Is it “mean” to raise rent?
I would like to share a story with you to help frame the answer to this question.
I purchased my first stand-alone rental property in early 2010. I still hold it, and it is an up/down duplex home in an older part of town called Brocklehurst. The existing upstairs tenants have been there for over two years. The basement tenants had been there for over three years.
Combined, they were paying approximately $500 under market rent. ($900 and $700 respectively, should have been $1250 and $850).
When we purchased the place, I planned to quickly raise the rents so the property would Cashflow as per the nice calculations I had projected. Using Market rents instead of current rents was a rookie mistake, and boy was I in for a lesson….
Each set of tenants had nice vehicles parked outside, had pictures inside their homes units of nice destination holidays, and had other toys: downhill bikes(worth thousands), downhill ski equipment, more(and better) power tools than me, RVs, and boats. It appeared to me they were living a very comfortable life.
When I had a meeting with them upon purchasing this investment, I stated my intention to raise the rent to market. There was shock and resistance, as if I was insulting them. This is understandable as no one likes to pay more, however I encouraged them to purchase some property and build equity for themselves rather than fritter away their money on depreciating toys and holidays.
My intentions were well received by the upstairs tenants and we compromised on a rent of $1100, until they moved out within a few months to a newly purchased, beautiful piece of property out in the country.
I was however met with a large amount of resistance by the downstairs tenants, who after three years of subsidised living, were not very keen to let go of their extravagant lifestyle. Shortly after we discussed raising the rents, they even purchased a brand new Toyota car! I eventually had to take the downstairs tenants to court, and I was granted my rental increase in gradual increments up to $950 over almost a year, $25 increase per month.
The downstairs tenants waited out the rental increased, then purchased a beautiful home in the well established neighborhood of Dufferin. They even purchased a home with a basement suite, a very smart thing to do, as now their cost of housing is less than the subsidised $700 they were paying me to begin with!
Fast forward to Nov 2013 – for a few thousand dollars in renovations/updating(and many hours work), I now rent the upstairs of this duplex home for $1460, the downstairs for $1110, an RV spot for $30/mo, and a business space rented for $100/mo.
In the end, the rents were raised, and the existing tenants went out and purchased their own houses.
Although at the time it may have been uncomfortable scenario (both for me putting pressure on my tenants, and them dealing with the landlord raising the rents), bringing the rents to market afforded me a phenomenal cash flowing investment(eventually), and my tenants were able to purchase homes themselves.
The pressure that I applied helped my tenants move out of their rut of subsidized living, which was absent of building any equity due to frittering away their money on indulgences.
I know what you must be thinking.
What if these tenants couldn’t afford rental increases?
My answer is that there are many government programs that exist to support low income tenants, as well as robust tenancy laws to protect tenants from predatory landlords.
Is it mean to raise rents? I say NO, it is not possible to be mean in Canada.
Until next time, Stay S.A.F.E.