Confessions of a Landlord: I Raised the Rent

As most of you know,  Mrs. Even Steven and I are the owners of two rental properties.  One in Chicago is a multi-unit property, which we reside in one of the units and the other is a single family home in Miami, Florida.    We have owned them since 2011 and 2009 respectively, which means that we’ve been doing the whole landlord thing for a short period of time.  And although we have experienced our fair share of challenges, being a landlord has been a great learning experience and has lead to a promising future for us. 

About April 2013 after several conversations of what was the best plan for our future, we began paying off our mortgages early.  Because of that move, our properties should be paid off in a little less than 7 years,6 years.  I will be 38-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 retire early and use the rental income as our primary source of passive income.I can’t wait.

Landlord Confession: I Raised the Rent

We have 3 units that are available for rent, all of the leases end the last day of September, with the exception of our Garden Unit apartment which we extended until the end of October because the tenant’s boyfriend closed on a house this month, so we extended the lease one month and just recently went through the rental process, DIY of course.  So we decided to raise the rent on all 3 units, one of course is a new tenant, but the other 2 are renewals.  According to several media outlets, rents have been climbing all over the United States, including some areas in the Midwest, according to Holly at Club Thrifty, also my entire motivation for this post.

I think raising the rents is one of the advantages of being a landlord, this is the first year we raised the rent.  Why?  Because of a few reasons, but mostly to increase the cash flow and investment on the property.  Here’s why we chose to raise the rents:

  • I have good tenants- We have excellent renters and like Holly mentions, good renters are the unicorns of the residential real estate world.  I currently have great renters in both of my properties and I want them to stay.  Forever.  My thought process is a little different though, if I raise the rent $50 or keep the rent the same most people are not leaving over a small increase they understand it’s part of keeping the place nice and in great shape.
  • Know your tenants-If you have great tenants you usually have a pretty good sense if they are looking to move out and in most cases they will tell you at least 4-6 weeks ahead of time and before any mention of raising the rent.  Since they like where they are living the tenants will get comfortable and realize that paying $50 more a month is well worth it, I mean think of the last time you moved.  Not only do you have to pay to move(u-haul, movers, boxes, etc), but it costs a great deal of time(packing, apt hunting, unpacking, etc).
  • I will make 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.  Right again Holly!  Remember though sometimes this can’t be avoided, people move on whether it’s a new job, buying a house, or a new life experience, vacancies happen.  I have a different view on free time, I will take the extra time to screen renters and make the place sparkly and new because that’s what I would want and if it means taking a Saturday and showing the apartment for 5 hours then I’m willing to do that or painting for a couple hours, give me some Johnny Cash and let’s head out to Folsom prison(affiliate link).
  • Rent increases can pay off- Let the math begin.  The rent for all 3 unit was raised a total of $230 for the units, which is a 12 month total of $2,760, which to me is a nice chunk of change.  Let’s say that’s not enough for you, just remember you are not going to lower the rent the next year, even if you keep it the same for the next 10 years you have just made an extra $27,600 in cold hard cash over a 10 year span.  I’m also making the assumption you are just setting this money aside in a boring old savings account in case you need it one day, not even counting on paying the mortgage down or putting it in the stock market.  Makes you think right? What if I want to raise the rent every year.  Here are some mind blowing numbers if you did exactly that, what if you raised the rent the exact same amount each year in our example $230 every year, by doing this every year for 10 years, you just pocketed $151,800(see the chart below), so are you willing to pass up that kind of money?  Imagine if we did that for 30 years the total Extra from Rent increases would equal $1,283,400!!! That’s over a Million Dollar$$$$$$$!!!
Year Total Monthly Increase Months in Year Total Year Increase
1                                      230.00                            12.00                          2,760.00
2                                      460.00                            12.00                          5,520.00
3                                      690.00                            12.00                          8,280.00
4                                      920.00                            12.00                        11,040.00
5                                  1,150.00                            12.00                        13,800.00
6                                  1,380.00                            12.00                        16,560.00
7                                  1,610.00                            12.00                        19,320.00
8                                  1,840.00                            12.00                        22,080.00
9                                  2,070.00                            12.00                        24,840.00
10                                  2,300.00                            12.00                        27,600.00
Total             12,650.00 $   151,800.00

Will I Raise the Rent Every Time?

