How often should rental property management companies raise rent on their rental properties? Theoretically, no more than once per lease. However, the reality of rental management is far more complicated than a simple numerical answer. Landlords are free to set rates for rental properties, and tenants are free to pay or reject them. Landlords who rent below market rates will quickly find tenants and thus have few vacancies, but do so at the expense of taking in less revenue. Landlords that set high rates end up with unprofitable vacancies and soon have to reset their rates closer to market value.
Rental vacancies are low, which tends to favor an increase in rent values. Before raising rent, it is important to keep in mind a few factors. Let’s look at how property rental companies can stay profitable in a highly competitive market without losing tenants. The business of regulating and raising rents doesn’t have to be stressful and can be a balanced negotiation between tenants and rental property management companies.
Evaluate the Market
Evaluate lease agreements every six months. You don’t have to change rents this often, but it’s important to keep abreast of rental market developments. By checking out competitive listings in your area regularly, you ensure your property is priced according to current market conditions.
When vacancy rates are tight, like today, landlords often increase rent. If vacancy rates are low, finding tenants is harder, and management companies may find themselves discounting their rents to entice renters. Keeping your finger on the market as well as current inflation rates allows you to be prepared. Charging your tenants a little more on an annual basis may be a more comfortable increase for both of you, rather than springing a huge adjustment on them in a few years in an effort to catch up with inflation.
It may also be useful to evaluate your tenants. Do you value any of your tenants for their reliability? Are you willing to risk losing them? Sometimes, having reliable tenants who care for the property and make rent regularly are worth keeping.
Raising the Rent
If you’ve decided to raise rents, you’ll need to give tenants appropriate legal notice. This is different between states, but typically sits between 30 and 60 days. If your tenant is on a fixed-term lease, rent increases will be stipulated by the existing rental agreement. Few tenants will be happy about a rental increase, so it’s important to communicate openly with renters.
If possible, plan ahead for your next increase by building it into your lease. This will give tenants significant notice and allow them to prepare for increases well in advance. Raising rents can be stressful for both sides, but operating within a structured process will bring success.
Right of Tenants and Landlords
For some communities—mostly in large cities like New York and San Francisco— there are rent control laws in place, restricting landlords from setting rents at or above market price. Different communities have different laws, and it’s important for both tenants and landlords to know their rights and terms of rental agreements in order to ensure lease changes are legal. Also, be aware that each state has different laws regarding the notice tenants must be given of increases, which is often dependent on how much the increase is. Here is a convenient resource for rent control laws in cities and states nationwide.
Raising the rent for rental properties does not have a “one size fits all” approach. We have covered some of the most important considerations to factor in if you’re thinking of increasing rent. For expert advice regarding rental property management for both tenants and landlords, contact Peridot Management today.