Likes

I raise my rent annually without exception. Unfortunately I am under rent control and can only raise it the maximum allowable, which I do. Regrettably it does not keep up with the cost of living resulting in all long term residents falling below market rent. Although all my residents are excellent turn over is the best thing for my business. It allows me to keep at least a few at market.

1 Like

So if I am reading this correctly, you suggest getting to the maximum lot rent that the park will support and then annually increasing the monthly rent by at least the CPI percentage? This is the track I was on but I wasn’t sure if automatic annual rent raises were standard practice in our industry.

Greg I know annual rent raises are standard in rent control areas, fortunately I’m not in one of these places! I’ve got a full park and I am ready to maximize the profitability since all the capex is finally done. I just don’t want to over do it.

Yes, that is my opinion. In true capitalism, you let supply and demand dictate price.

1 Like

Makes perfect sense to me!

Even at the top of the market, you’re not going to scare people off with a 3 or 4% increase every year ($10-$30 per month). Remarkable how slow even that growth is when compared to apartment rents. I took it easy last year and will next, maybe 2 or 3 percent, on my established parks. Another one I’ve put a ton of money in this year, so I’ll be bumping it by more like 5-10%

1 Like

A minimum rent increase equal to the CPI, to keep up with your increased expenses, should not result in home owners selling or renters moving. All you are doing is keeping up with costs. I can not imagine any landlord not doing so which results in tenants having no better option than to staying where they are.
I have spoken with all the park owners in my area to insure we are all on the same page market rent and rent increase wise.

1 Like

How much would you guys say is too much of an increase? Say you’re at $350, the other parks are at $400, but your park is nicer than the other ones so you think $450 is fair. Would you just go for the $100 raise all at once or would you do that over 2 years or so? This is besides the annual CPI increase I was originally asking about.

Definitely not all at once. Every newbie on here needs to learn from past operators’ harrowing experiences when they raised too much, too quickly.

1 Like

What’s the maximum you’d suggest at one time?

Have you put in a ton of capex since your last rent raise? If you paved roads, took out trees, etc that stuff builds good will with tenants and maybe you can get away with $50. Personally I wouldn’t go much higher than that, but my state (NH) also has an arbitration clause for “unreasonable” rent raises so I’ve never been super aggressive. Just my two cents.

1 Like

More than $50 you probably in dangerous territory unless you have solid comps that nearby parks are way more expensive.

Only way to do $50 without landing on the news or getting hit by a tenant’s right attorney is to do significant capex (road work, trees, paint, fencing, etc).

You can of course raise it higher than $50 and do no improvements - but doing it on a blue state is just asking for trouble.

1 Like

I did all the above as far as capex, I just paved all the roads and driveways last week which was something all the tenants wanted badly. The problem is I only raised the rent twice in the last 6 years. The 1st raise was $5/mo and the 2nd raise was $30/mo and the two most comparable parks are at $390 and $410 although I believe those parks pay for the tenants water and sewer which I do not.

I agree which I why I waited to do the big raise until all the deferred maintenance was complete. We have about $600k of capex into the park including all new water/sewer pipes, newly paved roads/driveways, tree work, fencing, new electrical poles and meter boxes, landscaping, majority brand new homes, etc. in the last 6 years I only raised the rent $5 and $30 so now I’m trying to recapture the money I put in and the comps are $390 and $410 so I feel at a minimum $50 is justified. I just wanted to maximize the initial big raise and reset the market rent seeing as 2 bedroom apartments are about triple this per month and my park is essentially rebuilt from the ground up and I have a waiting list of people.

Given what you’ve done, I think you could justify $50 very easily, and do $25 the next two years maybe. Up to you if you want to try and go for more all at once. I like to lay out the recent work completed in a letter to the tenants announcing the rent raise. You can also point to the comps. Congrats on being in an excellent position! Might be worth looking at a cash out refi after the rent raise too to get a big chunk of $$$ back.

1 Like

You’re aware many are predicting the Bidenflation to be worse than the 70’s? The govt released figure was just under 6% and doesnt include food or energy, which are the biggest. His tax the rich lie is going to destroy the middle class and provide minimal handouts to the lower class. Things are going to get very bumpy in '22! FYI: the 70’s didnt have multi trillion dollar spending plans! Corruption is rampant. Correction on inflation number. 8.6% in Sept!

2 Likes

Thank you! I think a cash out refi will be in the future. Just need to get the lot rents pushed to maximize payout.

I’m with ya…best to get well positioned now so we are in a better place to address what’s coming!