When and How to Raise Rent Prices
As a landlord, determining when and how much to raise your tenants' rent is one of the toughest decisions you'll face. On one hand, increasing rent is a natural part of maintaining the long-term viability of your investment property. But choosing a new rent price can be trouble for tenants.
Costs such as taxes, insurance, and maintenance are continually rising, so your rental income needs to keep pace. However, raising rents too high or too often risks losing good tenants who keep your units occupied and your cash flow steady.
By carefully considering factors like your tenants' ability to pay, local market rates, and the overall condition of your property, you can implement strategic rent increases that keep your business profitable without emptying your units.
This article will walk you through a five-step process for conducting rent reviews and hikes in a way that protects your bottom line without alienating the people paying your bills each month.
Verify Your Local Rental Regulations
It is crucial to thoroughly verify and understand the rental regulations specific to your local area before making any decisions regarding rent increases during lease renewals, especially if you're still financing the property.
Familiarizing yourself with state and local rules is essential, as they vary significantly. In some jurisdictions, rent increases may be strictly prohibited. At the same time, in other towns, specific rental limits may be in place that restrict landlords from raising rents beyond a certain percentage or cash amount.
By taking the time to research and comprehend these regulations, you can ensure that you are operating within the legal boundaries and avoid any potential conflicts or legal issues with your tenants.
Make Rent Increases a Contractual Requirement
Your tenants certainly anticipate you raising the rent every year if you live in a place where you can do so. To minimize surprises, mention anticipated future rent hikes in the lease agreement among other important terms.
Include details, such as a maximum annual increase in rent that must be complied with. You may say there will be increases on the anniversary of moving in.
Also, remember to include information about the tenant's obligation to communicate whether or not they intend to renew the lease so that you both have time to prepare for the next steps. Giving tenants advance notice of rent hikes in writing eliminates any element of surprise.
Determine Your Cap on Rent Increases
Any landlord's objective is to maintain rents that are competitive with the market while ensuring minimal tenant turnover.
The following factors should be taken into account when choosing the amount of a rent increase:
● Local rental market rates: Research what similar units in your area are renting for to make sure your new rate is competitive. Major increases above the market can drive away good tenants.
● Property improvements and operating costs: If you've made upgrades like renovating a bathroom or adding new appliances, you have cause for a larger bump in rent. Document the expenses to justify an above-average increase.
Consider rising utilities, property taxes, insurance, and maintenance costs when setting your new rate. Modest increases that outpace these expenses and improvements made to the property will help keep your rental profitable.
● Take vacancy rates into consideration: Do you see a lot of vacant rentals nearby like yours? Have you had trouble locating new tenants for your other properties? Or is your property in a location that is in high demand all the time?
You can decide if it's worthwhile or not by knowing whether your tenant will have an easy time finding another rental once you raise the rent.
Upgrade the Rental and Keep Up with Maintenance Requirements
One way to earn a rental increase is by improving the property. Upgrades like new flooring, fresh paint, landscaping, or other renovations enhance the living experience for tenants. They also allow you to charge a premium.
Ongoing maintenance, like promptly addressing repair requests, also shows tenants the unit and property are well cared for. Both upgrades and maintenance help justify higher rental prices.
If you've made major improvements to your rental property while your current tenants were still living there, you may have a valid justification to raise the rent to reflect these improvements.
On the other hand, you don't have much of a case for a rent increase if you've disregarded requests from your renters for repairs and maintenance.
Inform Your Tenants
Once you've determined the new rent amount, it's time to inform your tenants. Proper notification is a legal requirement in most areas and a courtesy to tenants. Provide written notice at least 30-60 days prior to the effective date of a rental increase.
The notice should clearly state the new monthly rental amount as well as the date it takes effect. Keep documentation showing you gave the appropriate advance warning.
The ideal situation for property owners is to increase the rent while still having a great relationship with tenants.
As a result, you should have an idea of what you're willing to give up, such as painting the apartment or replacing outdated electronics, so as to keep your tenant happy with the raise in rent. Keep the proof that you provided the necessary early notice.
Rent increases are a common element of owning and managing investment real estate, even though it's fair to say that no renter likes them.
When a rent increase is acceptable, the property is well-maintained, and a landlord spends time informing tenants and explaining the increase in rent, the likelihood that a tenant will complain or vacate due to a rent increase may be significantly reduced.
If you're a landlord looking for professional property management services, McKenna & Vane Property Management is here to help. Our experienced team understands the intricacies of rental price increases and can guide you through the process while ensuring compliance with local laws.
With our expertise, you can confidently navigate the complexities of determining when and how to raise rental prices. Contact McKenna & Vane Property Management today to learn more about our services and how we can assist you in maximizing your rental income while maintaining positive tenant relationships.