Do you raise rent on good tenants?

35 Replies

My theory is if a tenant pays on time and takes care of the house, leave the rent alone until they move on and then adjust it for a new tenant.

Have heard so many times from friends where their landlord raises it and they're agitated.

What's your thought?

The county raises property taxes on me ... And I'm good owner.

So yes. I do. But I raise it incrementally and give them a respectful notice in person.

@Chris Purcell it's really a judgement call.  I typically rent my properties below market to avoid vacancy and I run my numbers as such.  My thoughts are a nominal increase will not replace the cost of vacancy.  I'd say leave well enough alone.  Best of luck!! Always remember to persist and you will WIN!!!

I increase even if it is just a nuisance increase.  No one is leaving over 20 bucks or so and if you never do they assume you won't and it is a shock if you have to.   Good or not there is still a need to keep it close to market if you don't want to keep it at market.

All my tenants are good tenants.  If they were not good tenants they would be somebody else problem.

I start out with a 2 year lease and an increase on the second year with a clear understanding that there will be a small yearly increase thereafter.

Because I try to keep my properties in tip top shape I agree with the statement above that no one leaves over $20 per month. If you take care of issues and keep your property above average it should cause you no harm to raise yearly. If your property is subpar I suppose it could ruffle some feathers.

@Chris Purcell ,

You have to know your market, and if it's increasing or more of a "stabilizing" market where it wouldn't tolerate.   If someone is renting a $1500 house, they  won't notice or care about $20, but if you're renting a $600 unit, that $20 has a new value.    

My advice is if you chose to increase,  explain to the tenants it's because of increased taxes/insurance/improvements, and make it standard-- if it's always at lease renewal, they'll expect it and there won't be any agitation.   If it's sporadic,  IMO it will appear slimy and that the landlord just all the sudden thinks he deserves more money.  

If you do low income houses like us, we are changing out leases where they're rented at a discount if paid by the first, that way as long as they always pay by the first, we are good, and if they don't-- they get what the increased rate would be, $50-$75 more, in addition to the late fee if after 7 days.   This gives them the option to keep it at a low rate, but also compensates us if they don't get rent on time.

@Chris Purcell , I love this question and don't have a definitive answer.  If the tenants are great and I never hear from them, and the property is taken care of, I generally don't raise the rent every year.  However, after the second or third year, I think you really need to if the market demands it.   I guess the question is, if you raise the rent 1%, the tenant leaves, and then you have a vacant property for two weeks, or a month, is it worth it?  In most cases, I say no.

Yes, I blame the taxes and inflation. I give 90 days notice.

yes. Cost of living increases. Your property taxes and insurance increases. Rent increasees.

@Chris Purcell It depends. I personally have certain amounts I act on so then tenant doesn't get the perception I am nickel 'n dime-ing them every month. And they know it too when they are paying below market rents, especially in the low income market.

I.E. I don't say well rent for the area went up in the past 6 months, so rent is now $619 instead of $600. That makes me the enemy landlord who is always trying to get every bit of their overtime check, and then they want every little detail fixed and I get high turnover.

Rather, I wait for $700 to hit and say, "Listen, rents have gone way up in the past x years and I haven't touched your's because you've always been a great tenant. But reality is I'm paying 100s more in taxes each year, so I've got to raise the rent to $700. If you can't do that, its cool, I'll give you a couple months to find somewhere else, otherwise I'd love you to stay."

If the market rent is higher than what they are paying, then yes, I raise the rents if they are good tenants. If they are not good tenants I do not renew the lease. I spend the money to buy in high quality neighborhoods with high demand for rentals ... as such I have never once had a good tenant leave because I have raised rent, and if that ever were to happen I would have absolutely no issue replacing them with another good tenant in short order. The one thing I will do to my units to make them more attractive to tenants is I will spend a little bit extra to put in slightly (but not extravagantly) nicer finishes ... things like brushed nickle hardware instead of brass or chrome, laminate floors instead of carpets, etc. and keep my units in good condition ... therefore, even if I charge market rent it is a good deal since my units have slightly nicer finishes ... if I take pride in my units and they are in good locations, then I find it will attract quality tenants who will also take care of my units, and no they do not leave when I raise rents up to the max the market will bear.

