Rent Increases For Tenants
Are You A Property Manager?
In Property Management, especially in Bakersfield, it can be very different than many other areas of the country. For example, if you are from a larger market, you may see that there is rent control in some areas, and this may hinder the Landlords from increasing their rents the way they would like to. In some areas, you see that investor owners are not wanting to increase the rents because they have good tenants that have been there a long time, and there are even more scenarios like this. This begs the question, should we, as landlords and property management, be increasing the rents that we charge our Tenants or should be we giving them a break in some or all cases?
Why Shouldn’t We Raise The Rents?
A statement that we hear quite a bit from our property management company is that rental owners want to keep their rents the same for all of their Tenants. Is this a good idea? In my opinion, I see a huge flaw with this because if you are a landlord with a rental property, and you have had a tenant in the property paying their rent on time for a few years now, it seems like you have a good tenant, but during this time you have also been seeing decreases in your income for simple reason of inflation.
As a rental owner or real estate investor, it is very important that we look at our expenses versus just our income. With inflation going up around 2-3% yearly it can be very easy to see an erosion in the income from your rental property because rents have not been increased. Even if the Tenant is a good Tenant that always pays their rent on time and never causes problems, that does not mean that market rents haven’t gone up. That also does not mean that inflation hasn’t been increased which erodes your spending power as a real estate investor.
Related: Rent Price vs Long Term Lease
If I Raise My Rents On My Rentals My Good Tenants Will Leave!
This is a lack of abundance mentality and can cause problems with your profitability because even if you do increase rents on your rental then you will earn a better return and be able to keep up with the loss of spending power from inflation. However, I can see why you would not want to raise the rents on these properties because you do have good tenants that have been paying rents, and if you increase rents and they leave then you have no idea if your next tenants will be as good and if you will be able to count on rent coming in so successfully every month.
In response to this, I would say that it is important to keep the rents at market or slightly above/below. For example, we had an investor client that purchased a property 2 years ago, and at the time they had purchased the property it was rented for $1600/month. However, in the meantime market rents had gone up to $1750/month but the landlords were afraid to lose their tenants by increasing the rents. What they failed to realize was if we increased our rents to $1700 or $1725/month then we would still be below almost any other home they could get for this size and price in the area, and they would still have a good deal and most likely stay in the property.
As a result, we were allowed to raise the rents, and the tenants did end up staying and paying that amount for at least the next 1 year. If we did not do this, the Tenants would still be paying much less than market rents and it wouldn’t be as good of an investment property for the investor owners. Now that we have increased the rents, they would be able to sell their property for more as well.
If you are looking for real estate investment property, we have done many deals, and continue to do many deals that return our Clients a net return of 6%, 8% or even double digits on their real estate. If you are interested in real estate investing in Bakersfield, feel free to reach out to Synergy Real Estate and Property Management.
We provide our real estate investing clients a one-stop shop service where you can be sure that you are buying a quality investment property, and having that property managed in order to preserve your initial investment capital.
Until Next Time,
Sanjeev (Sunny) Advani
3400 Panama Lane Ste J
Bakersfield, CA 93313