You finally found a great tenant. They pay rent on time every month and they don't complain about trivial things. This makes your life as a landlord easy! They are approaching the end of their year long lease and things are going smooth. You always assumed you would raise the rent at the end of the year but now you are scared to rock the boat. You think keeping the rent the same is better than taking the chance of the tenant moving out. Let me explain why this totally normal thought is a completely wrong approach to renting.
Assumptions-Rent is $700
1- LOST MONEY-Fast forward 5 years- If you don't raise the rent $20(3%) each year like you should have you are now renting $100 under market value. Over the course of a year this is $1200. That is a significant amount. Over those 5 years you lost $240,$480,$720,$960, and $1200 respectively for total loss of $3600. I'm sure you could take your whole family on vacation for a week with the extra money
2- STICKER SHOCK- If you wait 2 or 3 years to raise the rent you will need to raise the rent $40-$60 to get back to market rent amount. In my experience tenants expect and can budget for a small raise each year. However when you raise rent by $60 a month it creates a cash flow problem for the tenant and increases the chances of then moving out.
3- Tax,Utilities, Repairs- Historically inflation was increased by 3%. Taxes, Utilities, and Repair costs will continue to rise in cost. If rent is stagnant these expenses will cut into your cash flow effectively making your rentable property less profitable then it was last year.
Raise your rent between 2%-4% each year or you are doing yourself a disservice. I'm sure some people have situations where this strategy did not work as they hoped. However, I can promise over time, you will be glad you increased rent annually.