Those are the main reasons we chose to raise rents on our current tenants, but I am not against keeping the rents the same from time to time.  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, see Club Thrifty and I are not that far off, I think the same thing.  The difference is I would raise the rents higher on the new tenants than I would on the existing tenants, if we had 3 new tenants, I could see raising the rents a total of $400 instead of the $230.

As with most things, it’s not all about money.  However right now we are interested in putting in the hard work and extra time to do things like attack my student loan debt and pay off our mortgages early.  I also would prefer to make small updates each year than to have someone move out after 10 years and end up doing a gut rehab to keep things up to date.  Like many things in personal finance it is a personal decision and while money does factor in, it still is a personal decision.  Holly and Greg have decided to keep the rent the same and pay off their rentals in 12 years, while Mrs. Even Steven and I are going the more extreme 7 year route, the thing that I have mentioned repeatedly is it’s a personal decision, you have decide what works best for your family.

 

Landlords, how often do you raise rent?  Renters, have you ever moved out because of a rent increase or did you have plans to move out anyways?

25 Responses to “Confessions of a Landlord: I Raised the Rent

  • It sounds like you have a good moral compass about it. Our rent stayed the same the first year we were here, but had been creeping up every year since. I hate it. We really don’t want to move before we buy a house, but if this keeps up we’re a couple years out from that goal, and this rate of increase will be unsustainable. Much, much cheaper to own in my post of the country right now. I don’t know. $50 one year is okay, but if the landlord really likes their tenants, I wouldn’t make it an annual thing because it adds up really quickly.
    Femme @ femmefrugality recently posted…5 Things You Didn’t Know Your Health Insurance CoveredMy Profile

    • EvenStevenMoney
      3 years ago

      From a renter’s perspective of course I would not want my landlord to raise the rent, saves me money. On the other side the landlord has many things to consider when adjusting the rent for possible increases: inflation, cost of living, taxes, maintenance, hoa, home improvements, possible vacancy, which is a pretty extensive list so on the landlord side raising the rent. It is an advantage of the landlord vs renter, but I understand both sides you want to keep everyone happy if possible.

      • I totally get that, but in my area those things aren’t going up at a rate of $50/mo each year. If that were a historical standard, no one would be able to afford renting. Maybe my neighborhood is just getting more popular so he’s not afraid of pricing us out. It is probably a totally different situation in your area, as Pittsburgh is a crazy affordable city. I know it’s a for profit venture, too, it’s just really difficult to be on the other side, especially as we’re trying to save for a home. I’ve probably turned this more into a personal vent session than making logical points about your specific situation or the market in general. :p
        FF @ Femme Frugality recently posted…An Insider’s Look into the Scholarship Selection ProcessMy Profile

        • EvenStevenMoney
          3 years ago

          Vent away Femme, I mean nobody wants to pay $2000 for a $1200 play or get their rent raised to 10% every year. Like anything that all of us PF bloggers talk about it’s doing your research and finding out what situation works best for you, it also never hurts to ask for a discount/negotiation.

  • I’d agree with Femme. A small increase one year would be understandable. But as a tenured tenant, and a good one to boot, I’d skip out immediately if I saw it becoming a trend.
    Ben Luthi recently posted…What I Learned Getting Turned Down For My Dream JobMy Profile

    • EvenStevenMoney
      3 years ago

      I’ll point to my response to Femme. Not being to harsh I hope, but that’s kind of how real estate and rents work, over time they go up. Houses bought in the 70’s are valued higher and receive a higher rent. It’s all about having the balance of raising the rent at a reasonable rate and if you have a good relationship with the landlord and you believe it is to high a negotiation seems fair to me, moving out hurts both the renter and landlord, nobody really wins.

