Being informed about the economy and market values will help you make an informed decision.
For those of you who have been a rental property owner for a good while, you probably have experience about how to gently raise the subject of a rental rate increase. However, if you’re somewhat of a novice, here are some tips and recommendations to consider before making your announcement to your tenants.
First of all, the current times are difficult due to rising inflation, even though the economy is making strides and rent growth is expected to remain strong. The temporary housing supply chain problems and a fluctuating array of building materials that have become expensive or hard to find have decreased new home builds, so the increase in rental property is even more fueled. And, of course, with that come higher rental rates.
Many families are looking for more space to work and learn at home because of the pandemic, even though schools are mostly open. The economy is recovering and more people are looking to live alone, so rental property is front of mind for many people.
As a rental property owner, the timing for understanding rental rates and rental increases in very cogent. But, what’s the best way to tell your tenants you must raise the rent?
If you’ve cultivated a close relationship with your tenants or it’s been a while since the rent was raised, it can be a bit unsettling. But you must remember, you’re a business and you have financial responsibilities the same as everyone.
While tenant turnover can cost you money, not increasing the rent when you’re losing money on taxes, insurance, the market, or maintenance repairs is also a financial drain. Unfortunately, as property taxes and market rates increase, so does the rent. While it can be difficult to tell a tenant that you need to raise the rent, doing so is important for your finances. Consider these topics to research and understand.
- Fair market value. Research the market in your area to determine what fair market fair market value is for your rent. This will help you determine what is a reasonable monthly rent for your place. Knowing what other rentals are in your area will also help.
- Incremental increases. Depending on your circumstances, you might consider incremental rent increases, especially if tenant turnover is an issue.
- Be fair and informed. Don’t make the mistake of asking your tenants what they think would be a fair increase. If the rent increase is well above market value, though, your tenants will probably leave.
- Send a formal letter by certified mail. This gives you a confirmation they received the letter and you have a paper trail with dates. Allow yourself plenty of time for the post to travel via snail mail.
- Give the tenant notice. Giving tenants at least a 60-day notice will ensure that they have enough time to process the information and determine whether or not they will stay at the end of the lease. Then you have enough time to provide a 30-day notice.
- Understand the law. Be sure whatever rent increase you decide to give does not infringe upon any state or federal laws.
- Consider adding a rent increase clause. To mitigate the surprise of an unexpected rent increase, some landlords simply write in their lease that there is a small (typically 3-5%) raise in rent every year. When tenants sign the lease, you can be upfront that you raise the rent yearly, so they are informed early about the incremental rent increase.
Cousin James Management can help you with property you want to buy, sell, or lease. We understand how important it is to move quickly to make it happen. Our experienced team includes seasoned professionals who understand the details of real estate and property management. Contact us today to see how we can help you.