There are two scenarios in which you would raise rent. Those are between tenants and with an existing tenant in place. First, think about why you would raise rent. Being a landlord is a for-profit business, and there are many factors that affect your profitability. One of those factors is the amount of rent you charge. There is usually an optimum rent for every situation. If you can increase rent, you’ll maximize your profit.
Raise Rent between Tenancies
When your tenants have notified you that they will be vacating at the end of the lease, it is a good time to do a market analysis. Look at what properties similar to yours have recently rented for. The lure of supply and demand is at work here. Most tenants know the market rent, so the amount you charge should not be any higher than what properties like yours have rented for. There’s a danger in overpricing. If you overprice your property, it will stay on the market longer. Just five weeks of vacancy at a property is worth a 10 percent reduction in the annual rent. Don’t overprice it.
Raise Rent on Existing Tenants
When existing tenants have a lease that is coming up for renewal and they’ve been great tenants, you want them to renew. It’s easy to be nervous, because you don’t want a rent increase to cause your tenants to leave. But, you don’t want to leave money on the table. Do your rental market analysis and come up with a fair rent. Generally, if you present the existing tenants with a fair market rent increase and they like the property and the way they have been treated but they don’t like the rent increase, they might be willing to negotiate. This is another opportunity to evaluate what you’ll charge. Most great tenants won’t automatically leave just because there has been a rent increases and they don’t like it. Most of the time, if you explain that this is a fair market rent and you’re increasing it because your costs have increased like taxes and repair costs, tenants will understand.
If you have questions about how to raise rent, please contact us at Hoffman Realty and we’d be happy to tell you more.