| I was talking to a couple at one of my Friday night | | | | effort to rent it up again. With this in mind, managers |
| open houses that I hold for subscribers to my | | | | are quick to caution owners about raising the rents; |
| newsletter and seminar attendees. He was | | | | and consequently, owners become afraid to take the |
| bemoaning the fact that his rentals were not making | | | | chance of increasing vacancies. |
| any money at all after paying for management. He | | | | When this logic is applied to several houses, owners |
| had neither management skills not any desire to | | | | could be losing a lot of money over the years |
| manage his properties himself, and was frustrated | | | | because they aren't demanding that their managers |
| because he couldn't get his manager to raise the | | | | charge fair market rents. For example, if $1000 rents |
| rents. He could have easily fired the manager, but | | | | could be raised 5% per year, and instead they are |
| was afraid he couldn't replace him with anybody who | | | | not increased; then a 10-house portfolio would lose |
| would be any better. | | | | $6,000 per year, each year, simply because the |
| Lack of cash flow is a common problem with a lot of | | | | manager didn't keep rents rising at market rates. |
| investors who hire management companies. When | | | | I stopped using "managers". Instead, I find investors |
| you take 10% off the top of rents for management, | | | | who already manage their own portfolio and get |
| that can make the difference between profit and | | | | them to LEASE my houses for 90% of the current |
| loss for the year. The only way to make up for this | | | | rents. Then, each year, we get together and figure |
| is to reduce vacancy, turnover, and maintenance, and | | | | out how much we can raise the rents for both the |
| to keep rents at current fair market levels. | | | | houses that they own and the houses they lease |
| The reason managers don't raise rents boils down to | | | | from me. Then we raise all the rents at the same |
| arithmetic. If they keep rents at current levels, they | | | | time. We also let other landlords know what we're |
| reduce move-outs, and keep rental commissions | | | | doing so they can raise their rents to. The net result |
| coming in with minimum effort. If they raise rents, | | | | is that tenants have few choices but to stay where |
| they'll only increase their commissions marginally while | | | | they are and pay the increased rents. This isn't to |
| the landlord will get the benefits of any rent raise. At | | | | say that we are rent gougers, we are simply making |
| the same time, if the rent raise causes tenants to | | | | certain that our occupants pay our costs and a fair |
| move out, not only will their commission income stop | | | | rate of return on our investments. You should be |
| for a time, they'll also have to oversee the | | | | doing this too. |
| refurbishing of the rental unit and go through the | | | | |