Raising the rent on any real estate investment property is a tricky balancing act. There is a business aspect that needs to be considered and there is also a human aspect at play. Many landlords find themselves worried about raising the rent. They are afraid to alienate their tenants by forcing them to move and therefore raising their vacancy loss.
However, every business owner needs to consider the costs of inflation each year. The value of the rent that they are receiving is watered down on an annual basis. In order to keep from falling behind on these expenses, a landlord needs to raise rent and do so in a manner that allows them to maintain a good relationship with their tenants.
These tips and pointers are here to help:
1. Incremental Increases Are Best
An incremental increase each year is going to work much better than raising the rent all at once. Too many landlords wait until the rent they are receiving falls well below the market level. These types of large leaps are jarring to the average renter and in many cases, they are left with no choice but to seek a different residence that is more in line with their needs.
Rent should be raised at a rate of two to four percent each year. This lets the landlord remain in lockstep with the current market and keeps the tenant from experiencing any additional financial stress. Setting the correct expectation for your renters is very important at times like these.
2. Never Go Over 8%
Any rent increase over 8 percent is going to cause a great deal of consternation for your renters. A two to four percent increase can be planned for. Once the rent is being raised by more than 5 percent, this is when tenants start to seriously consider a move. At 8 percent, you are significantly changing the tenant’s budget and they are left with no choice.
It is not fair to raise the rent by such a drastic amount without giving the tenants fair notice and it is not fair to the landlord to accept a rate that is below market value. Don’t procrastinate and this will keep you from having to make such a potentially costly decision.
3. Offer More Options
Let’s say that you are looking to increase the rent and your clients are balking at the prospect. Instead of trying to force this change on them, why not meet somewhere in the middle? Many landlords benefit from offering a slight price break on the new rental price in exchange for locking the tenant into a longer lease.
This sacrifice is worth the landlord’s while because they lose more money on turnovers than anything else. Being able to lock in a tenant at a slightly lower rate beats having to spend months looking for a new one. Keeping turnover rates low should always be the primary objective.
4. Furthering Your Tenant Relations
Speaking of turnover, tenant relations should be a primary area of focus. It is best to maintain a close relationship with your tenants. This allows you to build the equity that you need in order to raise the rent without experiencing any sort of cumbersome turnover in the process.
The landlords that look at their tenants as people and do not reduce them to another number are the landlords that are able to raise the rent without issue. A tenant is far less likely to leave after a rent increase when the landlord has taken the time to get to know them first. The smallest gestures tend to have the largest effect.
5. Proper Communication
A tenant who does not have advance notice about a rent increase is far more likely to view this as their cue to go. By law, a landlord must communicate with their tenants about rent increases before they take place. These notices have to be delivered within a certain period of time as well.
While you can certainly send a letter within the period of time that is designated by law in your state, there is something to be said for delivering this information in a more direct manner. Calling a renter to deliver the news over the phone allows both sides to express their concerns and ensures that a peaceful agreement can be made.
6. Offer Property Upgrades When Possible
Many tenants are going to want to know where this extra money is going to go each month. To keep tenants renewing, it is important to ask about potential property upgrades and provide them whenever possible. Don’t make any promises about the services that are going to be offered but be sure to ask every six to eight months.
Make improvements that will make tenants more inclined to stay and don’t make changes for the sake of doing so. Savvy tenants are going to see through this ruse. Look for smart upgrades that are easy to implement at a low cost for best results.