I have two small duplexes in Idaho that I rent for $400 a month, each on one-year leases. The rent is about $50 to $75 below similar units in the area. The tenants in all four places are great, so how do you know when — or if — you should raise the rent? If you raise the rent, how do you keep good relationships with your tenants?
My advice with rental properties is to raise the rent a little bit each year. You want to be fair and affordable for your tenants, but you don’t want them thinking the rate is locked in forever.
As a business owner, if you don’t have small, manageable increases on a regular basis, you’ll look up in four or five years and realize you’re losing money because your rent is way below market value. Then, if you implement a big rate hike out of nowhere, your tenants will have a fit.
After that, you could be looking at empty properties.
When it comes time to renew the leases, try explaining to them that you’ve looked around in the market and other very comparable units are going for $450 or more, but that you appreciate them and what good tenants they are.
Then, propose signing the new lease at $410 or $420. Don’t raise it to full market value. In most cases, this kind of approach will keep both parties happy.
As a landlord, you’ll be able to retain quality tenants and make more money. As a renter, you’ll have the comfort of knowing you rent isn’t going to suddenly jump sky-high. It’s a win-win!
- Dave Ramsey says: You won’t get rich renting out vacation home
- Dave Ramsey says: Some financial splurges are OK — if you can afford it
- Dave Ramsey says: Choose shorter home mortgage to avoid debt
- Dave Ramsey says: Rid yourself of debt in 18 months with tight budget
- Dave Ramsey says: Stick to wedding plans, tackle debt together