KGC Properties LLC ~ Property Management & Real Estate In Tucson!

head_left_image

Thinking Of Raising Your Rent? A Few Reasons Why I Don’t!

Very typical scenario:  property owner hires a property manager – manager rents the home – just before the years lease is up – manager signs tenants on for another year – notifies owner.  The owner responds, “That is great, but I would like to increase the rent.”

A few reasons why landlords (and owners) increase the rent:

  • Because they think they just should.
  • Property expenses have gone up (taxes, insurance, etc.)
  • The neighbor next door is getting more rent for their house.
  • It’s part of the investment plan.

These are a few reasons why I don’t raise rent:

If the tenant is good – I prefer to keep them.  Raising the rent even by a little tends to cause tenants to look for less expensive homes to rent.

Vacancies cost money.  Typically, a landlord will lose more money on a vacancy than they would get with a rent increase. Example - if you increase your rent by $25 a month - that's $300 in a year.  If your rent is already at $900 a month - and the home is vacant for even a month, do the math.

If more money in your pocket is the main objective– that is probably not the best reason to raise rent. Why? I have a rental home, on a 15 year note.  I paid one mortgage payment.  The tenants (one lived in the home for 9 years) – over the course of 15 years paying rent – paid the remainder of the note. Why be greedy -this is the best "more" money in your pocket.

If you are a landlord and decide to raise your rent with every lease renewal – make sure you do it correctly, and weigh the benefits – and potential losses before you do it.

Buying or selling Tucson real estate, Mt Lemmon, Tucson bank-owned homes, Tucson rental homes, or Tucson lease option homes? Visit www.KGCPropertiesLLC.com .

                                                 

 

This blog is written with my opinions and my opinions are  presented with accuracy but not guarantees. Please talk to a professional before making any real estate, financial or agency decisions.    Gabrielle Kamahele Rhind - 2014. If you want to reprint parts of this - just email me for my permission: KGCProperties@gmail.com .

 

Comment balloon 31 commentsGabrielle Kamahele Rhind • December 04 2013 05:24AM

Comments

Good points Gabrielle!

I have heard that, on average, it costs $1500 to get an apartment ready for a new tenant. Because of this many managers are offering incentives to renew the lease; it's cheaper then "turning the unit".

Posted by Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366, General Contractor, Dry Rot and Water Damage (Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366) over 4 years ago

Had to come back Gabrielle; I had to search for that SUGGEST button.

And I did!  :)

Posted by Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366, General Contractor, Dry Rot and Water Damage (Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366) over 4 years ago

This is good stuff, thanks!

Posted by Randy Shamburger, FHA, VA, USDA and Conventional Mortgage Expert (Movement Mortgage) over 4 years ago

Keeping good tenants is better than a few more nickels....

Posted by Sally K. & David L. Hanson, WI Realtors - Luxury - Divorce (EXP Realty 414-525-0563) over 4 years ago

Timing is everything in life. If you are smack dab in a northern climate winter where the tenant pays the heat, pretty much all his utilities and goes off to work each day. Just sleeps there and no wear and tear. Then jacking up the rent twenty bucks to squeeze and tease and have him flit means replacement time. Delays, and a smaller bone than the one you had but dropped, that's hit the road. Long gone. Consider more than rental income. They pay, they stay, they are not operating a WMCA where you wonder where did all these people coming and going, doing non stop laundry because you pay the water and sewer Mr Landlord.

Posted by Andrew Mooers | 207.532.6573, Northern Maine Real Estate-Aroostook County Broker (MOOERS REALTY) over 4 years ago

I love good tenants and don't do anything to make them move out...they are priceless!

Eve in Orlando

Posted by Mike & Eve Alexander, Exclusively Representing ONLY Orlando Home Buyers (Buyers Broker of Florida ) over 4 years ago

Gabrielle - You are so right.  Losing a month can be very costly...and often it's more than 1 month + repair work in between.  It seems like it might be smarter to just increase the rent for the next tenant.

