I’m Terrified to Raise Rents (rates)—Will My Tenants Leave? | Fix My Business

Scott Todd (00:00)
Welcome to Fix My Business, the show that helps you get unstuck so that you can keep growing your business. How do we do that? It’s simple. We answer your questions on this show. And today’s question comes from Robert. Robert says, I’ve got 12 rental units and they’re all rented. That’s very good, by the way. But I’m terrified to raise rents because I don’t want my tenants to leave.

My property manager keeps telling me I’m 100 to 200 below market rents on most of them, but I’ve had some of the tenants for five plus years. Should I leave well enough alone? Robert, you should not leave well enough alone. In fact, if anybody on this call is listening and you’re afraid to raise your rates, you are doing yourself and more importantly, you’re.

you’re doing an injustice to your customers. You really are. When you don’t raise your rates, many, many things happen. See, your fear is holding you in this trap. But what happens when you’re held into this trap is you’re gonna hit margin health. You’re gonna hit unhealthy margins. And unhealthy margins are not good for your business long-term because you’re afraid of losing a tenant who’s been there, who is replaceable, by the way.

Every tenant is replaceable.

Here’s what’s gonna happen, because you’re afraid of losing the tenant. In the future, you may not have the revenue or the profit to support needed renovations on the property. So your tenant who’s been living there eight, 10, 12 years, and when they moved in, the place was pretty nice, eight, 10, 12 years later, when stuff starts breaking, new hot water heater, new air conditioner, new roof, that money is gonna come out of the

the profit of the business, it’s gonna come from you. So the next thing you know, you’re gonna defer maintenance. Well, can’t get the place painted because we just don’t have the cash to do it because we didn’t build the cash reserves to do it. Well, next thing you know, the place is not being painted, it looks like a dump. you need new carpet? You can’t do that, it looks like a dump, I don’t have the money. So the only way to support that future,

expenses is to keep the rents where they need to be. This applies to self storage. It applies to, I mean, mobile home parks. It applies everywhere. When I was writing the Fix This Next for ⁓ Real Estate Investors book about 12 months ago, I did this research. I went on a popular real estate listing platform and I searched for the terms below market rent.

I found 4800 listings a year ago, 4800 listings that said below market rent. That tells me that there’s 4800 landlords that are not raising the rents. So what’s going to happen? Let’s just say that I walked in there and I buy this below market rent. Remember, they’re selling this to me as a below market rent opportunity because they know, hey, Scott’s going to come in and raise the rents.

And when he raises the rents, guess what? He’s going to make more money. He’s going to have the money to go do all these things. What happens to your tenants? See, this is why I say it’s unfair to your tenants, not just because of the deferred maintenance. I say it’s unfair to your tenants because what happens is I’m going to walk in there and I’m going to instantly raise the rates to the market rent. They’re not going to be able to afford it because that might be a huge jump for them.

But if you would have just increased it every year, 3%, that 3%, their wages went up in that 3 % timeframe, along with everything else, by the way. Okay, so everything went up except for you. I’m going to walk in there and the rent’s not going to go up 3%. It’s going to be going up 10%, 12%, 20%. And that’s going to be a big bite for them. And then they’re going to end up having to move or they’re to be complaining. See, you’re not doing them any justice.

by protecting them. And by the way, if you’re listening to this and you’re like, well, I don’t really do rents and so I don’t have worry about increasing those rents. The same thing applies to your car detailing service. If that’s you, you’re not raising your rates every year. Your lawn mowing service, you’re not raising your rates every year. You’re covering the expenses. You’re taking home less and less pay because of inflation. And by the way, I have people that are listening to this call right now.

who are in, let’s say, land investing, guess what? The taxes go up every single year. Are you adjusting your taxes?

Probably not. You’re shouldering that expense. It’s expenses that you don’t need to shoulder, okay? So you’re not doing your tenants any justice there. I want you to start raising those rates. Do not be the nice guy because, well, in the long term, your tenants will end up disliking you when you have to go to them and say, I need you to pay more so I can get a roof on this place, because they don’t want to live in a moldy, crusty house, all right?

So that’s what we’re gonna do. We talk about this in the ⁓ Fix This Next for real estate investors. It’s part of the profit level and specifically its margin health. right, so Robert, I hope that helps you. I hope you take action and I hope you do the right thing. Don’t be nice. Be nice, but don’t be like super nice. All right, I’ll see you in your next episode and if you have a question, go to scottodd.net/ask. And in the meantime, keep moving your feet.