@Chris Purcell Yes, I raise the rents.

@David Faulkner when I'm doing a Reno I periodically check in with an interior designer to tie together the finishes. I ask them on paint color, hardware, floor stain/finish etc. Sometimes I get surprised by what they tell me so I double check.

This last time they told me to go with Antique Brass or Brushed gold faucets and hardware in the kitchen.

I did double check and it's becoming a trend.

I went back and forth on them with this and finally asked if they had another color, they did matte black I said ok let me think about it and the designer said " put whatever you do no brushed nickel"

I went with antique brass. Not sure if I'd do it in a rental but this ones going on the market, so I trusted their judgement.

It's yes and no, I done it both ways through the years.

I have extremely good tenants that stayed as long as 12 years. One of them never bothered me with repairs, even big ones. One year, I noticed all my gutters are crooked, then went back a few months later to call a gutter guy, it was all straightened out. He told me the nails holding it was loose, so he went throughout the house, re-nailed all the gutters. On another occasion, I noticed a 6"x12" patch on the wall, recently patched, not yet painted. He explained the prior tenant hung a picture there, drove a nail threw the wall, dented a pipe. I said "oh no, we have to fix the pipe". He told me he did it already, he opened up the wall, cut out the section with the dent, welded the new section in. I felt better, and he's a member of the iron workers union. His rent was $1,300 month, and 10 years later, kept it the same. I never check the market rents, and when someone across the street wanted to rent it, he's a renter and his landlord is selling the house, is paying $1,800.00.

Rents now are $2700 market, and just rented it for about $2,300, but plan to increase it by at least $25.00 or more a year. Looks like these people would stay with me a few years, and I expect school taxes to go up that much each year. There's good demand, and when the neighbor ask about renting, he explained there are no houses for rent at the time, and he wants to keep his kids in the same school district. Says the rental market in town was that tight for a while.

My only question is, are we doing too much below market? It's mortgage free, so  a hundred more, a hundred less is not a big deal for us.

its always a good idea to keep your thumb on the housing pulse

look around your area and find rental comps

this way you know what is out there and where you are at when it comes to rentals

a little rent increase is not going to force someone to move, if it does then you may not of wanted that tenant anyway

ex-central AZ- 2/1 with garage-$825 10/16

2/1 with garage-$950 3/17

this was the move that the market made this year in my area

enjoy

I've been thinking of adding an annual 2% cost of living increase to new leases. Having raised a lot of people's rents over the years just be prepared for them to retaliate with a bunch of service requests that could eliminate any profit

I would recommend raising it incrementally throughout the years in order to avoid the shock to the tenants system of raising it in one big chunk.

If you choose to not raise your rents throughout the years, it will also put you at a serious disadvantage when you are looking to sell because now you have a long term tenant paying below market rent.  With newer investors being so obsessed with numbers it could hurt your re-sale down the line in my opinion.

It boils down to whether you are investing as a hobby or a business. Good tenants, bad tenants, the costs of doing business take priority. Hobby landlords will generally be reluctant (embarrassed) to raise rent and will normally keep rent below market with the false belief that it retains tenants saving turn over costs. This of course is a fallacy. 

As a business operator you understand that operating costs increase annually. Since I operating a business, not affordable housing, I raise my rents every year and keep it at the market rates when possible.

Tenants understand and expect to pay market rents and also expect to receive rent increases annually. Hobby landlords tend to approach all aspects of the business from the perspective of doing as little work as absolutely possible in return forfeiting the higher profits. Regrettably they do tend to slightly hold down market rates for all investors.

Business or hobby, it make no difference which approach you take to rental rates.

