Confessions of a Landlord: I Never Raise the Rent
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As most of you know, Greg and I are the owners of two single family rental properties in Central Indiana. We have owned them since 2006, which means that we’ve been doing the whole landlord thing for quite a while. And although we have experienced our fair share of challenges, being a landlord has been fairly uneventful overall. Obviously, I would really like it to stay that way.Â
A few years ago, we were able to refinance our properties into two separate mortgages with lower interest rates. Because of that move, our properties should be paid off in a little less than 12 years. We’ll be 46-years-old then, and rolling in cash since our rental income will no longer go straight toward the mortgages on our properties. Our plan is to use most of those funds to pay for our children’s college education, then add it to our early retirement money pile. I cannot wait.
Landlord Confession: I Never Raise the Rent
Fortunately, the amount of rental income we earn should increase over the years. According to several media outlets, rents have been climbing all over the United States, including some areas in the Midwest where I live.
But I haven’t taken advantage of rising rents yet, nor do I plan to in the near future. Why? Because I have no plans to raise the rent on current tenants. Here’s why:
- I have good tenants- Finding good tenants for your property is not always easy, and excellent renters are the unicorns of the residential real estate world. I currently have decent renters in both of my properties and I want them to stay. Forever.
- I have limited free time- Vacancies are the most time consuming part of being a landlord. After all, when someone moves out, you typically need to clean and repaint everything then spend time finding a new tenant. With two small children, I would rather spend my time doing something else.
- Rent increases are unlikely to pay off anyway- Let’s say I raised the rent $50 for one of my properties and my current tenants moved out. I would then be forced to pay the mortgage myself for one month and spend a considerable amount of my free time cleaning the home and preparing it for the market. The extra $600 I would earn during the following 12 months is less than the mortgage on either property, and would be cancelled out by the one-month vacancy.
Will I Ever Raise the Rent?
Those are the main reasons I choose not to raise rents on current tenants, but I am not against raising rents as time goes on. My crazy brain actually thinks that raising the rent on new tenants is a much better deal than inching expenses up on people that already rent from us. That’s because, by raising rents in-between tenants, I can capitalize on the new income source without losing a valuable renter or causing any additional work on my end.
I’m also not against raising rents more often once we reach early retirement. Right now, we just don’t have the time to clean, paint, and seek out new renters every year, and would much rather let the current renters stay and get a good deal. We’re definitely giving up some cash for the privilege, but we currently feel that the trade-off is worth it.
As with most things, it’s not all about money. Time costs money too. And right now, I would rather spend my time taking care of my family and growing my business.
Landlords, how often do you raise rent? Renters, have you ever gone five years without a rent increase?
Nope! I feel like you do. We never raise the rent when we find good tenants. We are down to 2 rentals now. There is a great tenant in the rental house, haven’t raised the rent in 4 years, and if she renews in November, we will keep it at the same price. The condo’s tenant so far have been good, we had so many problems over the years. We won’t raise the price either. We sold the others. Land lording , especially from afar is sucky.
I would hate being a landlord from afar! I am a control freak.
Interesting! While we don’t own any rental properties yet, it’s definitely an avenue we will be going down over the next few years. I completely agree – if you have good tenants, do what it takes to keep them!! My husband used to work for a property management company and my goodness – some people DESTROY houses!! I would hate to end up in that situation :/
Yep, someone left over $6,000 in damage in one of our properties once. It was awful.
Not raising it makes sense to me (though I’m not a landlord). When I rented, the rent went up every year like clockwork – and that’s part of why I always moved out when my 12-month lease was up!
Yep, exactly!
We actually had a landlord decrease our rent after we lived there for a year because he knew we were good tenants and he knew he would have to pay for a realtor to rent the home and he ran the risk of having it vacant for a month or more which would be lost income for him. So I definitely think there are times when it makes sense to not raise the rent.
Hey, that’s awesome. I don’t think I would ever decrease the rent, but you never know. I feel like I am making plenty of money on our rentals with minimal hassle at this point, so I see no reason to push the limits.
Makes perfect sense to me. I think raising the rent between tenants sounds like a perfect plan. Mr. FW and I lived in the same basement apartment for three years with nary a rent increase, even though it was in a great location close to public transit in Cambridge. Same deal with the row house we rented in Washington, DC–two years without a rent increase. In both instances, we were clean, quiet, and pet-free & the landlords really wanted us to stay… forever, I think.
They probably did hope you would stay forever. I hope ours do!
We raise between tenants and so far that’s worked out pretty well. We even let them go month-to-month after the first year’s lease is up, and trust has been established. If a tenant ever started to give us trouble, we’d consider raising the rent as an incentive to get them out of there.
Good point. I would definitely reconsider my position if we had someone I wanted to get rid of.
