Why Raising The Rent is a Good Risk Every Landlord Should Take

Raising the rent is one task many landlords want to do but at the same time fear doing it. Sure it's easier to jack up the price if your aim is to get a deadbeat tenant out of your property and start fresh. Yet the task becomes harder when you are at risk of losing an A Class tenant who pays on time and takes care of your property. Even when the increase is necessary, it can be difficult to quell the fear of not being able to find a new tenant if the current one leaves. Asking for more money from a good paying tenant can make some owners feel another emotion: guilt. After all, if you net x amount of dollars already from your rental, isn't asking for more money from your tenant seem a bit greedy? The truth is, raising your rent every year offers many advantages, making it worth the risk.

Rent increases help cover rising operation costs

Yes, this is the most obvious one. Rents must rise to keep up with operation costs. Taxes, insurance rates, utility charges go up every year and your rent should too. You are running a business and your job as the owner is to pass some of these costs onto the renter. Failing to do so will not only shrink your net cash flow but will come back to bite you when you go to sell your property.

Rent increases improve the marketability of the property

Selling your property with tenants in place automatically detracts some buyers, especially if the tenants are paying below market rent. If you can show you are collecting regular rent at the market rate, you can ultimately demand a higher price for your property. It also shows buyers looking at your property that they'll have a bigger net cash flow and result in an easier sale.

Regular small rent increases provides predictability for your tenants

Like you, your renters experience price increases in food, gas, utilities, etc, so why not train them to expect yearly rent increases. Most tenants do not mind small rent raises of $20, for example. However, if your increase doubles the rent payment, you may receive a nasty phone call or email from your tenant. If you decide to do a steep price increase, a tenant may still not move if the increase is accompanied by capital improvements that also benefit the tenant. For example, modifying a kitchen with updated appliances or putting in a new HVAC system will not only increase the value of your property but can motivate the tenant to tolerate the increase and stay.

Rent increases promote proactive maintenance

Many landlords who put off rent increases also practice deferred maintenance. For example, they may know their clogged gutters need cleaned but low net operating income due to low rents prevents them from doing so. The result: maintenance is deferred until the gutters are rotted and begin to fall apart. Regular increases in rent allows a landlord to fund these type of repairs and preserves the life of the property. It also affords the owner to set aside money to make capital improvements. Doing preventative maintenance on the exterior of your property improves the look of the neighborhood and it also gives your tenant reasons to stay.

Raising rent is risky, but it is part of being a landlord

Doing regular rent increases is a necessary part of doing business. How you communicate that increase can be done in the form of a separate letter along with the notice explaining the reason for the raise or simply by issuing the legal notice to the tenant. If you provide a clean rental in good repair, a moderate increase will not cause a tenant to move. What it will do is help keep your rental business profitable .

Now isn't that why you became a landlord in the first place?