From the very beginning, we have always relied on professionals to manage our rental properties. We think of them as those in charge of “keeping the renters happy while maintaining each unit in decent shape.”
Recently, for the first time since we bought them 15 years ago, I wondered if our rental revenues were in line with the current market rate. No excuse, in retrospect, but when leading busy lives while rental revenues keep coming in steadily, we did not think to make the time to make sure that we were receiving market rate.
Interestingly, at about the same time, our property manager happened to be wondering about the same thing. Great minds think alike. LoL!
Most had tenant turnovers every 2-4 years. At each turnover, the property was rented out again at or near market rate. So, for those properties with turnovers, implementing an appropriate market rate was a non-issue; it happened automatically.
One of the rental properties, however, had the same tenant since the beginning, in 2007. As it turns out, for this property, the rent was increased only once, in 2012. This meant that the tenant kept a bargain rate vis-à-vis the market rent for the last decade when we, the owners, could have been enjoying higher rent. At a minimum, we should have been expecting higher rates to offset annual increases in tax and insurance respectively.
This is the type of discovery one makes, belatedly, when “delegating” the property-management tasks without clearly defined sets of responsibilities for (1) us as owners and (2) the management company.
Hindsight is 20/20. One would think that providing the owners with annual revenue-increase recommendations should be part of every property management company’s job. After all, the property manager gets paid a percentage of rental revenue, meaning, the higher the revenue, the higher the commission. Such annual adjustments, however, may not happen unless the owner insists on it and/or takes the lead.
As of this writing, I have decided to update revenue expectations annually – even if it results in no increase at all. As a licensed broker, in fact, I have no excuse not to examine the existing rental rates based on up-to-date market analyses. Oh, well – better late than never to recognize and correct the situation moving forward.
Happy investing!
