Today we’re discussing a common question and an ongoing one for investors: should I raise my rent? The answer is – maybe yes and maybe no. First, determine whether the market warrants an increase in rent. Do a rental market analysis and compare your property to other rental properties. If it shows that the market will bear an increase, go ahead and raise your rent. However, there are other factors you want to consider.
If your decision is made in the summer and you have a firm or strong market and you know you can get a tenant in 15 days, you’ll feel a little safer raising the rent on your property. Short vacancies will help you. However, if it’s a soft market or you’re raising the rent during the holidays, it might take 45 days to get that property rented out, so it’s a risk that might not be worth taking.
Before you tell your tenant you’re increasing rent, you need to understand the upside and the downside. The upside is financial gain. An increase of $50 per month will be $600 a year, and $1,200 for two years. But the downside is that once you let the tenants know you’re increasing your rent, they might tell you they don’t want to pay more and then you’ll get their 30 day notice. This means you’ll have a vacancy and that can cost you money. There will be turnover costs such as paint and carpet and you’ll have to market for a new tenant.
When you’re making your decision, you also need to consider the quality of your tenant. If you have a great tenant in place, you may not want to jeopardize that relationship by increasing your rent. If you have a poor tenant who is consistently late on rent or not taking care of property, this may a good time to consider increase in the rent. There’s not a lot to lose if that tenant gives you notice.
Increases during Turnover
When your current tenant issues a 30 day notice, it’s worth testing the waters with a rent increase. Put your property on market immediately with a higher rent. After a few weeks, if you’ve had a lot of interest and inquiries, you know it’s at a good price. But if there have been only a couple showings, bring the rent down again and find another good tenant.
The goal is to increase your rent on a slow, regular basis. This will help you keep quality tenants as long as you can. If you have any questions or you need more information on this topic, please contact us at Golden Gate Real Estate and Management.