Raising Rents

My tenants are coming off of the end of their first year’s lease, and happily they’re going to stay. Landlords always have strong opinions on the subject of rent increases (and rent decreases – most are dangerously, stupidly opposed to them).

One school of thought is that property is an investment, and in order to maximize the investment you need to always be charging the maximum rent. John T. Reed discusses this in “How to Manage Residential Property for Maximum Cash Flow and Resale Value” and makes a very good case that you should always be charging the maximum possible rent. For multi-unit properties, his view is that if you have less than a 5% vacancy rate you’re leaving money on the table. His points include the ideas that:

• Current tenants can become problem tenants as easily as new tenants could
• New tenants might be LESS troublesome then current tenants, there are a lot of good people out there in the world, there’s no reason why they’ll be worse then what you currently have
• Getting top rental dollar is necessary for justifying a high property value
• If you aren’t raising rents and moving in new tenants often you’ll have no idea what the market rate actual *IS*

The counter-argument is simply that good tenants are gold and you shouldn’t give them a reason to leave. One place I was living raised my rent from $650 to $700 and I promptly gave notice (there were a bunch of reasons I wanted to move, this was just “the straw that broke the camels back”). The place sat empty for 2 months until they could find another tenant (losing them $1300 – it’d take over two years at the increased rental price to make up for this loss). Once a landlord is covering his expenses, PITA factors (“pain in the ass”) become more annoying and it becomes easier to accept less money if people don’t bug you.

So what did Mr. Cheap do? I left my tenants’ rent as it was. I promised them when they moved in that if they didn’t call me for minor issues (such as changing light-bulbs), I wouldn’t raise their rent. I’ve been delighted with them as tenants (no bounced checks, no problems). I like to joke with my father that the hardest part of renting out my condo is walking to the bank to cash the check each month. So even though my condo fees have gone up, and inflation means I’m earning less each month from their rent, I don’t need potential aggravation from new tenants while I’m applying for my PhD (if I raised my rent and the current tenants moved out).

Hey, what can I say? I’m Mr. Cheap, not Mr. Greedy!