3 Reasons Not to Raise the Rent
Most people will tell you that raising the rent is a good thing. In fact, a lot of landlords and/or property managers raise the rent as a matter of course whenever the lease term comes up for renewal. But there are sound arguments against raising your rents.
1. A Good Tenant Might Leave
if you have a tenant in place that pays the rent on time, lets you know right away when there’s a problem with a water leak and is keeping up the place, why would you want to jeopardize that situation? By raising the rent, you may just force your good tenant out and wind up with a tenant that you wish you never signed. Good tenants offer value that goes beyond what they pay in rent each month.
2. You Disrupt the Rent-to-Income Ratio
When you started looking for a tenant, you likely had a certain rent-to-income ratio in mind. If you purchased a turnkey rental property, that company may already have a tenant in place for you that had to meet a certain rent-to-income ratio, such as three or four times what the rent is. But when you raise the rent, you’re disrupting that ratio. Unless the tenant is making more now than when they moved in, they may no longer be meeting that three or four times the rent criteria. This in itself may force the tenant out if they can no longer stay within their budget after your rent increase.
3. You Could Start Trouble With Rent Payments
Let’s say you do raise the rent on your tenant and they can’t afford to move so they agree to the increase and stay on. If you’ve stretched their budget too thin, you might find yourself with a problem collecting rent on time when there was no problem before. If things escalate, you could end up having to evict a tenant that—prior to your rent increase-was managing the rent just fine.
Now, many landlords feel that they don’t raise the rent enough to devastate a budget. And for many tenants that may be true. But if you’re renting to a low or middle income family or a struggling single parent, or someone who’s lost work due to sickness, that extra $50 or so in rent looms pretty large in their eyes. And in comparison, how much extra value is $50 in your pocket really going to bring you?
The next time a lease comes up for renewal in one of your rental properties, take a moment to consider whether or not you should raise the rent. Sure, there are benefits, but there are also reasons why raising the rent is not always the best choice to make.