Dave Ramsey’s Rental Property Advice

I recently listened to a fascinating call on The Ramsey Show that highlighted a common problem many landlords face – the emotional struggle of raising rent to market value. The caller, Joel, and his wife owned a duplex where they lived in the three-bedroom side while renting out the two-bedroom portion. Their tenant had been paying significantly below market value, and Joel wanted to increase the rent from $750 to $950 to help offset their $1,500 mortgage payment. This situation struck me as a perfect example of how our emotions can sabotage our financial goals. Joel’s wife was resistant to raising the rent because she viewed their tenant more as “a mom and a friend” than as part of a business arrangement. Meanwhile, comparable two-bedroom rentals in their area were going for $1,100 to $1,350. The numbers don’t lie – they were essentially subsidizing half their tenant’s housing costs. This is a terrible investment strategy by any measure. What makes this situation even more perplexing is that Joel and his wife had gone through Dave Ramsey’s Financial Peace program at church. They shared the goal of paying off their mortgage in five years, yet their actions weren’t aligned with this objective. How can you achieve aggressive debt payoff goals while simultaneously leaving thousands of dollars on the table each year?

The Business of Landlording

Many new landlords fail to treat their rental properties as the businesses they are. When you own rental property, you must separate your emotions from your financial decisions. This doesn’t mean being heartless – it means being responsible. In Joel’s case, charging below-market rent wasn’t just hurting their financial goals; it was creating an unsustainable situation. Their mortgage had increased to $1,480, yet the rent wasn’t even covering half of that amount. There’s nothing unethical about charging fair market value for your rental property. In fact, I would argue it’s irresponsible not to. When you artificially suppress rental rates, you’re:

• Compromising your own financial stability
• Creating unrealistic expectations for your tenant
• Potentially setting yourself up for resentment later
• Making it harder to achieve your financial goals

The tenant’s son was paying the rent, which suggests they might have the means to pay a more appropriate amount. Even after previous increases, the tenant had chosen to stay, indicating they recognized they were getting a good deal.

Getting on the Same Financial Page

The deeper issue in Joel’s situation wasn’t really about the tenant – it was about him and his wife not being aligned in their approach to managing their investment. They had different perspectives on the property from the start. Joel didn’t even want to buy the house, while his wife wanted it for the yard and grandkids. Dave Ramsey’s team offered excellent advice: stop focusing on the neighbor as the problem. Instead, Joel and his wife needed to:

1. Clarify their shared financial goals (paying off the mortgage in five years)
2. Calculate what needs to be true to achieve those goals
3. Make decisions based on those calculations, not emotions

This approach puts the problem outside the relationship. It’s not husband versus wife; it’s the couple versus the financial challenge. By framing it this way, they can work as a team rather than opponents.

Finding Balance Between Compassion and Financial Wisdom

I believe we can be both compassionate landlords and wise stewards of our resources. If Joel’s wife truly felt called to help their tenant financially, they could consider other options that don’t compromise their financial foundation: They could raise the rent to market value but offer to help the tenant in other ways, such as not increasing it again for a set period. They could also be upfront about their financial goals, explaining that the increase is necessary for them to remain financially stable as property owners. The bottom line is that you can’t be financially generous when you’re financially unstable. By charging appropriate rent, Joel and his wife would actually be putting themselves in a better position to be generous in the future, should they choose to be. This situation reminds me that financial decisions are rarely just about numbers. They’re about our values, relationships, and long-term goals. But when we let emotions override sound financial principles, we often end up unable to achieve any of our goals – financial or otherwise. If you find yourself in a similar situation, remember that charging fair market value isn’t greedy – it’s responsible. Your financial stability matters too, and sometimes the most compassionate thing you can do is make decisions that ensure you’ll be able to sustain your rental business for years to come.

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Frequently Asked Questions

Q: Is it wrong to charge below-market rent to help someone out?

It’s not wrong, but it should be a conscious choice rather than an emotional default. Consider whether you can truly afford this form of charity, and whether it aligns with your financial goals. Remember that artificially low rent creates dependency and expectations that may become problematic later.

Q: How do you determine fair market rent for your property?

Research comparable properties in your area within a 5-mile radius. Look at listings for similar units with the same number of bedrooms, similar amenities, and in comparable neighborhoods. You can also consult with local property management companies or real estate agents who specialize in rentals.

Q: How can couples resolve disagreements about rental property management?

Focus on your shared financial goals rather than the specific issue. Run the numbers together to see what needs to happen to achieve those goals. Consider dividing responsibilities based on strengths – perhaps one partner handles tenant relations while the other manages the financial aspects. The key is viewing yourselves as a team facing an external challenge.

Q: When is the right time to raise rent on a long-term tenant?

Annual rent increases of 3-5% are standard in the industry to keep pace with inflation and rising costs. However, if your rent is significantly below market value, you may need larger increases to catch up. Give tenants plenty of notice (at least 60 days), explain your reasoning, and consider phasing in larger increases over time if possible.