  • Isn’t there a maximum amount that you’re allowed to increase the rent by? Maybe it’s different here in Canada, but my landlord could only raise the rent by 0.8% if she wanted to…Compared to the $6.60 I could face, a $50 increase seems pretty steep!

    • EvenStevenMoney
      3 years ago

      In Chicago and to my knowledge the U.S. there is not a maximum rental increase. That’s an interesting concept, I have never heard of that before, I’ll have to read about that more. From an economics/political side I could see that having benefits for the renter and economy. I would also think it does not promote capitalism and home ownership as much in Canada, am I way off by saying that? Thanks for stopping by Cassie.

  • Those are some sweet numbers Even Steven. I can’t wait to do more with real estate myself sometime soon.
    Mr. 1500 recently posted…Thursday Rant: Beer cans are not construction materialsMy Profile

    • EvenStevenMoney
      3 years ago

      As you know, I think it can be a great move especially with your handyman and rehab skills.

  • One place I rented at increased the rent by $45 one year and $110 the next. For context — I pay $845 now at my current apartment. Huge increases! So out of there.

    I think raising it a little every year or a larger amount every once in awhile doesn’t seem so bad. It seems like a balance between keeping good tenants (so saving money from having bad tenants) and making sure you aren’t losing out on earnings.

    • EvenStevenMoney
      3 years ago

      I could see leaving with some major increases, especially if that is not competitive with the market. I totally agree it’s a balance and a learning process along the way, you want to keep the good tenants and still make a few dollars along the way.

  • I also read Holly’s post over at Club Thrift and I do the same as her, only because I’ve had amazing tenants for several years and I only own one property. If I had newer tenants and more property, I would probably raise it, but I’m not sure about every year.
    MoneyMiniBlog recently posted…How to Create Good Habits (And Stick With Them)My Profile

    • EvenStevenMoney
      3 years ago

      It’s certainly a personal preference, but I do find it tough to leave money on the table each year. Having great tenants makes things easier and having all of your finances/emergency fund/maintenance all in check helps the situation as well.

  • At this point I have no motivation to raise our renter’s rent. I can see why it makes sense in some situations, as you described. I just don’t want to give them another reason to move.
    DC @ Young Adult Money recently posted…The Weekly Quick Hits RoundupMy Profile

    • EvenStevenMoney
      3 years ago

      Personal preferences. Should I invest in index funds vs mutual funds, pay off my mortgage vs invest in stock market, pay off student loans vs invest in 401K. Each one I wouldn’t yell at anyone because we are just taking different paths, both of which have great arguments for and against.

  • I think raising the rent is a way of landlord making sure that they keep in line with their targeted profit income, as well as paying the invested capital. I Also think its a worthwhile business for me in future.
    Amos recently posted…The Geek’s Black FridayMy Profile

    • EvenStevenMoney
      3 years ago

      Right keeping in line with the targeted profit income and also the market rents.

  • I have one rental property and my strategy is to keep the rent at slightly below market value – that way when it gets listed we will have a ton of interest and be able to choose the best tenant. It also helps to list it at a time when lots of people are looking to move. For us that means end of August – families like to settle in before the fall starts and students need a place before school begins for the fall semester
    Dan @ Our Big Fat Wallet recently posted…4 Money Tips for Young CouplesMy Profile

    • EvenStevenMoney
      3 years ago

      Dan you bring up 2 great points, put the rent slightly below market value(also a great reason to raise the rent the following year) and the timeliness of your leases coming due. We don’t live in a student population but if we did I would go with your strategy.

  • In order that tenants aren’t shocked that I raise rents, I explicitly state in my lease that at the end of the agreed lease, the tenant may have the option to renew on a month to month or a 12 month contract at an expected 3%-5% increase based on the going market rate. In practice, for great renters, I will waive this for the first contract or even a few, but once you are undervaluing your place by enough that your increase in rents over the course of the year will pay for a month or two of vacancy, I choose to raise. It’s a personal business, but its still a business.

    • EvenStevenMoney
      2 years ago

      I couldn’t agree more and I like setting the expectation of the rent increase, 3%-5% seems very fair as well.

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