Property owners understand that one way to keep a real estate investment profitable is by raising the rent. As neighborhoods become more attractive to residents, and as more improvements are added to the property, the value of the property naturally increases. If you aren’t raising your rental price, you may be losing money that could have added thousands to your annual income.
Four Reasons Why You Should Increase Rent
Raising the rent may be exciting for landlords, but tenants won’t exactly consider it good news. However, since increasing the rent is an essential part of maximizing your real estate investment, there are ways in which you can justify raising the rent. Here are four reasons why landlords increase their rental prices:
#1 To Keep Up with the Market
One of the reasons why you should increase the rent is to keep up with the real estate market. Naturally, rental prices increase as the demand in the local rental market rises. This type of rent increase is often included in the contract as an annual increase.
#2 Neighborhood Improvements
As the neighborhood transforms into a highly desirable location, the price of your rent should also follow suit. Improvements such as new businesses (e.g. supermarkets, cafes), services (e.g. post offices, libraries), and amenities can drive up the property values in the area.
#3 Employment Opportunities
When a company sets up an office in the area, it brings job opportunities. As a result, the area becomes more desirable for people who want to live near their workplace. The demand increases, and so should the rental price.
#4 Property Improvements
When you make improvements to your property, whether you’re redoing the bathroom or upgrading to central air conditioning, all of the additions contribute to the property’s overall value. Raising the rent is the primary way to recoup the expenses for rental property improvements.
Ideal Times to Increase the Rent
Deciding when to increase the rent isn’t easy. Below are two of the most ideal times to increase the rent without negatively impacting your existing tenants’ living arrangements:
#1 During Lease Renewals
One of the best times to increase the rent is when the tenant is renewing their lease. If your tenant is under a fixed-term lease, which means that they are renting the property for a fixed period, you can negotiate the rent when their leasing period comes to an end. This, however, depends on whether or not they decide to continue renting the property.
If the tenant is under an automatic renewal lease, which means that the lease automatically renews after some time (e.g. every six months, annually), you will have to give your tenant advance notice of the rent increase. Typically, notice should be given thirty days before the lease automatically renews.
#2 During the Right Season
If your rental property isn’t currently occupied, you can raise your rent at specific seasons during the year. For example, you can raise your rent during the spring or summer, when student tenants are looking for accommodations. If you own a vacation home, you can increase its rent for short-term tenants during the summertime.
Keep in mind that this applies only to vacant properties. Taking advantage of seasonality only works when you’re trying to attract prospective tenants, but it won’t yield the same results with existing tenants.
How to Raise the Rent Without Complaints
Worried about your tenants’ responses to raising the rent? Read on to learn how you can handle the process professionally and legally.
#1 Determine the Reasons for Raising the Rent
You can’t increase the rent simply because you feel like doing so. If you decide to raise the rent, you need to justify why you need to charge your tenants more. Whether it’s an increase in the cost of living or improvements to the property, determining the reasons for raising the rent price lets you calculate how much you should be raising it.
#2 Determine How Much to Increase the Rent
Landlords have power over their rental price, however, rent that is too high may discourage prospective tenants as well as result in tenant turnover. As a rule of thumb, an increase of 3% to 5% per year will let you stay competitive without charging too much.
Remember to check your local housing laws, as certain states impose limits regarding the rent increase. You should also consider hiring a property management company that can perform a thorough analysis of the local rental market.
#3 Give Your Tenant Notice
Most states dictate when you should give your tenant notice of the rent increase. Thirty days is the minimum requirement in most jurisdictions, however, it may be different in your area. Be sure to check with your local laws to determine how early you should give your tenant notice.
Informing the tenant of the rent increase allows him/her to decide whether or not to renew the lease. You should also consider offering incentives, especially if they have a track record of being responsible tenants. Incentives will motivate the tenant to renew their lease. Plus, they are less likely to complain if they feel like they’re scoring a good deal.
Make sure to inform your tenant through written notification. Provide all of the necessary information such as payment policies and fees, as well as the reasons for raising the rent, such as property taxes, amenities, and so on.
Dealing with Rent Increase Complaints
If your tenant tells you that the rent increase is too high, take the time to educate him/her on the local real estate market. Explain that your property managers have conducted market research and that your rent isn’t far off from other rent prices in the neighborhood. If tenants see that the new rent price is around the price of similar units, they will be less likely to raise complaints.
Increasing the rent may be a wise business decision, but take note that most tenants won’t be excited about paying more. However, if you know how to handle the process fairly, professionally, and legally, you can make the increase more acceptable for your tenants.
Remember, charging too high puts you at risk of losing tenants. In this case, hiring Luxury Property Care can help you calculate how much you should be raising your rent. Our property managers will make sure that your rental price remains competitive and that your tenants stay happy.