According to the latest Bureau of Labor and Statistics Report, the rent index is rising at an annualized rate of 3.6%. Is it time to raise your rents?
Probably. But generating increased rental income without suffering significant tenant loss can be a tough balancing act. It doesn’t have to be if you follow these common sense ABC’s.
Step one is to do your homework on two fronts: the current rental market in your area and the value of your specific tenants. Ask these questions as you develop your plan.
- Market – How do your current rates compare to other similar properties? If you have generally higher rates already, do the amenities you provide justify the difference? What is the demand for rental units? What are the current vacancy rates? What are you personally seeing for requests for rental units? Should you increase rates only on units more in demand than others (one bedroom vs. two bedroom, for example)?
- Tenants – When was the last time you raised rents? Which of your tenants are most valuable? Are you willing to risk losing them? Would you consider excluding these high-value tenants from the increase to ensure that you keep them?
Once you’ve announced your increase, be prepared to address negative feedback with legitimate justification for your action.
Understandable reasons include increased property taxes and fees, higher utility costs, and an increase in janitorial, repair and maintenance costs. You might also be planning capital improvement projects for the property that will enhance your tenants’ living spaces.
Also note the length of time since the last increase, especially if you haven’t raised rents for an extended period.
This is the most important component of your plan. No tenant is happy with a rent increase, but you can reduce the potential conflict with clear, professional communication.
Make sure you adhere to the specified advance notice requirements in your leases. Announce the increase in a typed notice on company letterhead using concise, understandable language. Consider including some of the backup justification to address complaints before they occur.
Finally, no one likes surprises. Plan ahead for your next increase by building it into your leases. You can tie increases to a generally accepted measurement like the consumer price index to make them more predictable. This gives your tenants significant notice and allows them to budget for the increase well in advance.
Raising rents can be stressful both for you and your tenants. Following a structured process will allow you to get through it successfully.