This blog article was contributed by Bill Biko who runs the website TheEducatedLandlord.com where he shares information, tips and advice for landlords!
As landlords, we often fall into the trap of getting a bit too comfortable. It could be something as simple as skipping a property inspection or not following up with a tenant as quickly as we could, simply because we’ve become complacent.
This especially comes into play when it comes to the idea of raising the rent on a tenant who has been with you for a while.
After all, it’s easier to just maintain the status quo and not rock the boat, isn’t it?
If I raise the rent or even mention it won’t the tenant get irritated, or what if they give me notice and I have a vacancy, or what if they start making additional demands for repairs or replacement of items as I am charging them more?
Can’t risk that right?
Well, actually you can!
And here’s the main reason why…
Not raising your rents is taking money directly out of your pocket.
Now, this is a generalization, but it’s pretty close to universally true that inflation is raising costs everywhere in the country. In pretty well every country!
Your taxes are increasing to cover services, your insurance is increasing to offset insurance company losses and even the costs of maintenance or maintaining your properties is increasing.
If you don’t raise your rents you’re simply subsidizing those extra expenses and unless you’re the government, subsidizing your tenants doesn’t make sense.
Granted not all areas in the country are viable for rent increases so you need to do your homework.
If unemployment is high and/or vacancies are up raising your rent probably won’t fly and you may have to eat those extra costs.
Which makes it even more important to raise rents when you can!
So How Can You Check Current Rents?
Well, you could go through a bunch of the local online ads, create a big spreadsheet and do this for a few weeks just to get a firm idea of rents in your area, which isn’t a horrible idea as you should be aware of local rents anyway.
Or you could simply use Rentometer to get an idea of rents for similar properties to yours in your area. So what would be the best use of your time?
I know, the answer is pretty obvious and granted since this article is on Rentometer's site perhaps you'd even think a bit biased, but then again your time is also valuable.
That’s why taking advantage of technology like Rentometer to determine local rents makes so much sense.
I started out by talking about being complacent and comfortable and possibly even lazy about being a landlord, so why wouldn’t we use the most efficient methods?
In all fairness, you should probably do some local online ad checking as well, but if you’re looking for a quick check, the free Rentometer tool simply makes life easier.
Quick Expense Comparison Homework
I know, I was just talking about being complacent and comfortable, and here I am giving you homework. But it should be a fairly quick exercise just to help open your eyes.
All you need to do is grab the last two years' insurance and taxes and do a quick comparison.
If they haven’t changed in the also two years, you may not need to raise your rents. Everything should be just fine unless local rents have increased and you missed it.
On the other hand, if they have increased (which is pretty darn common), that increase is coming directly out of your pocket.
You have two options.
Continue subsidizing and watching your profits disappear, or raising your rent to help cover a portion or all of it.
The majority of tenants will not vacate over a small $20-$50 increase when you properly explain why you’ve had to increase and can show justification of why your costs are going up, even if you do it on a yearly basis.
However, if you’re not checking this on a yearly basis and suddenly unload a $100 or $200 increase because you were complacent for too long and hadn’t done some minor adjustments it could lead to vacancies.
It’s a slippery slope, so do yourself a favor and check your local rents, raise them when applicable and be fair when doing so.
How To Advise Your Tenants About a Rent Increase
So I’ve talked about raising rents, but how do you tell your tenant?
The best way I’ve found is to show the tenants what current market rents are versus their current rent and to let them know how much you appreciate them.
As an example, if after using Rentometer you’ve verified local rents for similar properties is $1,200 per month, but you’re only charging them $1,100 you’re leaving $100 on the table.
While you could raise the rent $100, why not simply raise it $75 let your tenant know how much you appreciate them and show them you didn’t raise it to the same level as everyone else.
If it’s a random increase out of the blue with no conversation with the tenant they may get upset, if it’s broken down, shown how they are still getting a deal and how they are appreciated, suddenly you have a tenant that understands what is going on.
They may even be happy with you for not raising it all the way as it shows you are looking after them. Just make sure you can verify it and you’re not blowing smoke!
Tenants are people.
Often very good people and if you end up with good people you want to keep them, so you treat them fairly. And this may mean sometimes you have to lower market rents (which is what my local market has been like) to keep good tenants.
That’s why it’s also important to raise them when the market goes up, otherwise, you simply won’t have room for the flexibility you need.