To Raise Or Not To Raise (Rent)

The Dilemma of Raising Rents

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So you’re a landlord and you want to increase your cash flow. 

Can you raise rents? Sure, assuming a lease is ending.  But more importantly - should you??? 

Well… it depends. 

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Running The Numbers

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To answer you need to know your numbers.  Real estate investors must consider not just rental income, but also rental expenses, including the often overlooked cost of vacancy. Tenant turnover can kill your returns.

So you run the numbers: you know the rental income,  and you’ve figured out PITI (mortgage principal, interest, tax, and insurance). You’ve also factored in maintenance and repairs and cash reserves (right??). But what about the cost of vacancy? What will it cost you to turnover a rental when a tenant leaves?

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A Hypothetical Scenario

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Imagine this scenario:

You have a model tenant paying $1200 per month. They pay on time, maintain the property, communicate effectively, and generally let you operate on autopilot. The ideal tenant.

Yet, hearing other investors talk of substantial rent hikes makes you wonder, "Should I increase mine too?" You decide to increase the rent to $1350. Your tenant, however, can't or won't meet this rise and moves out.

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The Cost of Tenant Turnover

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Finding a new tenant isn't just about placing an ad. It involves refurbishing the property, sifting through applications, and investing time or money in the process. Let's say you're fortunate to fill the vacancy within a month. Still, you've lost a month's income ($1200). With the new rent, it will take you eight months to offset that lost month – and this doesn't even account for the extra expenses you bore.

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The Unknowns of a New Tenant

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Your new tenant? They're an unknown entity. They could be perfect, but there's also the risk of them paying late, or worse, not at all.  Have you considered the cost of an eviction in NY?

And if they stay for just a year, the cycle repeats.

Weighing the Pros and Cons

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Raising the rent might seem enticing, but is the juice worth the squeeze? Is the potential strain and risk worth the marginal gain? Sometimes, it's a toss-up.

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The Strategic Approach To Real Estate

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Remember, real estate investing is a strategic BUSINESS. The objective is clear: increase profits, minimize expenses. Yet, the value of a reliable tenant and the potential pitfalls of vacancies or problematic tenants shouldn't be underestimated.

So, analyze your numbers critically. If you have a dependable tenant, paying competitive rent, and your cash flow is positive, perhaps there's wisdom in the adage, "If it ain't broke, don't fix it.”

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