I’ve been on the other side as a good tenant and asked if we could be exempt from an across the complex rent increase. Answer: yes.
I am glad to hear I am not the only one who doesn’t raise the rent on responsible tenants!
I am a renter. No pets, clean, quiet, respectful of my neighbors, and conscientious.Literally pay the rent at least a week before it’s due. I’m not sure if this is why the landlord has not raised my rent in three years, but I’d like to think that’s the reason. Also, I will never understand the attitude of some renters who feel entitled to destroy someone else’s property over disagreements with a landlord. That’s just awful. Why would anyone want to leave an impression like that??
I would never raise the rent on a good tenant. It would be like when companies raise our insurance premium for no good reason. It would make me look for a new place and like you said, good tenants are worth way more than $50 extra a month.
Exactly. I think so too. A good tenant can improve your property values by keeping everything in good shape too. We have one tenant who edges the lawn when he mows and keeps the house in immaculate condition.
I agree with not raising the rent once you have a great tenant and bringing the rent up to current market rates with a new tenant. When we applied for our current apartment and was approved, I had seen the apartment listed on three different sites and there was a price difference of $100/month on one of them. I asked for the lower rent price and got it.
Nice!
I think this makes sense and I would do the same. I would much rather raise the rates on a new tenant than increasing the rate for a good tenant that is already there.
Pretty much! And hopefully they will stay forever!
I think that’s a smart move, Holly. Great tenants are hard to come by, and if you’ve got them, you want to do what you can to keep them.
I agree. I think keeping rents low helps a lot.
When I inherited rental properties from my mom, I also inherited the tenants – both bad and good. She had never raised the rent, even on a couple of tenants who had lived in their units for 15 years! She only raised the rent when a new tenant moved in. Since I hated the whole landlord thing, I sold everything and can now sleep at night.
I don’t blame you. It’s not for everyone!
I agree that raising rents on current tenants might not be the most effective. If you want them to stay, which would bring down your cost of being a landlord, you can just raise the rent when they move out and you have new ones.
Yep! That’s the plan.
I don’t raise the first year, I do inflation based increase the second year, which always seems very reasonable and people take it. Also, I have never had more than one week of vacancy in over 5 years, so I know I can afford to lose a tenant and will find another one quickly.
In a rural place I would be more careful with tenants.
I’m not a landlord but that makes sense. Vacancies and having to repaint/clean is time consuming and expensive. Not worth it when you can just keep your current good tenants happy. I wish my old landlord was like that but it was run by a large management company so they didn’t care. I’ve thought about being an out of state landlord…I know I know…it’s harder to be far away but the numbers don’t make sense here in NYC.
I know plenty of people who landlord from afar and do quite well.
we landlord from afar, but we’re a little different than most…we bought the houses to actually live in ourselves, fix up, then rent out: Our first house in college in NV is now a rental, we moved to SC, bought a house and it’s now a rental; the house we now own in CO will eventually be a rental when we find our next opportunity. We have management companies for each house, but I think it really helps that we are intimately acquainted with each property.
As a tenant I cannot tell you how much that is valued. I have lived in my current place for over six years, and one of the main reasons is that he has never increased my rent. I try to lay low and not cause a fuss about random little things that pop up here and there, and only call him when I REALLY need to, but best believe I’d annoy the crap out of him to fix things if he raised my rent, or I’d move out. It’s VERY much appreciated!
That’s awesome that he has never raised your rent! I’m sure it is because you are a great tenant =)
I recently learned that it’s pretty standard for your rent to be raised every year in NYC. It’s apparently so common that some accept it without a second thought. I don’t know what it’s like to be a landlord or own rental properties, but I’m already mad about that prospect. I know that if it’s incredibly expensive for me to live here, it’s also incredibly expensive for someone who owns rental properties, so I’m not pretending to know what it’s like to be in their shoes. I just think of the thousands they potentially earn in supplemental income each month and about what good tenants my husband and I are (way to toot my own horn, right?). It’s pretty frustrating for me because I know if we chose to leave, an immediate line of available tenants would form after us and the next landlord would likely do the exact same thing. It just seems to be the norm in this crazy housing market.
Yeah, I could see where that would be frustrating! On the other hand, I am generally against government interference when it comes to rent control. Landlords take a huge chance when they invest in rental property and should be able to benefit from it.
I rented for a 2 years before I owned m home and never saw an increase. I like the idea of raising in-between tenants. Do you cover utilities? If so any majors swings or rates increase by companies that cause you pain as a land lord?
I don’t cover any utilities aside from a $6 monthly fee for sewer water or something.
As tenants who pay their rent on time every month and try to make our own repairs if they’re easy enough, we appreciate cheap rent!! We hate moving too.
