It’s very tempting for a landlord to avoid raising rent on responsible tenants. Don’t’ make this mistake. Failure to raise the rent impacts cash flow and leads to loss of profits. Here are three reasons it’s essential to raise the rent each year.
Cost of Living Keeps Going Up
Compare the average cost of electricity in 2006 to the average cost in 2016. The national average for monthly electricity use is 911 kilowatt hours. This equated to a monthly bill of approximately $98 in 2006. In 2016, that same usage costs $122.
In addition to electricity bills, heating costs, insurance, water usage, and property taxes also increase each year. If you rent an office, expect that to go up. Landlords face rising costs every year, and rent increases cover these heightened expenses.
Maintenance Costs Hit Hard
While bills continually rise, contractors raise rates to keep up with their own expenses. Average annual plumber salaries rose from $45,800 in 2006 to $54,600 in 2014. Electricians saw average annual salaries rise from $46,000 to $54,000. As years pass, you’re paying higher rates for tradespeople to make repairs to your apartment.
The other issue to consider is that an older home requires more repairs. Building codes change and grandfathering only lasts so long. If a furnace quits and your vent pipe is no longer up to code, you’re looking at a larger repair bill. Raise the rent to ensure you have money in hand for repairs and upkeep.
Plan for the Unexpected
Every landlord needs to build up savings for the unexpected. Even after months of paying on time, a tenant may lose a job or run into a medical emergency. Until you have the rent in hand, you need savings to fall back on. Factor in some extra money from monthly rent to go into an account that’s only for emergency situations.
Don’t risk foreclosure by being too generous with your tenants. Raise the rent each year and ensure you have money for expenses and emergencies. Tenants expect rent increases. If it seems like raising the rent is forcing a reliable tenant to move, negotiate a lower rent in exchange for a longer lease or offer a one-time discount. It’s the smart way to manage your rentals.