Every property owner wants to get the most rent they can from their rental property. But when is it okay to raise the rent? Before making the decision to increase a tenant’s rent, you may want to consider a few things:
- What is the market rate for properties in the same condition in your area?
- What kind of tenant do you have?
- How long has it been since your last rent increase?
Perform a Comparative Market Analysis
One thing you need to do is perform an analysis of competing properties and conduct an objective and truthful evaluation of your own property in comparison. You do not want to compare a home that has had recent upgrades with granite countertops, hardwood floors, and high-end paint jobs against your home, which may only have white walls and laminate flooring. Always make sure you are comparing similar homes with similar features.
Is Your Tenant Worth Losing?
Once you have done your comparisons, let’s say you realize the market rates are 20 percent higher than what you are charging. Your tenant may be paying $1,000 yet the going rate appears to be $1,200 a month. What do you do? Do you raise the rent to market rate?
It’s important to look at the type of tenant you have. Is this a reliable tenant who pays rent on time? Do they ever ask for anything unreasonable? Do they keep the property in good condition? Or, is this a high maintenance tenant who is always late paying rent and is always asking for repairs in a not-so-well-kept property? Though these are two very different extremes, you know how hard it is to find a great tenant. You need to ask yourself if this is a tenant you want to keep.
There is a risk to raising the rent, because some tenants will move out immediately, costing you the monthly income you’ve been receiving. A reasonable tenant will understand and be able to afford a modest $25-$100 increase. A high maintenance tenant is hard to deal with and usually ends up costing you more money than any rent increase would cover.
Consider All Your Options
You need to carefully consider how far off your rent is from the going rate. You also need to be prepared to lose your tenant, which is unfortunate if you have a good tenant who keeps your property in excellent condition. You also have to calculate how long it will take you to break even financially if the tenant does move out. Having that property on the market and vacant will only result in lost money, and in most cases, that loss will be more than what you would have gained by raising your rent.
One easy solution is to include rent increases in your lease agreement. You could put into your lease that after two years, the rent will automatically increase by three to five percent each year. Though they are small increases, it helps keep the rent at or near market rates. It also keeps tenants aware of the increase so they are not blindsided by it when the time comes.
If you need additional information or you have questions about rental increase, please contact us at Atlanta Area Property and Management.