Every June, my husband and I have the same question: do we raise the rent?
Our leases run August to August, and June is when we begin to consider the pros and cons of raising the rent on our tenants. Sometimes it’s clear. If they paid late or were difficult, we raise the rent. But many of our tenants are amazing, so it’s a difficult decision. Do we risk losing a great tenant by raising the rent?
Here are three questions to ask yourself when deciding whether to raise the rent.
1. What’s the market value of the rental?
I’ve been lucky to have long-term tenants on multiple occasions. All landlords know, finding new tenants is as enjoyable as stepping on a rusty nail. Still, if you haven’t raised the rent in a while, chances are the market value has increased. Is your rental way below comparables? You have a few choices for learning the market value.
- Property managers—A property manager can compile a comp report to determine the ideal rent price for your rental market. This route isn’t cheap. It’s usually part of hiring an apartment search or property management company and their tenant-finding service. They usually charge a one-month rent fee.
- Rent Estimate report—Set your rent price with confidence with a Cozy Rent Estimate report. See how your rental stacks up to nearby single-family homes and multifamily properties, with up-to-date info about the actual rents they collect. Each report includes comparable rent prices, local vacancy rates, rental trends, and investor metrics. A report costs $19.99.
- Do-it-yourself comparables—Before rent estimate platforms existed, I came up with my own by using Zillow, Redfin, and Craigslist to look at local apartment listings. I would use their data, rent prices, locations, and time on the market, to determine my market value. It takes time, but not money.
2. Will the current rent still yield a profit this year?
Rent isn’t the only thing that increases in cost. Taxes go up. Insurance premiums may increase. Upcoming maintenance needs might be expensive. Take all these things into consideration before renewing a lease at the same rent.
Consider these things:
- What were your costs on the rental the previous year? You should have this information from your taxes.
- Are any costs expected to go up?
- Is there any expensive maintenance expected to happen soon?
- What is your monthly mortgage?
Add up your expenses and subtract from your rent. Will you still make a profit? If so, and the tenant is great, don’t raise the rent. Lucas Hall, the founder of Landlordology, says, “A quality tenant is far greater than a 3% rise in rent.”
3. Can I raise the rent without losing my tenant?
It is possible to raise the rent on a good tenant without losing them if you do it delicately. If you choose to raise the rent, follow these rules for the best opportunity to keep your great tenants.
- Raise the rent, but keep it $100 less than comparables, and let your tenant know that while you needed to increase the rent, it is still lower than typical rents for the neighborhood. After receiving the notice that rent will increase, your tenant might begin looking around to see if they are still getting a good deal. However, if you keep the rent below market value, they will find a benefit in staying.
- Provide plenty of notice. The amount of notice that is required depends on the state. However, the more notice the better. It gives your tenants time to prepare for the cost increase.
- Be honest and communicate kindly. Remember, your tenants are people. While you are working on determining your finances, they will be doing the same. Be honest and communicate with them. When I raised the rent on a long-term tenant, I provided her with the market report I had and explained to her that the market value was $500 more than I was charging, but I was only planning on raising it $100 because I enjoyed having her as a tenant. Being honest and open about the process I went through in determining the rent went a long way with her, and she stayed for several more years.
When you’re a landlord, you have to be everything. You’re an accountant. You are a maintenance person. You are marketing. But, most of all, you’re customer service. To keep a great tenant when you need to raise the rent, keep customer service in mind, and make decisions based on data.
Now that I can get my data in Cozy Rent Estimate reports, June will be a lot less agonizing.