Raising Rent On Tenants

Rental properties can be a great investment for landlords, as they provide a steady stream of income and an opportunity to build wealth over time. However, one aspect of being a landlord that can be challenging is deciding when and how much to increase rent. It's a tricky topic because there are many factors to consider, and landlords want to ensure they are maximizing their return on investment while still keeping tenants happy.

It's true that landlords should be increasing rent to keep up with inflation. After all, rent increases are one of the primary benefits of investing in rental properties. However, landlords need to be strategic about how they increase rent. The simplest answer is to do small incremental increases that are manageable for the tenants. In areas like the South and Midwest, this usually equates to amounts of $25-$75 per year.

If landlords increase rent by say $200 at one time, it could be problematic even if it's compliant with the state's rent control regulations. Large rent increases might tempt tenants to move out, and the expenses associated with a property turnover, such as re-advertising the property and showing it to potential new tenants, can easily outweigh the increase in rent. A property turnover after someone moves out typically cost a minimum of $2,000-$3,000, and that doesn't include the cost of vacancy (at least one month of lost rent). On top of that, property management companies often charge a tenant placement fee which can be another $500, so the additional $200 you were hoping to get in rent wouldn’t even pay for your turnover and vacancy expenses for over 2 years.

Now, this is also why it's important to be setting aside some of your cash flow each month for these expenses regardless, because tenants do move out. However, it goes to show that it's better to keep a tenant happy and charge them a manageable amount with small incremental increases, instead of large amounts at one time that might tempt them to move out. A happy tenant is less likely to move out, which means less turnover costs, less vacancy time and more predictability.

In summary, landlords should be increasing rent to keep up with inflation, but it's important to be strategic about how much and when to increase it. Small incremental increases that are manageable for the tenants will help to keep them happy and reduce turnover costs. It's also important to set aside money for turnover and vacancy expenses and to be aware that the cost of large rent increases may not be worth the added income. By approaching rent increases in a strategic and considerate manner, landlords can maximize their return on investment and have happy tenants in the long run.