This is a philosophy that plays into our role as a property manager. So, whether you are a landlord, or you use property management companies to provide service to you, the success of a renter, your tenant, is vital to your success as a real estate investor.
Real estate investors have a social responsibility to conduct themselves fairly and ethically. While we are often obligated to follow trends in real estate and some things just don’t make good business sense, we do need to step back and beyond our point of view and consider our tenants. In the more expensive markets where home costs are high, rents predictably follow suit. In fact, renting can be more expensive for tenants than home ownership — but they aren’t converting from renters to homeowners, and not always by choice.
Sometimes, renting traps the tenants in a vicious cycle.
1. IT MAKES SAVING HARDER
Most financial experts will recommend that your monthly payment for housing, whether it’s a mortgage or rent, should not exceed 35% of monthly income. When rent exceeds that, it’s a burden for your tenants. It makes it difficult for them to put any income towards saving up for buying a home. While we’re tempted to say that’s fine because it keeps them renting, that’s short-sighted. As much good as real estate investors did to help the housing market get back on its feet, if we ever want to see full recovery, we need first-time home buyers to start buying homes.
That means we have a responsibility to ourselves and our families to run a profitable rental business. However, we also have a responsibility to our tenants. If we can help them to run a profitable household, then they will be better tenants, even if they are not in the home forever.
2. IT HURTS SPENDING HABITS
Not only does high rent mean tenants can’t save effectively, it means they can’t spend, either. When people can’t spend, that’s less money going into the local economy and supporting businesses and workers. Now, I do not have any retail businesses and while I think this is important, it pales in comparison to #1. Allowing tenants to have some spending money is obviously important and it helps them to feel happy and successful and it is always in our best interest to have happy tenants.
3. IT COMPOUNDS OTHER MONEY PROBLEMS
High rent wouldn’t be so much of a problem if the rest of economy was doing well. As it is, a vast number of people, particularly young would-be home buyers, are struggling with student debt, unemployment and substandard wages in low-paying jobs. There’s a point where rent becomes a heavy, heavy burden on those who are just trying to make ends meet.
While real estate investors shouldn’t lower rent at the detriment of their own business, we should always be aware of our tenants’ circumstances and the integrity of our business practices. Not ever tenant wants to rent forever — and its always bad news if they feel trapped and overburdened by rent.