Posted by Women of Westchester Working Together, Women helping Women get ahead (Women of Westchester Working Together) over 4 years ago

Good advice for landlords. When a tenant wants a two year lease I have a very moderate rent increase in the second year and had to explain it to the landlord yesterday.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 4 years ago

Gaby, 

All very good reasons you list.  We actually have a rapidly increasing market here.  So, while I agree all of your reasons are excellent, I am happy that we have a renewal clause in our Georgia Association of Realtors Lease that allows for this to be negotiated up front.   It's much easier for all parties to handle it this way, then there are no surprises for anyone.

We just renewed a client for a third year who did allow for a rate increase that was still much less than the owner could bear if we offered it for lease at current market value.  Yes, they are good tenants, so we gave them the benefit of the doubt and are good with a lower rate.  

The other major factor is we are almost out of leasing inventory all over town.  It's a balance, but important to understand your goals and how you want to proceed.

All the best, Michelle

Posted by Michelle Francis, Realtor, Buckhead Atlanta Homes for Sale & Lease (Tim Francis Realty LLC) over 4 years ago

You nailed it. Vacancies cost money and the next tenant is an unknown entity!

Posted by Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC, ... a small office, delivering big service! (Waters Realty of Brevard, LLC) over 4 years ago

Gabrielle,

There are many variables involved with investment properties and certainly good tenants are priceless. I think it prudent for a landlord to provide for a modest yearly adjustment in the lease. If the tenant is great, the landlord can waive the increase on a year by year basis.

Posted by Bill and MaryAnn Wagner, Jersey Shore and South Jersey Real Estate (Wagner Real Estate Group) over 4 years ago

GOOD MORNING BILL & MARYANN ... You have a very fair to handle increases - and seem to be flexible - nice mix!

GOOD MORNING GARY ... Nice way of putting it!

GOOD MORNING MICHELLE ... nice input - balance and market play a role for many owners.  While Tucson market fluctuates as well, I remind owners that what goes up tends to come back down - so finding a balance is important!

GOOD MORNING GITA ... thanks for the comment and input.

GOOD MORNING WESTCHESTER ... if it comes to a vacancy - increasing with a new tenant is always the best route!

GOOD MORNING MIKE & EVE ... I tend to agree! Thanks for the comment!

GOOD MORNING ANDREW... timing, location, goals, consequences all things to consider.

GOOD MORNING SALLY & DAVID ... I tend to agree with this too!

GOOD MORNING RANDY ... thanks for the comment!

GOOD MORNING TOM ... I am with a gold star because of you - thank you!

Posted by Gabrielle Kamahele Rhind, Broker/Owner (KGC Properties LLC, Tucson Property Management & Real Estate) over 4 years ago

My parents were landlords and agreed perfectly with your way of thinking. Bettter to have one great tenant for years and years than risk losing him for a few more dollars.

Posted by Jill Sackler, LI South Shore Real Estate - Broker Associate (Charles Rutenberg Realty Inc. 516-575-7500) over 4 years ago

Hi Gabrielle, doing the math should make a landlord take a second look at raising the rent. I see this with  shopping centers. The tenant will move out because of the rent increase and the space stays empty for ever.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA over 4 years ago

Thanks for this post!

Posted by Drick Ward, "RealtorDrick" - Experienced Representation (NEPTUNE REALTY) over 4 years ago

Could not agree more with you. I think this is the hard concept for new investors to grasp.

Posted by Chuck Mixon, Cutler Bay Specialist, GRI, CDPE, BPOR (The Keyes Company) over 4 years ago

Totally agree with this, an empty investment property doesn't sound like a good investment. One with tenants sure is!  

