Originally posted by @Jack B.:
Let's say I buy a 50 unit apartment complex. My mortgage is fixed. Expenses such as taxes and insurance will likely rise slowly over time.
Now if I raise the rent $50 per year on all 50 units (perfect scenario to demonstrate the concept) I'm pulling in an extra 30K per year. Now let's say I do that each year for six years. Now I'm making 180K a year MORE than before.
In this scenario, expenses have been budgeted for from the normal rent base, however, I could dip into some of this cash flow if needed.
I'm curious, if this is really true, why are more people NOT doing this? Seems to me THIS is the way to go. Heck I could replace my six figure IT salary in a few years and retire living the same lifestyle I live NOW. And I just get richer over time as rents rise and the mortgage is paid down.
@Jack B
I understand what your saying, but your forgetting important factors. Increasing the rents gradually but with no added value in your 50 unit building will create turnover (over-time). You also have to consider in the perfect scenario the demographics and what type of tenants your catering towards, is your property in a desirable location? Is that location apart of a bigger redevelopment effort from the city/town or will be? If so then you can project an outlook of rental increase from say not just $50, but $50-$200 per unit annually as development brings in new demographics, this will also allow you to "update" building or buildings with your surroundings (new development) which will justify the increase in rents.
Smart investors don't just increase rents to do it because they can, there's a reason, which is done both from a artistic perspective (your vision) and a science perspective (hard data).
This may or may not answer your question as to why you don't see this as common practice. But there are property owners who play your provided scenario in real life, and I can't say I've seen them stick with that strategy for a long time without seeing the drawbacks of arbitrarily raising rents.
One of the many things to consider when you plot out scenarios. :-).
Bruce
