Say you're a landlord. You rent out a nice storefront for $2,000 per month. The lease is about to expire, and you think you could get as much as $2,750 per month for it.
So you inform the tenants; they balk and move out; and you put it on the market.
Every month the storefront stays vacant, you are now losing $2,000 per month—maybe more, if you have to keep some heat and electricity going to protect and show the place. You also have to prep it for showing and a new occupant, and maybe pay a realtor a listing commission, and may need a lawyer to draw up a new lease, etc.
So let's say it stays vacant six months; you incur some costs, you hire a realtor to show it; and eventually settle with the new tenant for $2,500 per month. Success, right? Not so fast.
It will now take you at least two years to show a profit from your decision—maybe more, depending on the variables above—since you've lost $12,000-$15,000 on a speculative profit of just $500 monthly. If the new tenant stays anything less than two years, you're guanteed to lose money.
So, was your decision worth it? One could imagine a simple formula to do the math: number of months vacancy times rent lost per month plus other expenses divided by new revenue from raised rent equals the number months necessary to begin seeing a profit... (That would omit the headaches and other human tolls of your choice.)
In a down economy, the only time it makes sense to raise the rent is if (A) the existing tenant isn't paying, and you expect to evict them anyway; or (B) you have a new tenant already firmed up; or (C) the prospective raise in rent is large enough to warrant the risk; or (D) you have so much money already that you can afford to roll the dice this way.
For about eight years in Hudson, I rented out the ground floor of my house (which opened onto a garden) for less than $500 per month, utilities included. The reason? My tenant was reliable, unobtrusive and friendly. Trying to get more money would have exposed mr to both losses and potentially serious hassles. A bird in the hand, &c.
So you inform the tenants; they balk and move out; and you put it on the market.
Every month the storefront stays vacant, you are now losing $2,000 per month—maybe more, if you have to keep some heat and electricity going to protect and show the place. You also have to prep it for showing and a new occupant, and maybe pay a realtor a listing commission, and may need a lawyer to draw up a new lease, etc.
So let's say it stays vacant six months; you incur some costs, you hire a realtor to show it; and eventually settle with the new tenant for $2,500 per month. Success, right? Not so fast.
It will now take you at least two years to show a profit from your decision—maybe more, depending on the variables above—since you've lost $12,000-$15,000 on a speculative profit of just $500 monthly. If the new tenant stays anything less than two years, you're guanteed to lose money.
So, was your decision worth it? One could imagine a simple formula to do the math: number of months vacancy times rent lost per month plus other expenses divided by new revenue from raised rent equals the number months necessary to begin seeing a profit... (That would omit the headaches and other human tolls of your choice.)
In a down economy, the only time it makes sense to raise the rent is if (A) the existing tenant isn't paying, and you expect to evict them anyway; or (B) you have a new tenant already firmed up; or (C) the prospective raise in rent is large enough to warrant the risk; or (D) you have so much money already that you can afford to roll the dice this way.
For about eight years in Hudson, I rented out the ground floor of my house (which opened onto a garden) for less than $500 per month, utilities included. The reason? My tenant was reliable, unobtrusive and friendly. Trying to get more money would have exposed mr to both losses and potentially serious hassles. A bird in the hand, &c.
