Landlord Explains the Strategy He Uses to Set Fair Rent Prices

• Dion McNeeley owns 16 units in Washington and makes six-figure profits in rental income each year.
• His “binder strategy” involves including tenants in the conversation about their rent price.
• He educates tenants on area average rent prices and then asks them what they think they should pay.

Dion McNeeley started investing in real estate in 2013.

At the time, he was making $17 an hour working at a commercial-truck-driving school and living paycheck to paycheck supporting three kids on his own. Inspired by his brother, who was able to retire at 50 because of smart investing, McNeeley realized that real estate could be a path to wealth.

He saved diligently for two years to buy his first investment property, which was a duplex in the Tacoma, Washington, area. McNeeley moved into one unit and rented out the other, which provided enough rental income to cover nearly his entire mortgage. This arrangement made it easier for him to continue saving for more properties, and by 2015, he purchased his second investment property. He repeated this process and has continued expanding his portfolio ever since.

Today, McNeeley owns 16 units across seven properties, and he makes six-figure profits from rental income each year, which Insider verified with documentation. He manages all of his properties himself and works directly with the tenants who reside in his units.

“The first two years, it felt like a job. It felt like I was spending 20 hours a week managing two tenants,” he said. “I was doing everything wrong. I didn’t have any systems in place.”

Now, after nearly a decade in real estate, he’s figured out how to maximize efficiency and spends about two hours each month managing his properties. All it takes is a couple of systems, he said, like having a maintenance person you can call at any given moment for repairs and collecting rent in a way that makes it easy on the tenant and leaves a paper trail. He prefers using Zelle, Venmo, PayPal, Apple Cash, or

Cash App

.

It also helps to have a low tenant-turnover rate. Finding tenants can be a timely and expensive process.

McNeeley has a strategy that helps keep his tenants happy and his real estate business profitable. He calls it the “binder strategy,” and it involves his tenants setting their own price. He typically uses it whenever he acquires a property and inherits tenants. 

He prefers to buy rent-ready places, which is the main reason he uses this strategy.

“Most investors will pass on an already occupied property because they want to buy it empty so they can get rents right up to where they need to be,” he said. “But that takes a rehab and a whole bunch of work, and you have to find a tenant.”

McNeeley, who calls himself “lazy,” would rather skip the rehab process and inherit tenants, he said. He doesn’t want to fix up the place, find a tenant, and potentially have to relocate someone. The problem with inheriting tenants, and the reason other investors prefer to look for empty properties, is that the tenants who already occupy the space might be paying far below market average, especially if they’ve been living there for a while.

“The previous owner probably started neglecting the place and hasn’t raised the rent,” he said. As a result, “the tenant is getting a great deal,” he added.

That’s where his “binder strategy” comes into play. After acquiring a property, he’ll set up a meeting with his tenants and bring a three-ring binder. The first page of the binder features a picture of the property they’re renting and the amount McNeeley paid for it. 

“Most tenants aren’t looking at home prices unless they’re looking to buy,” he said. “My last property was $400,000 for a duplex. Before that, I paid $525,000 for a triplex. Those are big numbers to a renter, so you point out the current price and say: ‘That’s what my taxes are going to be based on. That’s what my insurance is going to be based on.'” 

The second page includes a map that shows his property and all the rentals in the area that have the same number of bedrooms and bathrooms. The following pages zero in on each of the similar rentals in the area and the amount they’re renting for.

McNeeley walks his tenants through the binder to educate them on market prices and explain how much they’re paying below the market average.

He gives the example of one of the duplexes he bought. His tenants in both units were paying about $1,100, but the area average rents were closer to $1,600, he said.

“If I just went to those tenants, and I said, ‘I’m going to raise you to $1,600,’ I would be a jerk and they’d probably move out,” he said.

Instead, he brought the binder to each tenant, presented the information, and asked them what they thought a fair price would be.

“I literally ask the tenant: ‘What do you think is fair?'” McNeeley said. “They know their budget. And they’re now educated.” 

Both sides of his rental said $1,460.

“The tenants asked for more than a $300 increase because it’s still below the area average and they’re still getting a deal,” McNeeley said. He’s now making about $700 more a month. “That took a good return on my investment to a great return on my investment,” he said. 

Plus, “the tenants are happy,” he added.

Before the COVID-19 pandemic, McNeeley employed the binder strategy when he acquired a property and would ask his tenants how much they thought their rent should cost. Then, he’d do a 5% rent increase every other year. Recently, rents have skyrocketed, so he brought out the binders again and sat down with his tenants in 2021 and 2022 to discuss rent increases.  

If you use this strategy, your tenants are never going to pay the area average, he said: “I’ve never had a tenant say, ‘If the average is $1,600, we should raise it to $1,600.’ I’ve also never had a tenant say, ‘I think it would be fair for it to stay the same or for it to go down.'”

In the long run, he’s saving money by maintaining good relationships with his tenants and avoiding turnover. In the past nine years, he’s had to fill only two vacancies: one tenant who inherited a house and another who passed away. His turnover remains so low because he’s willing to have conversations with his tenants about rent and include them in the decision-making process.

“Happy tenants don’t trash the place, and they don’t move, and tenant turnover is one of the most expensive things a landlord has to deal with,” McNeeley said. “I’m making tens of thousands of dollars more in the last few years than I would have if I raised the rent to the area average and then dealt with a bunch of turnover.”