Why Investors Need to Make Rent Raises a Part of Their Strategy

Landlords should always raise the rent.

The rent should be raised every year. Real estate investors shouldn’t be stumped on the question to lift the rent each year. There are too many reasons that you can’t afford not to do it.

To begin with, you must cover your own expenses. Your costs will almost invariably go up every single year. Your property taxes go up, cost of insurance, your own office rent gets increased, new phone, laptops/computers, printers and other business related expenses cost more money. If you don’t raise the rent, you’ll soon be in a negative cash flow situation. If you have a mortgage on the property, that can lead you to foreclosure.

Train Your Tenants to Expect it

It’s far easier to keep tenants trained to anticipate rental rate increases every year, too. If you ever had a regular job during or right out of school, you might have found it easy to get a 25 cent raise at annual performance reviews. But go to your boss and ask for a $5 raise per hour from $10 to $15 dollars, and they might just replace you on the spot. If tenants know they’ll have to pay a little more on renewal, they can plan for it. The expectation should eliminate the need for any negotiations, or issues relating to the increase. But if you go a couple years and then need to dramatically raise the rent, the odds are that you’ll lose them. That’s true even if it is a fair rate. It just doesn’t feel good.

According to the U.S. Census Bureau, rents have gone up nationally every decade, with the exception of the 1940s, when they dropped by an average of around $25. More recently, some areas have seen market rents going up as much as 50%. So watch your local laws, but a modest 10% annual increase, or 8% if you can afford it, is pretty generous.

Otherwise, you could be dealing with high turnover rates and high vacancy rates. That will get expensive very quickly.

Make Sure Rent Raises Are a Part of Your Strategy

A sound strategy from the beginning will help avoid issues. Avoid renting scared or keeping your property under rented. Be sure to check out the market rents in the neighborhood, or give us a call and we can assist you in determining the appropriate rent for your investment property. You might be both surprised at how cheap some are — and how expensive others are.

As a real estate investor, inflation is your friend. Even though your expenses may go up, income will typically rise along with them. Your property value almost always rises in line with inflation, as well.

You must treat this as a business and not let current tenants dictate what rent should be. There may be times to make some form of compromise or to be compassionate when a truly great and loyal tenant has a minor setback. Even in these cases, you may choose to still raise the rent, then allow them a temporary discount. But don’t sabotage your property by failing to raise rent.

Don’t Leave Money on the Table

Your tenants expect incremental rent increases when the lease is renewed. Compare your property to what is available at the time you are considering the rent increase. Other properties offering less amenities at a higher price is a good indicator you’re under market — and you should raise your rent!

If you’re interested in exploring the option of investing in real estate, please feel free to contact me any time  – I would be happy to discuss any questions with you.

Jason Opland, REALTOR® | Better Homes and Gardens| 614 332 6984 | jasonopland@msn.com