Some landlords are cautious about raising rent prices, fearing that tenants may choose to move out or not renew their lease, which could affect their renewal screening checks. But property costs inch higher and you need to maintain the upkeep of your rental to continue delivering a habitable living space to renters.
Absorbing the costs of operating your rental business can lead to lower profits, which cuts down your ROI from your real estate investment. To keep your investment safe, consider implementing strategies to offset these costs and maintain a healthy ROI such as adjusting your rental rates higher. Keep reading to learn more!
Questions You Need to Ask before Hiking up Your Rental Price
- What is the market value of the rental units around your neighborhood area?
- What is the vacancy rate?
- Can the renters afford the new rental fee?
These are essential factors you need to evaluate to ensure that the tenants can pay the new monthly rent before forwarding a notice of the rental fee increase.
As a landlord, you still need to know how to increase the rental rate while reducing tenant turnovers. In this article, we will detail the procedure for raising the rental rate without resulting in a vacancy.
Steps to Raise the Rental Rates
Familiarize Yourself with the Local Rental Laws
Conduct research before increasing the rent and offering your tenants a lease renewal. Being familiar with the local rental laws prevents you from committing any legal infractions. State and local laws can differ regarding rental laws.
Some may allow rental fee increases in specific areas, while others will place restrictions on how much increase a landlord can issue. A specific percentage may be used to cap the rental rate increase.
Mention the Probable Rent Increases in the Lease
After conducting research and finding out that there are no prohibitive policies on increasing the rental rate, you can include this term in your leasing agreement to prepare renters for future rental rate hikes.
This approach informs them of what to expect when it comes to rental fee increases. Although it is stated on the contract, you still need to send a notice before receiving the new rental dues. Providing detailed information on the lease by including the rent percentage increase and the total rental fee reduces any misunderstandings for the renters.
Whether your current renters opt to renew the lease or not, you must give a sufficient notice period, so renters have time to make their decision. If they decide to move out, you can also prepare the unit for property showings and proper staging.
Evaluate the Best Rental Rate Adjustment
It pays to assess the property rental demand in your area. Check out the ongoing rental fees of similar rental spaces in your neighborhood. If you adjust the rental price higher without reviewing how much other landlords are charging, you can risk vacancies or underpricing your rental asset. This leads to an opportunity loss of making more profit.
Make sure to always make your rental fee competitive with other rentals around you to ensure your renters stick around. Go over the vacancy rate in your area as well. Do you see empty apartments that appear similar to yours? Is the market rental demand slow? Is it hard to attract new renters?
If the demand for rentals is high, consider the rate of increase you can add. But always check the competition to avoid losing renters. Setting a reasonable price increase is a good way to go. Otherwise, too much rate increase can cause a negative reaction. It is best to increase the rental fee gradually to avoid shocking the occupants.
You can go with a 3% to 5% rental rate increase but this should be on a case-to-case basis. Evaluate based on how many people are looking to rent in your neighborhood, how many rentals are available, and what the local rent laws are.
Plan to Upgrade Your Rentals and Maintain Its Upkeep
The more value you offer, the more you can retain your renters for the long term. You can also justify the rent increase with the renovations you added, which can enhance the living experience of the renters.
Meanwhile, if you have many unresolved property issues and unattended property damage, it will be difficult for the renters to agree to pay the new rental rate. They may complain that raising the rate is unfair given that there are significant property concerns you have ignored.
It is best to limit conflicts with the tenants and upgrade your rental home to provide more value, making it more habitable. You can replace worn-out appliances with energy-efficient ones. It will also reduce the utility costs landlords don't notice, which will please the renters greatly.
You can also hand out a survey to ask for recommendations from the renters so you can inspire them to sign a renewal.
Hand the Renters a Notice
Once you have worked out the new rental rate, it is time to send an advanced notice to the renter. You can hand a notice 40 to 60 days before the tenancy ends so the renters have enough time to decide. Be prepared for some negotiation since some would make requests. You must also learn to negotiate and strive for a win-win situation.
Some may ask for repainting to be done or request for newer amenities. Be open-minded to consider the requests to cultivate a good relationship, while fulfilling your goal of earning good returns from your rental. Keep the signed and dated notice of the rental increase as proof.
Bottom Line
Following a process helps landlords ease the rental rate increase and prevents conflicts with the renters. Make sure to give enough time to renters and avoid springing a new rate, since they might choose to move out. It’s always best to land long-term renters to achieve income stability.
You can also hire a property manager to perform all this work and keep a solid eye on your rental. Contact Mark Thomas Properties Property Management today!