Posted by Jeff Fisher, RE/MAX Fine Properties (RE/MAX Fine Properties) over 4 years ago

Great topic and post! There are lots of things to think about on the subject of raising rent. I am a firm believer that you should of bought the property with PLENTY of wiggle room on rent rates. Two big reasons: (1) To allow for some outside expense to go up, such as HOA dues, taxes, assessments, etc and (2) if you have a great tenant and they want to leave, offer a slight DISCOUNT to keep them. The cost of turning a unit and possibly paying a property manager an entire months rent to find a new tenant (if you have a manager) greatly outweighs a small discount in rent.

Now, if you're a tenant, you would also know the numbers as well and can use it as a negotiating point to obtain this discount, however, I have also had landlords negotiate back that the cost of moving outweighs a slight increase in rent.

Posted by Steven Barks, Director of Operations (Worth Clark Realty) over 4 years ago

I have a very good investor client who doesn't raise his rents for renewing renters for the reasons you outlined below. But if the market warrants a raise, he will when he's looking for a new renter. He figures he'd rather have someone he knows and trusts for a bit less money, than take a risk with someone new for a bit more money.

Posted by Nina Hollander, Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor (RE/MAX Executive | Charlotte, NC) over 4 years ago
I received a call yesterday from a renter who wants to find a new rental home. Why? Because his landlord keeps raising his rent, and because it keeps happening, he doesn't want to stay. So, if you do have good tenants and don't HAVE to raise the rent to keep up with expenses, I think keeping the rent flat is a great strategy.
Posted by Kat Palmiotti, The House Kat (Grand Lux Realty, 914-419-0270, kat@thehousekat.com) over 4 years ago

You had me at vacancy. I do almost exclusively investment real estate, and i see these lovely glowing ROI spreadsheets on loopnet.com or where someone shows me something they want to buy with a 12 cap. What destroys paper besides scissors in the childhood game is vacancy.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) over 4 years ago

Never raise rent more than the market or even close is the general rule. Also the more seasoned managers/owners know not to rock the old boat too...good post

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) over 4 years ago

Certainly the only time to raise the rent is between tenants and you spelled out many of the reasons why right here.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) over 4 years ago

As a property manager, I 100% agree. If we're talking a small raise, then even 1 month vacancy will cost the extra the Owner would have received by raising the rent.

Posted by Leslie Prest, Owner, Assoc. Broker, Prest Realty, Payson, (Leslie Prest, Prest Realty, Sales and Rentals in Payson, AZ) over 4 years ago

Your points are well taken.  Should I be charging extra for the basement full of reptiles?

Posted by Jeff Jensen (The Federal Savings Bank/Lending in 50 states) over 4 years ago

Many a landlord has lost good tenants because of rent increases and have lost money when the home is vacant. Sometimes you even get a bad tenant.

Posted by Jimmy Faulkner, The Best Of St. Augustine (Florida. Homes Realty & Mortgage) over 4 years ago

I don't raise rents during tenancy, unless the terms are changed by the tenants themselves.  One sure example, I rented to 2 adults, and a year into their rental, they want to have another adult move in.  I raised the rent by $50/month. 

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) over 4 years ago

Good stuff. I have had tenants in two of my own properties for several years (same people). They are on time with the rent and they take good care of the places, so I haven't raised their rent yet.

Posted by Jason Crouch, Broker - Austin Texas Real Estate (512-796-7653) (Austin Texas Homes, LLC) over 4 years ago

You make a good point.  Depending on the tenant and the rental market, even the smallest increase can get a tenant looking to move.  It definitely pays to keep someone there to pay the mortgage.

Posted by Karen Feltman, Relocation Specialist in Cedar Rapids, Iowa (Cedar Rapids/Iowa City, IA KW Legacy Group) over 4 years ago

I totally agree with you, Gabrielle!  We also prefer LONG term leases - if they think they'll be here for 2-5 years, let's agree to a fair price and they know that there will be no increases over the 2-5 year period...PERIOD!  

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) over 4 years ago

Gabrielle, you have valid points on why one should not kill the hen laying golden eggs!

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) over 4 years ago

This blog does not allow anonymous comments