Raising Rent: Good idea or bad business practice

[Brian Oberg]

We currently own three investment properties (SFR) and looking to expand that by at least 4 this year. We have always held it to be a good business practice to not raise rent on current tenants when the renew their lease for subsequent years. Our thoughts were it is better to keep the rent where it was and keep the tenant for another year (or more) rather than take the chance for them to move over the higher rent and then have to go without a tenant for a period of time that would exceed the amount we would have made with the higher rent. Are we doing this wrong?

[Kyle J.]

Not raising rents on long-term tenants may work in a market where rents don’t appreciate much. It’ll certainly keep your turnover low. But at what cost?

In my market, rents go up every year. When I was a brand new landlord, I didn’t raise them on my tenants though either because I didn’t want the tenants to move. But then the market rents kept going up, and I realized...if all the rents are going up, why would they move from where they’re at? 

So I started studying what the fair market rents were and raising them a little bit each year to try to keep pace. They’re still a little under what I could be getting, because I do value having them as tenants and I want to reward their continued tenancy. But to not raise them at all is leaving a lot of money on the table.

Most of my tenants stay with me for 5 to 8+ years. I can’t even tell you how far under market I’d be if I never raised their rent at all.

(And now with statewide rent control in my state, that would really limit a landlord’s ability to ever catch up in some cases.)

Even if you don’t have rent control though, you’re leaving a lot of money on the table by not raising the rents at all. Especially if you end up with long-term tenants who stay with you for years.

Anyway, just something else to think about.