I also hate moving =)
I manage a property for my in-laws and we raised the rent once the previous tenant decided to break there lease and move to Switzerland. We went from getting $775/month to $900/month and so far the new tenant has paid on time and has been great. By the way, I love you plan to pay off both rentals in the next 12 years, you and Greg are my heroes 🙂
Awww….thanks. Yeah, we were able to refinance the mortgages into 15-year-loans!
I like the idea of owning rental properties but I just can’t bring myself to becoming a land lord. A weakness I need to get over or just forget about rentals as an income stream. That said, I think you are right-on with your strategy. Leave rents where they are for good long term renters and then bring it up to the market rental level for new renters. Your Time is very valuable. Hard to buy new time.
Well we are only on our second renter and we did raise rents between the first and second. We started very low, though, because the first renter did not see it with the upgrades we were planning on making. I agree 100% and don’t think you are crazy to only raise rent between tenants. In fact, it’s what drove us away from our first apartment. It was a big complex, though, so I’m sure it’s part of their policy. I’d rather keep a renter than make a few extra bucks a month.
On a side note I would absolutely love to have a couple rental properties (paid off properties) that can provide me with straight cash for retirement and savings. You’re basically doing what I hope to do down the road, and it’s awesome!
Makes perfect sense to me. We are not landlords but if we were, I imagine we would do the same. Good tenants are unicorns and if I had one, then I’d do everything I could to keep them. Waiting to raise rent until you have a new tenant makes sense. I know some landlords feel the must raise the rent every year, but like you said, when you do the math, you don’t necessarily get ahead.
I get your reasoning behind not raising the rent, one thing that would cause me some concern is eventually the tenants move out whether it’s in 2 years or 20 years, but the longer they are there, the more updates you end up doing when they do leave, which will cost extra money.
We have chosen to raise the rent, but only after the 2nd lease/when someone moves out, if someone is paying on time and you love them as tenants, no need to rock the boat. I do think that eventually you will raise the rent as someone leaves, taxes goes up, an appliance/roof,water heater need replacement. I’d rather have the extra money for an emergency fund for items like this in the future.
I tend to think of it the other way, instead of if I raise the rent $25 will they leave? I prefer to think why would anyone leave for $25 extra month, its basically the cost of doing business. Nobody wants to move, pack up boxes, change mailing addresses, hire movers/u-haul, they are saving money by paying the extra $25 month.
Great topic to think about for landlords out there, thanks Holly.
We live in a low cost area so raising the rent $25 would be a pretty big deal. Like I said, it’s just not worth it to me at all. I’m making plenty of money with no hassle and my rentals will be paid off in a short amount of time. I’m not sure if anyone would leave over a $25 or $50 increase, but I do know I don’t want to find out! =)
With that being said, we have a large emergency fund that could replace roofs, furnaces, and whatever else, so I guess I don’t stress about that part too much. Raising the rent $25 and earning an extra $300 next year is just not worth any potential drama for me.
As exciting as the idea of having rental properties, I’m afraid of having crappy tenants. But I guess if you do it right (aka not try to screw them at every turn), you can get some decent ones who want to stay.
Interesting way of doing it. I think it works out best for both parties when you don’t raise the rent. One question is how do you deal with inflation? If you have great tenants, but they choose to stay there for 7 years. Wouldn’t you technically be losing money over that time by keeping rent flat and not going with inflation? Mind you, I am not a landlord, so this is all speculation.
Inflation doesn’t really affect anything that goes on with our rentals, except perhaps the cost of repairs. However, I would argue that good renters actually keep repair costs down by taking good care of your property.
The mortgages have remained the same on both properties aside from the time we refinanced both of them. Since we have fixed-rate mortgages, our monthly payment never goes up unless property taxes or insurance go up. That hasn’t happened yet. If our property taxes went up significantly for some reason, I suppose I would reassess.
We have a pretty low positive cash flow so I will be raising the rent once the current lease is up on our current tenant but they’re also not really good tenants (legacy renters from when we purchased): they only pay on time 20% of the time, they’re really unpleasant to work with, they try to get out of paying their utilities, etc.
We’ll be doing our full background check on the new tenants, accepting the cost of a vacancy for at least a month, and start them off at the higher rate but if they’re good, I’m not raising the rent as long as they’re good and staying! 🙂
I’ve been on the other side of the coin and very much appreciated going years without rent increases. In return we made sure to take care of any maintenance as well as we could.
I know a few landlords who rarely raise their rent. It’s a fairly simple strategy and isn’t as bad as people think; maintenance costs are lower because the tenants take better care of the place, the tenants rarely complain about anything and it takes way less time and effort finding tenants because they usually stay for a long time
Holly, THANK YOU for this!! I say the same thing, and people disagree with me all the time (usually landlords). Time is MONEY – and your time, especially with small kids, is very valuable! I’m not a landlord (yet), but my parents were forever, and they NEVER raised the rent on good tenants. They did, however, raise the rent on new tenants because it made sense (like you pointed out). If you have good tenants, I would do everything I could (within reason) to keep them. They truly are unicorns!
