Setting your rental rate is a delicate balance. The best way to increase your cash flow is to increase the rental amounts. Whether you are placing a new renter or renewing a long-time tenant, there are careful considerations that must be made.
Often, the easiest time to increase rent is when initially placing a new tenant. When the old tenant leaves and a new tenant arrives, there are no emotional attachments or preconceived notions to deal with. The key is figuring out the how much of an increase the market can support.
To do that, first check your local comparable listings, or comps. Beware not to put much stock in Zillow or rent estimates as those are often inaccurate. Instead, compare real offerings that are as equal to your rental as possible. Ideally you are looking for:
•the same number of bedrooms
•the same square feet
•the same number of garage doors, or similar parking or transit amenities
•the same school district
•the same community amenities (although be thoughtful about these, as renters may not be willing to pay more because you are in an HOA with a pool or lawn service)
While upgrades such as new paint, carpet, granite, and landscaping are often considered “plusses,” some markets will not support a higher rent price for these features. Keep in mind that if you are putting certain prohibitions on your renters, such as not allowing pets, you are automatically reducing your potential rental pool. You may not be able to get the same price for the rental from this smaller share of the market.
Researching an appropriate price is important, but until you test the price in the real world you won’t know for sure what the market will bear. As you know, you only need one person looking for what you have to offer, and willing to pay your price. You can try to post your house with enough time built in to lower the price if you are not getting the right applicants, or any applicants at all. Even a small difference in monthly rental certainly adds up over time. The trick is not to wait too long to adjust your advertised price, as vacancy will quickly eat into your profits.
Renewing tenants have a tendency to lull you into complacency, but don’t become a victim of a familiarity. A regular renewal date serves as a good reminder to reexamine your rent at least once a year. Annual rent adjustments are important to keep your tenant at the market rate.
Raising the rent on an existing rental requires a delicate touch, as you may not want to lose a good tenant over a rental increase. Remember the old phrase about the bird in hand? When thinking about renewals, here are three things to keep in mind:
1.What will the costs be to turn over your unit to a new tenant? If you have had the same tenant for an extended period of time, you may have been able to defer some improvements that will now need to be completed to attract a new tenant. Items such as countertops or flooring may need to be replaced. Also consider your carrying costs during any vacancy.
2. What is your new rent rate? Do your due diligence and look at comps to help you set a new rate. If your rent increase threatens to price a good tenant out of your unit, is your new rate realistic? Can you really find a tenant willing to pay?
3. If you are self managing, do you have the time to dedicate to a turn over? Life will keep coming at you whether or not you are turning a property over. If you cannot dedicate the time to turn the property over efficiently, your bottom line will suffer.
Keep In mind that raising rent is an important factor in your management as a landlord. Even though there may be an emotional component with renewing tenants, eventually rent increases will demand to be addressed. Small but regular increases will be easier than large, forced increases. Use the opportunity provided by placing a new tenant, or when renewing an existing tenant, to reassess and reset your rent amounts.