Landlords know that part of effectively managing a rental home and keeping it profitable year after year is keeping up with the market competitive rent. As inflation continues to push the cost of living up, rents also continue to rise nationwide. For this reason, it’s important to regularly evaluate the local rental market and adjust the rate on your own rental properties. If you are not regularly increasing your rental rates, you may find yourself losing money that could have been yours, or not attracting the right kind of resident.
If your rental rate is set too low, prospective residents and those who may currently rent from you could see your property as not well maintained or wonder what underlying issues there are for the inexpensive rent. Rental rates that are set too low also cut into your cash flow for improvement or other maintenance as well as the general appearance of the property within the neighborhood.
But raising the rent, particularly for long-term residents, can be a delicate process. Especially if you attempt to raise their rent to pay for repairs or other costs, residents are likely to resent being used in that way and may choose to leave rather than accept the changes. Large or sudden rent increases may have similar results, leaving residents feeling dissatisfied with the amount you are asking for and with how little time they had to decide whether to stay or find another rental home.
For these reasons, your rental rates should be based only on the rental market and should consist of small upward adjustments. There are a few best practices to keep in mind when increasing rent rates, which include compliance with state and local laws, giving sufficient notice, and making regular rental market evaluations an integral part of your investment strategy.
Comply with the Law
When considering a rent increase, it’s important to make sure that your proposed rate complies with state and local regulations. Some areas have strict rent control laws that regulate how much you can increase the rent and how often. Almost all states also have rules about giving notice for a rental increase, with 30 days in advance of lease expiration being one of the most common.
Give Sufficient Notice
Giving notice is itself a bit of a minefield in terms of managing your landlord-resident relationship. In general, it is best to give notice at opportune times, such as before a lease term is about to expire. But you might also consider going beyond mere compliance with the law and provide your residents with extra notice, say, 60 days instead of the required 30. Not only does this show you are concerned about your resident, but it will also give them time to shop around and discover that the proposed rent increase is in line with the current market. There’s an excellent chance that after doing so, they will realize that your increased rental rate is still competitive and feel more confident in their decision to stay.
Smaller (and more Frequent) is Better
Frequent smaller rent increases are often easier for your resident to accept than larger, less frequent rate hikes. At the very least, you should be making incremental increases about once a year, based on what the current rental market will bear. For longer leases, you may need to wait until the lease runs out, unless you’ve included language in your lease that allows for mid-lease increases.
As you can see, regular rental market evaluations are a critical part of your property management strategy. If your rate is too low, you are losing money and attracting the wrong type of residents. But if your rent is too high, you risk losing your residents and may have trouble finding new ones. For this reason, Real Property Management offers expert rental market evaluations for every rental home we manage. Our goal is to keep your rental rates competitive and your residents happy.
Would you like to learn more? Please contact your nearest Real Property Management office.