You will inevitably have to raise the rent of your South Florida investment property over time. But before you do, you should be aware that you can’t raise it whenever you want. There should be a reasonable explanation for the rent increase, as your tenants will want an explanation. In this post, we’ll go over the reasons why you may want to raise your rent, as well as what you should do when that time comes.
Top 4 Reasons to Raise the Rent
#1 Keep Up With the Market Value
Make sure your rent keeps up with the market! Find out the rental rate of similar properties in the same area so you can price your property accordingly. After all, why would you charge a lower rate when your “neighbors” are charging a greater rate? You’d be able to attract tenants, but you’d also miss out on greater profitability.
For instance, if your rate is a bit lower (say, by about $50), you can raise the rent. However, if your rate is substantially lower compared to the market ($100 to $200), it would be better to raise the rent in increments. That way, your tenants won’t be tempted to move out due to the increased rent.
You can ask your property management company to find out how much property owners are asking for in the single-family homes market.
#2 You’ve Recently Improved Your Property
Certain property improvements can impact your property’s overall value. In turn, this can also improve its return on investment (ROI). In the event that you’ve improved your property (e.g. repainted the interior, built a patio, built a storage shed, etc.), you may be able to raise the rent.
Do bear in mind that not all property “improvements” can boost its value. That’s why it would be beneficial to partner with a property management firm that can identify the ideal investment property improvements.
Be sure that amount is proportionate to the property improvement. It would be unreasonable to raise the rent by, say, $300 if you’ve done nothing but repaint the cabinets. Again, a property management agent can help you determine the reasonable amount to raise your rent, or if it would be better to raise it in increments.
#3 Neighborhood Improvements
Location is critical to your rental property’s rate. If it’s in a good neighborhood, you’ll be able to raise your rent as tenants will be more willing to pay a premium price. However, if it’s in a bad neighborhood, that doesn’t mean the rent will be low forever – if the neighborhood undergoes development over the years, it has the potential to bring in the rents of the good neighborhoods.
Let’s say that a reputable company sets up a base in your city. This will significantly raise the rent and the rental demand, due to the fact that employment opportunities can attract people from across the country. As more and more people move into the area, you can raise the rent in order to keep up with the market.
#4 Keep Up With Your Ongoing Expenses
As a real estate investor, your aim is for your property to be as profitable as possible. After all, that’s probably why you purchased a South Florida rental property in the first place.
To maintain its profitability, you need to ensure that your costs (e.g maintenance, property management fees, etc.) are lower than your income. Keep in mind, however, that the costs will inevitably be higher as the rental demand gets higher, too.
With that said, it would be inevitable to raise your rent over time, too. It’s one way to maintain your cash flow for years to come.
When Should You Raise the Rent?
You should inform your tenants of your plan to raise the rent at least 60 days prior to the end of their contract. That way, they can decide if they want to renew, or if they should start shopping around for a new rental property.
As a rule of thumb, you shouldn’t raise your rent for no reason, otherwise, you risk tenant turnover. Keep pace with similar properties in the market – when they raise their rent, take that as the “go signal” to raise yours, too. It would be unfortunate if your rental stuck out due to its unreasonable rental rate.
If you’ve enlisted the services of a property management firm, they’ll be able to keep tabs on the market. This will allow you to raise your rent at the right time.
How to Raise the Rent the Right Way
#1 Review the Laws
In some states, the law disallows landlords from raising the rent to a certain percentage. It would be wise to consult a property management professional before increasing the rent, or else you’ll find yourself in legal trouble.
A South Florida property management firm such as Luxury Property Care has the expertise you can count on. By partnering with a property manager, you’ll be able to avoid embarrassing legal blunders!
#2 State It in the Lease
One way to “warn” your tenants that you’ll inevitably increase the rent over time is to write it in the rental contract. When your tenants know what to expect, they will be less likely to complain about it. It would be ideal to write the exact rent increase (e.g. in percentage) so tenants know exactly what to expect.
In addition, the contract should include a clause stating that tenants should inform you if they don’t intend to renew their rent. This will allow you to find a replacement tenant and avoid prolonged vacancies.
#3 Calculate it Correctly
When you raise your rent, your tenants will likely ask how it was calculated. To determine the ideal rent increase, compare your rent with similar ones in the same area. For instance, if your property is a 3-bedroom single-family home, its rent should be similar to other 3-bedroom single-family homes, too.
#4 Consider Payment Plans
If after you notify our tenant, they tell you that they can’t afford the rent, you can choose to either not renew their lease, or allow them to pay the new rental rate at their own pace. This, however, should have a limit – you can allow your tenant to pay you in “installments” for the first few months (just to give them time to “adjust”), but the rent should be due on the first day of the month after a while.
Partner With the Pros
Raising the rent is like skating on thin ice – you never know how your tenants will react to the news. However, with a professional property management firm by your side, you can raise the rent without complaints.
Partner with Luxury Property Care’s experts today for professional property management in South Florida. Call us at (561) 944 – 2992 or complete our contact form for more information.