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|
|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.