@Frank Chin

Based on the opportunity value of cash your equity, if your mortgage free, is most likely creating negative cash flow from your investment property.

With the opportunity value of cash at a minimum of 10% for every 100K in equity you must deduct $833/month from your rental income to insure a accurate accounting of your TRUE income.

Investors must keep in mind every property has two separate income generating streams. Paying down a mortgage does not increase cash flow it simply shifts the income source from the property to the equity. If investors do not account for this the likely hood is that they are losing money and the property investment is a waste of both time and effort to hold. 

I agree with everyone above. While you definitely want to reward good tenants, its your business and not keeping your rents at the level of the market, its money out of your pocket. One of the good tips I've come across is try to pair significant rent increases with improvements to the units to allow your tenant to see the value. If they are a good tenant, I think a more acceptable accommodation for an A+ tenant is allowing them to choose or have input on how you want to improve the unit. If you are just raising $20-$50 to keep up with the market, if they want pay moving cost to pay the same rent elsewhere then theres nothing you can do. 

I do, but I do show them the comps and indicate that since they have been a superior tenant, I am only increasing the rent a little, still keeping them under market value. If they do look around, they will see that they are under the market value.  If they move, chances are they would have moved anyhow. 

The question "Do you raise rent on good tenants ?" suggests that you would raise the rent on bad tenants. 

That sounds like discrimination to me..

@Chris Purcell

I'm somebody that likes to keep situations simple, and by letting emotions and how you feel get involved, one can make any situation very complicated. If the market is indicating to raise the rent, I would. If they are a good tenant, and you are a good landlord, then they may understand. It's definitely always nice to show some kind of rental trend in the area to the landlord via a graph or what not so that they understand. 

I just purchased 2 4 plex, and sent out a 60 day notice to increase rents. The previous landlord didn't take care of the tenants or fix simple things that the tenants needed somtimes for months. The day I purchased the property I let everybody know via notice that I would be fixing any problems that they may have such as plumbing, electric, whatever. I have given them a good impression, and every single tenant has signed a new lease. 6 tenants had their rent raised $100, and 2 had it raised $150. They're happy and understand that they haven't had a rent raise in 3 years, they are still slightly under market, and rent raised 20-30% in the past 2-3 years.

I see a lot of justifications here about raising rent based on "being a business". So lets talk about some examples of how businesses work.

On a very low level, consider Home Depot. If you go in and buy (1) 2x4, you pay retail price. If you walk up to the contractor desk and order a pallet worth, you get a different price. Selling in volume has a value to HD, enough so that they are willing to accept a price below retail, likely because their cost per piece is lower that way. Are they simply home improvement material hobbyists because they left money on the table?

As an agent - my real estate business - I ask for a certain commission based partially on how easy a client will be to work with. I consider if this is a person who will be calling me twice a day vs someone who will only email me their signed documents, among other things. Those things have a certain value to me, so I am willing to give up a certain amount of my potential income to ensure I get the business and keep a long term, happy client. Repeat business (of good clients) and referrals have a huge value to me. Am I simply a hobbyist because I don't charge everyone the same rate or because I left 0.25% on the table?

In my rental business, I value long term tenants who pay on time, keep their unit maintained, and don't pester me with irrational complaints. I value that because those tenants provide me with low turnover costs, low maintenance costs, and require very little time of my time. Because of each of those reasons, those tenants net me a higher profit on my units, even if I am not grossing the highest income possible. On the flip side, I could charge everyone "retail" rents and get retail, one-off clients (tenants) who will cost me a higher % in comparison to the % increase in income, leaving me with a lower net.

Businesses are about building and maintaining relationships that are beneficial to both parties. Just because you can do something, like raise rents, charge certain fees, have certain rules, doesn't mean you should if it costs you your relationship with a client who brings you a high value. I'm certainly not advocating holding your rent @ $400 when the market is @ $700, but take into account the NET amount you are making on your tenants when deciding if its worth it to trade a 3% rent increase for a possibly broken business relationship with your client.

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