Why not increasing rent annually is bad for business and bad for your tenant

Increasing rent annually is generally considered common practice for landlords, as it helps them keep up with inflation and maintain the profitability of their rental properties. 

Here Property Expert Julie Ford explores the reasons why it can be seen as bad business sense for landlords not to increase the rent annually:

 

1. Inflation: Over time, the cost of living typically rises due to inflation. If landlords do not increase the rent annually, they may find themselves falling behind in covering the increased costs of property maintenance, property taxes, and other expenses. This could result in reduced profitability or financial strain.

 

2. Market Value: Rental rates in the real estate market are influenced by supply and demand dynamics. By not increasing the rent annually, landlords might miss out on potential revenue if market rents are rising faster than their current rental rates. They risk underpricing their property and not maximising its value.

 

3. Fairness to Tenants: Applying modest and reasonable rent increases annually is often considered fairer to tenants than sporadic or significant increases at irregular intervals. It allows tenants to plan their finances accordingly and avoids potential financial shocks that could result from sudden large rent hikes.

It also stops tenants who may need to move on from being financially stuck where rent hasn’t been increased for years and now they can’t afford market value rents as they have been budgeting to the lower rent for years.

 

4. Maintenance and Upgrades: Regular rent increases can provide landlords with the necessary funds to perform maintenance, repairs, and upgrades to their rental properties. Neglecting these essential tasks due to stagnant rental income could lead to a decline in the property's value or tenant dissatisfaction.

 

However, it's important to note that local rental market conditions, tenant relationships, and other factors can influence a landlord's decision to increase rent annually. Each situation may require careful consideration and balancing the financial interests of the landlord with the need for a fair and sustainable rental arrangement.