LANDLORDS! Property Managers * THIS is Why you Need to Raise Your RENTS!!

Increasing rents can often be the most unpleasant part of managing rental property - especially if you have become friendly with your residents.  However,  it is imperative that you raise the rent on your rental property each year.....here’s why

Your costs go up each year but if you are scared to raise the rent for fear of loosing your long-term residents or because you want to “help them out”, then after a few years, you start to get behind and catching up becomes even more problematic.

By waiting a few years, you get so far behind, that you will have to raise the rent  25% to 50% in order to catch up and your tenants will move out for sure, even if your “catch up amount” is equal to what they will have to pay elsewhere.

Without rental increases, you can’t maintain the property as well as you could if you were keeping up with the market or at least with inflation and property taxes.  You won’t make as much money as you think you should and YOU WILL NEVER GET THIS MONEY BACK.  This will result in a “double whammy” when you go to sell the property.

Would-be purchasers look to the maintenance of the property when they decide how much to pay for it, and if the property does not look good enough, it won’t demand good rents and the value (sales price) will be lower.

Buyers also look at the current rents.  If your property is advertised as “rents should be higher” a prospective buyer will immediately ask “Why?”  They begin looking for reasons and find deferred maintenance.  Therefore, lower rents mean lower sale prices.

Investors are using a couple of figures to multiply the net income by.  One is the Gross Rent Multiplier(GRM).  This is a figure that, among other things, when multiplied times the gross rental income, gives a rough idea of what the property ought to sell for.  The lower the rent, the lower the sales price - hence what a buyer would be willing to pay.

Another figure is the Capitalization Rate, which is the Net Operating Income (NOI) divided by the asking or sale price.  The NOI is the gross rents less vacancy allowance less expenses.  The lower the rents, the lower the Cap Rate.  An acceptable Cap Rate is most parts of the country now is around 10 percent.  So if the rents are not high enough, your sales price will have to be lower to crease an acceptable Cap Rate.

If you raise your rents every year, at least 3 to 5%, it is too small an amount to make it worthwhile for your tenants to move but large enough that you stay even or even get ahead a little.  Just be sure to do it every year.  You owe it to yourself and your good tenants.