Raising the Rent
Teresa has rental property and wants to know if or when she should raise the rent. She has great renters right now. Dave advises raising the rent every year.
QUESTION: Teresa in Idaho has rental property and wants to know if or when she should raise the rent. She has great renters right now. Dave advises raising the rent every year.
ANSWER: Raise the rent every year. You’re renting the properties for $2,400 and $400 a month. Here’s the problem—you’ll look up in five or 10 years and the rent on the first should be $3,500. Then when you go to raise it just a little bit, they’ll have a fit because you haven’t done it for a few years.
You don’t have to raise it much. On the $400 property you could raise it 10 or 20 bucks if you want. I just want them knowing that this is a moving thing. I don’t want them thinking this is locked in. When I do that, I explain to them that you’ve looked around in the market and it looks like if they were to move out you could rent this for about $450. So you could raise their rent to $450 but they’ve been great tenants and you’re really glad they are there, so you’ll only raise it to $410. Don’t raise it to the full market.
If they don’t think it’s fair, tell them you are raising it to less than what you can get for it. If they move out, you’ll make more. You don’t want them to move out, but you want to keep up with what the market does, even if it’s just a little bit. Because that keeps the conversation going and it gives you the opportunity to go back in and tell them you appreciate them.
It’s a good idea to do some kind of a deal where if they sign a lease, you’ll raise the rent $10, but if they don’t you’ll raise it $20. I don’t do deals without leases. I personally don’t do month-to-month rentals every month because I don’t want to fool with it every month. What if, all of a sudden, everybody moved out one month?
I need the stabilized life of being able to expect that rent for that period of months.