Raising Rents As Demand IncreasesBy Paul Esajian on December 13, 2013
The primary goal for most landlords is to minimize vacancies and keep the cash flow cycle going. While this is an acceptable goal, there should also be some consideration for maximizing monthly income. Every landlord has to walk the fine line between getting as much rental income as they can and pricing your property out of the market. The most accurate way to determine how you are doing is to evaluate your vacancy numbers. If your units are constantly occupied, this may be a sign that you are renting under market value. You may want to consider raising rents as demand increases.
There are two schools of thought to consider when thinking about raising rent. If you have a good tenant that you know pays every month and takes care of your property, than why mess with a good thing. Secondly, if you leave even $100 on the table on two properties, you are looking at $2400 annually, which could be used for better things. You always want to get the most money coming in, but you have to know when you have a good thing and when not to mess with it.
If you have a good tenant that has rented for multiple leases, any increases should be given only with ample notice. There may be increases in taxes or insurance that does dictate an increase, but this shouldn’t be immediately thrown on your tenants lap. Give your existing tenants more than enough time to adjust financially. A long standing tenant relationship should be treated with appreciation. If you are comfortable with the tenant and they are not going anywhere for a while, you can think about increasing the rent only minimally. A good tenant can be worth the loss of a few dollars a month. It is when leases change and you see an opportunity to raise rents that you should consider doing it.
If you are planning on making any increases, you should give yourself plenty of time to do so. You can start advertising online as far as 120 days out. You want to give yourself enough notice so if the interest at your new price isn’t there you can always adjust downwards. Raising rent is not like listing a home for sale. It is very rare that a renter will know what the house was rented for last year. They don’t consider it an increase, as all they know is what the current rental amount is. If a prospective tenant asks about the current rent and the increase, you should have an answer ready for exactly why it is going up and be prepared to justify it.
Renters are always shopping around for the best deals. If all things are equal, they will go with the most affordable option. Some increases can be justified such as tax increases or improvement to the property and the appliances. If you increase much higher than the market dictates, you will find that the demand will not be there and you will be left scrambling to fill a vacancy. Keep your increase incremental in line with other properties in the area.
If you are going to maximize rental amounts, now may be the time to do it. Rental demand is still high and many leases are started just after the New Year. If you do increase, remember not to price your property out of the market. An increase is nice, but not at the expense of a vacancy.