If you have a tenant who has been renting a property from you for a long time, you may come to realize that they are paying much less than fair market value for the space. This is likely because rental prices have increased quite a bit over the last five years. And unfortunately, many landlords don't raise rental prices yearly to keep up with this change. If you are in this situation, you may want to increase rent to get more out of the rental, but be hesitant to because you don't want to lose a good, long-term rental. Learning the pros and cons of this scenario will help you make the right decision.
Pros of Raising Rent on a Long-Term Tenant
One of the biggest benefits is that you get more money. The goal of a rental property is to bring in money, so you want to try to get as close to fair market value at all times.
- Most Tenants Will Pay the Increase
The other benefit is that most tenants will actually pay the increased rent. If they are paying below fair market value, it is unlikely they can go and get the same price elsewhere. Most realize they will pay what you are increasing their rent to elsewhere and don't want to deal with the hassle of moving, so will stay put.
Cons of Raising Rent on a Long-Term Tenant
- You Run the Risk of Losing the Tenant
Anytime you increase the rent, you run the risk of losing a tenant. You don't know what their financial situation is and if they can afford the rental increase. As such, you have to carefully weigh whether you potentially want to lose this tenant. If you don't, you may not want to increase the rent.
- Your Building or Home May Sit Empty
The other major downside is that if your tenant leaves, your rental home may sit empty and not collecting rent for a couple of months while you get a new tenant in there. While increasing rent may help you get more money, can you afford to let it sit empty for a couple months? If not, you may not want to take the risk of increasing the rent.
Trying to decide how to best manage rental can be rough. Turning to a property management company can help you make the right decisions. If you need help with a rental property in Eden Prairie, MN, give Gassen a call. We are your local HOA Management/Property Management experts.