Raising Rent – What You Need to Know February 16, 2022
Raising rent is a basic right of landlords but there are certain things that you should keep in mind. Rent increases can impact your property’s value and the lives of your tenants. An unjust rent increase can also land you in some serious legal issues, which could cost you thousands of dollars.
Therefore, landlords should know when to raise their property’s rent and by how much. In this article, we will discuss this in great detail.
Things to Know before Raising Rent
The following are some of the things to keep in mind before you raise your tenant’s rent.
Your Tenant’s Alternative Options
What are the chances your tenant will move out and buy a house if you raise your rent? This is an important question to consider when evaluating how much you increase your rent to.
If you increase the rent drastically you could scare away quality tenants. What you need to do is calculate how much you charge for rent and figure out whether your tenant could afford a home for the same price. If the answer is yes, you could land yourself in a position with no tenants.
The best way to combat this issue is by including in the lease all future rental increases, this way there’s no surprises. Also, we suggest offering a multi-year lease for 2 to 3 years. It’s also beneficial to discuss with your tenant their plans for the future and how long they see themselves living at your property.
Affordability of the Local Market
You should reach out to a relator or local property manager to guide you on the rental prices in your area. They can help you determine the average rent prices by evaluating your location and people’s median income in the area.
On average, rental prices should be 1/3 of the average person’s monthly income in the area. Renters will probably not invest in anything higher than that.
Landlords need to base their rent on the affordability of their local market. If you surpass the threshold you may have issues attracting and retaining tenants.
Moreover, factors like upcoming elections can also have a huge impact on rent prices. So, ensure you adjust you rent annually and pay attention to your local market.
Know How Much Your Competitors Are Charging
Competitors in your local area are a good point of reference when deciding to raise rent. Evaluating your competitors’ properties and how much they charge for rent can help you decide if you need to increase or lower what you’re charging.
If you end up charging way more than your competitors then your tenants may choose to find a more affordable option.
Oftentimes the housing availability in your area will affect rental prices greatly. If the demand is high but there’s not many new properties being built then home values and rental prices will increase. However, if the housing market is saturated and the demand is low then costs will go down.
You should always base your current rent on the local housing availability. If you’re unsure how to do this, consult with a local realtor to find out the current market trends in the area.
The last thing you want to be doing is asking for too much or too little from your renters.
Deciding when to raise your rent and by how much is an essential role for landlords. There are various factors like housing availability, competitors, market affordability, and more that affect rent prices. Ensure you consider all these factors before raising rent.