Why Raising The Rent As A Landlord Is Not A Question But A Must

Rental Property

Let’s be clear on one thing right out of the gate. Landlords should always raise the rent. As a landlord, there are too many reasons why you can’t afford to keep rents the same year after year. Real estate investors shouldn’t find this to be a question to debate, and rather, they should see raising the rent every year as a ‘must-do.’

Why? Well, there are a few reasons, but let’s begin with the simple fact that you need to cover your expenses as a landlord. Your costs are bound to go up every single year. Property taxes increase, insurance goes up, employees need raises— your own office rent is raised! If you don’t raise the rents for your tenants each year, you’ll quickly notice a negative cash flow in your books. If you carry a mortgage on the property, this could put you in danger of foreclosure.

“But, what if my tenants are angry about the constant rental increases?” There are solutions to this concern. First, train your tenants to expect rental increases.

Make rental increases “The Norm.”

It’s much easier to train your renters to expect rent increases every year than sporadically increase rent at unknown intervals and in staggering amounts. Remember when you landed a regular job right out of school? It was relatively simple to achieve a 25 cent raise at annual performance reviews, but to go to your boss and request a $5 to $10 pay increase would have (most likely) gotten you replaced that instant.

If tenants know that they will have to pay a small increase upon renewal, they have time to plan and save for this. This will decrease the need for negotiations or any issues that may arise from the rent increase. Don’t fall prey to the trap of waiting a few years and then dramatically increasing the rent. You’ll lose your tenants this way. Even if the increase is fair, psychologically, people do not appreciate dramatic changes, especially when it means a decrease in their income.

The U.S. Census Bureau Backs You Up

According to the U.S. Census Bureau, rents have increased nationally every single decade; with the exception of the 1940s. In recent years, some areas have seen an increase of as much as 50 percent. This is mostly found in those markets with insane appreciation and not so much in the midwest. Either way if you don’t increase at a gradual pace, you will find yourself facing the chance of a high turnover and high vacancy rates. No landlord likes that! I especially don’t.

Strategic Rent Raises In Your Game Plan

A solid strategy from the beginning will help you avoid issues. You will be able to avoid “renting scared” or not have to worry about your property going under rented. Look at the market rents in the neighborhood to get an idea of what your area can support. This research may surprise you! Some will be more inexpensive than you expected, and on the opposite end of the spectrum, much more pricey than you anticipated.

Inflation is your friend (not a foe) as a real estate investor. Although you can expect your expenses to go up, income will rise in comparison. The value of your property should increase in line with inflation also.

Treat your rental properties as a business. Do not allow current tenants to dictate where the rent remains. There may be times when you choose to be compassionate or make some form of compromise when residents are truly loyal or suffer a minor setback. Even in cases as mentioned, you may still choose to raise the rent, and then offer a discount later. It’s ok to be flexible, kind, and fair, but don’t sabotage yourself by failing to raise the rent.