I live in student rentals and they always keep raising the rents! I think they just assume turnover.
My coworker has had a rental empty for over a year because he has a full-time job , the tenant trashed it when they moved out, and he insists on doing everything himself. So much lost money! It hurts just thinking about it.
I think your approach makes a lot of sense. You never know who the next tenants might turn out to be. But I think it’s also okay to set the expectation from the beginning that there will be small yearly rent increases with a long-term tenant – not enough to make them move, but to partially offset inflation. But yeah, jack it up when they eventually move out!
My husband lived in an apartment for five years and had only small rent increases (like $10/month) through that time – the recession – and then in 2012 they decided to jump up the rent. They told us that the increased rate was still sooooo much lower than market rate and they could easily fill a vacancy if we decided to leave. We are EXCELLENT tenants so we felt rather slighted and decided to move. But then, when we found a new (cheaper, better location) place and wanted to get out of our lease a few weeks early, they said they hadn’t filled the unit yet! Ugh, you can’t have it both ways.
I think raising the rent in-between tenants is a much better way of doing things! No need to “punish” the great tenants you already have. As a renter, I always expect the rent to increase at some point, so it’s nice to hear other landlords agreeing with you. We live in an apartment complex, so I’m sure our rent will increase once our lease is up, at which point, we’ll be moving. I’m hoping to rent from an individual next time!
I right there with you! I’ve had the same awesome tenants for several years. They are friends of mine and they are perfect tenants as far as I’m concerned. I even let them pay less than I probably should, but I still don’t raise their rent, because I’m still making money and I wouldn’t want to lose them.
My parents have been renting since 2003 and the landlord has not raised it since.
This is a big issue for me as well. I don’t want to lose good tenants but I also don’t want them taking advantage of me. Raising rent is pretty standard in the industry and every tenant should expect it. We decided that we would always raise rents, even if it’s just a little to set that expectation in the tenants mind. I’ve raised rents as little as $5 a month. I’d rather do that than have a tenant for four years and then all of a sudden decide to raise rent by $50. That would be more of a shock to them.
One thing we do that helps ease any negative feelings about an increase in rent is give our tenants a gift card for renewing. Something like $25 to a grocery store or something we know they might like. They will appreciate that more than you know and it creates a lot of goodwill. Small price to pay to keep someone around for another year.
I never rented one property for that long, but the places I did rent didn’t seem to have raised the rent in between me and the new tenant…
I’ve never been a landlord, so I’ve never had to think about such things….but I do watch a lot of courtroom TV, and there’s seemingly a case every other day about someone moving to a new place because the rent went up. It doesn’t take much of a rent increase to cause someone to say “This place isn’t worth it anymore” and move. But like you said, paying the mortgage yourself for just ONE month would equal a lot of months of the rent increase. I’m sure your tenants appreciate it as well. 🙂
I wish you were my landlord! I got my rent notice that it was going to go up $110 a month and declined to renew. I was pretty puzzled too. I know they’re trying to gentrify the area and I’m pretty much the key demographic. They haven’t had a lot of success, so it’s really not time to boost the rent crazily. I also pay my rent 2 months ahead of schedule. I should pretty much be their dream tenant. But it’s a big company who just doesn’t care.
Whatever, I’m going to move back in with my parents for a few months until I go nuts and just bank all that rent money. Take that crappy NYC landlords. 😛
Interesting idea. I’m not a landlord and don’t plan on being one, but I do rent. From the landlord’s perspective that I have read it seems like finding a good tenant is extremely difficult. I may have to see if my own landlord has this perspective.
My landlord informed she is raising rent but hasn’t decided on the amount yet. I’ve been an excellent tenant and handled so much that a tenant isn’t responsible for. She lives out of state. I’ve handled small repairs on my own, coordinated scheduling to get the property approved as a rental (using my time off work to meet with inspectors and companies to do required work.) I am a prior homeowner and rarely contact my landlord for anything. I am making plans to move. I can’t have uncertainty w how much it would increase and honestly, any increase feels like a slap in the face given how considerate and helpful I’ve been. (It took over a year for the house to actually meet rental codes. There were a LOT of appointments.) Instead of a rent increase, I should get a refund for the work time I took off when she or her designated representative should have been there.
The extra $600 I would earn during the following 12 months is less than the mortgage on either property and would be canceled out by the one-month vacancy.
Another way to look at this: I have seldom raised rents, but that gets met into trouble down the road. Then I have people living at five year old rents, 7 year old rents… then most get to feeling that I, the landlord, have no right to ever raise the rent. So year after year, I let them have their way, and I find I’m supplementing others’ living costs.
Where’s the justice in that?