In my last post, we talked about the reasons why it’s so important for landlords to keep on top of rent increases to make sure you’re getting top dollar. (Or at least close to top dollar, if your tenants are great and you want to incentivize them to stay.) Inevitably, though, any time I talk to someone about how important it is to keep their rents high, I hear excuses from the landlord about why they can’t/shouldn’t/don’t want to raise rents. Here are the four lamest excuses landlords give for not raising rents.
The Four Lamest Excuses Landlords Give for Not Raising Rents (in no particular order):
I Don’t Want to Be Mean.
Ok, I get it. I’m a people-pleaser, too. But you need to get over it. You can’t run your business by worrying too much about whether or not your tenants like you. You’re not spending Thanksgiving dinner staring at them across a dinner table. You’re keeping a roof over their head in exchange for rent payments. It’s a business transaction, not a friendship. And you’re the boss in this transaction. Don’t be a chicken!
You’re not being mean by raising the rents, anyway! Do shop owners apologize when they periodically have to raise their prices? Do restaurants avoid raising their prices because they don’t want to be mean? No. You’re running a business. People expect that you will raise prices over time. Meet their expectations. You don’t want them to think you’re a weirdo, right? (How’s that for playing on your insecurities in the opposite direction?)
Besides, they’re not going to hate you. Think back to when you were a renter. You probably got periodic rent increase notices from your landlord. How did you react? Did you take it as a personal affront, and vow to be enemies with the landlord until the end of time? No. You just said “aw, man” and figured out how you were going to pay for it, right? You understood that rents need to increase over time, and while it sucks, it’s just part of being a renter.
The Tenant Can’t Afford It.
This is not your problem. Truly. I know of several bleeding-heart landlords who think they are somehow obligated to cap rents at an amount that their current tenants can afford. Some will voluntarily cap themselves at the CPI rate, regardless of what rental rates are in the market. Some will even cap their rent increases lower than that, by doing an increase based on the prior year’s CPI increase, but only doing that every 2–5 years instead of every year. Aack!
You know what those tiny CPI rent increases are? Voluntary rent control. That’s crazy. You bought this very valuable asset, and took on the risk and put time and money into it. Why the heck would you cap your income from it based on CPI, when you’re not required to?
If you’re selling a used car for the $10,000 bluebook price, and someone came up and said they really liked your car but only had $5,000, would you sell them your car for half price because that’s all they could afford? (If you would do that, contact me and let me know. I’d love to offer you half price for your rental property.)
Yes, your tenant might have to move. And that stinks. I really do feel bad for tenants who have to relocate because market rents have made it impossible for them to stay. But you know what? That’s reality. There’s no guarantee that you will get to live in the place you prefer for the rest of your life, especially if you’re a renter. Why do you think so many retirees move to Arizona and Florida? It’s cheaper, that’s why. They’ve chosen to move because they can afford to live in that cheaper place. That’s how the market works. You shouldn’t keep rents too low just to make it possible for a tenant to live in fantasy land.
The Tenants Are Nice and Don’t Cause Me Any Trouble
That’s good. Those sound like tenants you might want to keep. But not at any cost. It’s not so impossible to find good tenants that you have to heavily subsidize their housing. Keep the rents just slightly below market, and you’re in good shape. If the tenants move, you will find good tenants again.
Another thing to consider is that sometimes the no-hassle tenants aren’t always as good as you think they are. I have a couple of crazy dogs, and I’ve babysat for some nightmare children before. Know what the scariest sound is? Silence. That means mischief is happening, and they don’t want you to know about it.
The worst tenants that I inherited when I bought my building were super quiet. The landlord said he never heard them complain about anything. Well, yeah, because their rents were way too cheap and they didn’t want to rock the boat. The bathroom sink leaked badly, but if they complained about the leaking sink, they would have had to let the landlord into their unit. The landlord would have seen how filthy they were, and the tenants would have had to introduce the landlord to all of their “friends” (the armies of cockroaches and mice that were living there). Instead, the tenants kept quiet and wrapped a plastic grocery bag around the leaking pipe. (As you’d imagine, this didn’t work.)
Those quiet, trouble-free tenants were actually destroying the apartment. The bathroom cabinet was soaked and ruined. The kitchen cabinets smelled like urine and cockroach droppings inside. After I bought the place, I had to rip out the whole kitchen.
Quiet isn’t always a good thing. You’re better off getting market rents and not subsidizing the housing costs of quiet tenants who might be destroying the place.
My Expenses Aren’t Going Up, So I Don’t Have to Raise the Rents.
Oh, really? You’re the only person in the world who doesn’t have property taxes that increase every year? Utility costs don’t periodically increase for you? Things don’t break at your property? Your roof isn’t aging? Maybe you’re thinking of your mortgage, and your point is that your mortgage isn’t increasing. That’s fine. That’s how it’s supposed to work, though. You’re the building OWNER. They’re the TENANTS.
As renters, they should expect their rents to increase every year. As an owner, you bought the property. You had to come up with a down payment, find financing, commit yourself to a loan, and assume the risk of owning and managing the property. You take on the risk, so you get the reward. Your mortgage payment is supposed to stay about the same while the rents go up.
Also, your expenses may go up drastically at some point in the future. You may have moderate earthquake damage that isn’t covered by your insurance. You might need to replace the roof on the property. If you have an adjustable-rate mortgage, your interest rate might change. Even if you have a fixed-rate mortgage, you may be stuck having to refinance the property to take out equity to cover a major expense. Your expenses might go up. A lot.
If you wait until you have a big expense to make a big rent increase, the tenants won’t be sympathetic. They don’t care about your costs. They’ll feel like they’re getting screwed because the increase is so big. You’re better off raising the rent in modest annual increments, saving the extra rent money, and being better prepared for big expenses. Don’t assume that things are always going to remain perfect, and keep rents as low as possible based on that faulty assumption. Start preparing for the rainy days by keeping rents at market.
What other excuses have you heard landlords give for not raising rents? Are there any that I missed?