What’s more important, protecting your real estate asset or improving the monthly cash flows?Â
At Progressive Property Management, we provide both. We have found many people who manage their own rental begrudgingly raise the rent for a tenant who pays as agreed and takes good care of their property. It is not unusual for an owner not to raise rents at all for a few years. Usually the reason for this is the owner feels the tenant is protecting their asset. Higher rents and better cash flows are secondary to their property being well maintained.There are a few reasons why this is not good strategy:
- Everything else is going up in cost. Property taxes, utilities, dues and just about everything else associated with the rental will increase by the rate of inflation, or more. By failing to increase rent, this owner is losing 2 to 3% a month.
- Tenants start keeping a low profile. As the rent the tenant pays falls below market value rents, the tenant may decide not to bother the owner with maintenance issues because that would indicate they are not caring for the asset. And if the repair costs money, it might cause the owner to increase the rent to compensate for this cost. Better to be tenant silent and let sleeping landlords lie.
- Major repairs may be just around the corner. Smart owners stash money away into a reserve account for the inevitable major repairs the rental will require. The tenants may not bother the owner with minor issues, but water heaters fail on average every 10 years, dishwashers 9 years, furnace 20 years, air conditioner 12 years and a roof may last 30 to 40 years. You need the extra income to finance these projects.
- There is the constant threat now of statewide rent control. It will only take the vote of the California Assembly and Senate and a signature from the Governor to implement statewide rent control. If that does occur, and it includes your type of property, and depending on the maximum rent increase you are allowed by law, if you are 10% to 20% below market rents, it could take many years to bring your property to market rates.