Raising the rent on good tenants is not always an easy task. In the light of increasing market rents, you might start wondering whether keeping up with the overall pricing trend is worth the risk of losing a great tenant.
There are many aspects to consider before raising the rent, and it’s not only about how respectable your renters are.
In this article, we’ll go through all the main points you should consider before making any changes to the rent.
Question #1: What’s the rental market situation in your area?
Every state, town, and neighborhood is different when it comes to the rental property values. Before making any adjustments, you need to know your rental’s market value.
The most efficient way of determining the market value is hiring a property manager. They will be able to create a comprehensive report in order to find the best price for your rental. It’s important to note that property managers include a fee for their services.
One step down the price ladder gets you a rent estimate report. You may decide among many companies such as Zilpy, Rentometer, and Cozy. But, the cheapest option means doing the research yourself. You can use sites like Craigslist to check rental prices in your area. Compiling all the data and making it meaningful might take some time, but it’s the cheapest solution out there.
Question #2: Are you charging a below-market rent?
After doing some research to find out the rental market prices, you’ll be able to see if your current property is being rented below its market value.
Losing $100 a month might not be a big loss compared to the time it takes to find a new tenant and the advertising costs required to list the property. Imagine that your house rents for $1,000 a month, and on average, it takes two months to find new tenants. You would lose $2,000 while the property is vacant.
Raising the rent after discovering your property is renting slightly below market value isn’t always the best decision: you might lose some quality long-term tenants.
Question #3: Do you make a profit on your property investment?
Rent is just part of the equation. When renewing a lease you should consider the bigger picture and make all necessary calculations to see your decision out clearly.
Tax increases or cuts, maintenance costs, and insurance premium spikes are the main factors you should focus on.
By deducting all your projected expenses from the rent you can see whether you still make a healthy profit. Determining a negative profit leaves you with no other choice but to raise the rent.
Question #4: Can you keep good tenants and raise the rent?
Let’s say, you really have to raise the rent; it’s important to do this in a well thought-out manner, to minimize the risk of losing high-quality renters.
Always be honest and sincere when communicating with them. Many people are naturally inclined to withhold information and sugarcoat bad news. Doing this won’t do you any good for maintaining a strong landlord-tenant relationship. Being open and transparent about your decisions creates trust.
You can show market reports and calculations to your renters, to back up your decisions. For example, explaining that you rent out the property for $700 less compared to the market value shouldn’t create too much negativity around the rent increase.
Plus, could you make compromises, if it is possible. For example, you could tell the tenant that you are only going to charge $300 more because you value them as a renter.
Time is another important factor. There are state regulations concerning the required amount of notice you must give a renter before raising the rent. Aim to give as much notice as possible because your tenants need time to plan their finances accordingly. Sometimes raising the rent in small increments is better than having one big raise, when your goal is keeping good tenants. Although, if you start raising the rent even in small amounts often enough, you could find your renters increasingly disgruntled.
Question #5: Should you raise the rent on a good tenant?
The decision boils down to your financial health. Slightly under-renting while still making a profit doesn’t signal an unarguable need to raise the rent. In any case, take note of the rental market surrounding your properties and analyze the financial flow. A real need to charge more doesn’t always lead to losing good-quality renters. Be honest, open to compromises, and provide plenty of notice to minimize the risk of losing great tenants.