Good tenants are hard to come by. So when you have one, it’s normal that you’d do everything in your power to keep them. But, is it possible to raise the rent on a good tenant without losing them? This is a question that many landlords ask themselves.
Sometimes it’s necessary to increase the rent when property expenses such as insurance or taxes go up. Other times it comes up when a tenant leaves.
It goes without saying that raising rent can be a risky prospect for any landlord. Opting not to raise the rent or raising it too little can mean leaving money on the table. On the other hand, raising it too much can leave your tenants scurrying for a new place to live.
That said, as a landlord, raising rent is inevitable. It’s something that you’ll have to do at some point in your career. Remember, as a landlord, one of your priorities is getting a great ROI on your properties.
Before deciding to raise the rent, here are three important questions to ask yourself.
Question #1: Can I raise rent without losing my tenant?
As long as you do it delicately, raising the rent on a good tenant without losing them is possible. The following are some tips to help you in this regard:
- Be honest and communicate kindly. Remember, your tenants are people too. Start by notifying them about the increment well in advance. In the notice, make sure to mention the specific amount as well as the reasons behind the raise.
- Provide plenty of notice. Generally, the more notice the better. Most states have guidelines that specify the notice period to give.
- Remain competitive. Keep it at a slightly lower price than your competition. This way, even if your tenant begins looking around, he or she will eventually realize they are still getting a good deal. This will incentivize them to stay.
Question #2: What’s the rental’s current market value?
As every landlord knows, getting good quality tenants isn’t a piece of cake. It requires a lot of time, effort, knowledge and experience.
The first step to getting a great renter is by setting the right rent amount. So, how do you know the market value of your rental? Here are some few good sources.
- Do-it-yourself comparables. Craigslist, Redfin, and Zillow are great platforms to help you figure out how much rent to charge your tenants. Although it takes time, it won’t cost you any money.
- Property managers. A good manager can help you calculate the best rent amount for your rental market.
Question #3: Is the current rent still profitable?
The main way a rental property can make money is through cash flow. This is the amount of rental income minus the expenses.
For example, if a property costs $1,500/month to rent, and has annual expenses of $11,000, then the annual cash flow will be $7,000.
In this case, the property is said to generate a positive cash flow. In other words, it means the property is profitable.
Reviewing the price of rent prior to renewing a lease is therefore crucial. This is because your operational expenses may go up. Upcoming maintenance needs might be costly. Insurance premiums may increase. Taxes may go up.
Before signing a new lease at the same rent price, ask yourself the following questions.
- What’s my monthly mortgage?
- Do I expect an expensive maintenance any time soon?
- Do I expect any costs to go up?
- What were my expenses on the rental the previous year?
Sum up all your operational costs and minus from your rent. Will the current rent still be profitable? If so, reconsider raising the rent amount, especially if you have a great tenant. A great tenant is far much worth than a minimal percent rent increase.
A landlord job consists of a bit of everything. The job requires one to be in marketing, maintenance, accounts and more. But, most of all, being a landlord entails customer service. This is especially true when the time for raising rent comes.