As a landlord, you’re running a business. And as is the case with every type of business, whether you’re selling toys on eBay, leasing industrial power equipment, or offering rental housing in your community, profitability is a must.
As expenses rise and demand increases, so must the price of the product. For landlords and property owners, that means increasing rent prices.
How Do You Justify Raising Rent?
As a landlord, it can be difficult to justify raising rent prices on your properties, especially if your tenants have been living in the same unit for a while and have come to expect a certain level of rent. However, Keyrenter Raleigh team advises there are a number of reasons why it may be necessary to raise rent prices, and by communicating these reasons clearly and transparently to your tenants, you can help ease any potential tension or frustration caused by the increase.
Here are some reasons for raising rent:
- Increased costs. One of the most common reasons for raising rent prices is an increase in operating costs. As a landlord, you’re responsible for maintaining the property, paying for utilities, and ensuring that the building is up to code. Over time, these costs can increase, and it may be necessary to raise rent prices in order to cover these expenses.
For example, property taxes may have increased, or you may have invested in energy-efficient upgrades to the property. By sharing this information with your tenants, they can understand the reasoning behind the increase and the benefits of these improvements.
- Rising demand. Another reason to raise rent prices is that you may be able to charge more for the property because of the local housing market. If the demand for rental properties in the area is high and vacancy rates are low, it may be possible to raise rent prices and still find tenants.
Additionally, if the area is experiencing rapid gentrification, new and renovated units may be commanding higher prices than comparable older units. In this case, you can explain to your tenants that you’re aligning your prices with market conditions and it could be good for them as well, for future sale or rental of the unit.
- Upgrades and repairs. You may also need to raise rent prices in order to make necessary repairs or upgrades to the property. Although it may be difficult to pass these costs onto your tenants, it’s important to remember that by making these repairs, you’re improving the living conditions of the property and ensuring that it remains safe and habitable for your tenants.
Furthermore, making renovations or upgrades to a property will increase the overall value of the property, which can be beneficial for both you and your tenants in the long run.
- Market rates. It’s worth mentioning that some landlords may be able to raise the rent if they can show that the current rents are under the market rate. Many landlords will conduct a market survey, which can be helpful in showing that the current rental prices are below market value. This can also be helpful in showing that the rental increase is reasonable.
Factors to Keep in Mind When Raising Rent
When it comes to increasing the rent, it’s important to be transparent and communicate clearly with your tenants. This can be done through a letter or an email, and should include information about why the rent is being increased and what benefits the tenants can expect as a result of the increase.
If you’re not sure how to approach this issue, you may work with a property management company to oversee the process of increasing rents (as well as other day-to-day management tasks like coordinating repairs, collecting payments, etc.).
Here’s another must: Give your tenants adequate notice before the increase goes into effect. This can be done by giving notice a month or two in advance, depending on the jurisdiction. (Check your local laws to ensure you’re complying.)
From a relational side of things, be aware of the fact that raising rent prices can cause tension between you and your tenants. It’s important to be empathetic and understanding of their concerns and to be open to negotiation if they have difficulty paying the increased rent.
Finally, it’s worth remembering that raising rent prices too high may lead to long-term vacancy and high turnover rates. (This is the trade-off that you have to always be cognizant of.)
With this in mind, raise the rent in a manner that is fair and reasonable for both you and the tenant. This is how you cultivate a solid reputation and long-term tenants.
Understanding Landlord-Tenant Laws
A landlord has the right to raise its prices, but understanding landlord-tenant laws is important for a successful and professional increase process. Most states and cities have specific laws regulating how much notice must be given to tenants before raising it or eliminating any existing services. In addition, often these laws also mandate how much it can be increased each year. It is critical that landlords stay up-to-date on their state and local requirements before initiating a rental rate increase.
Every tenant lease agreement should outline the amount of time prior to when the tenancy commences that the landlord must provide written notice of an upcoming rental rate increase, as well as any associated new fees or cuts of existing services. As such, it is important for landlords to check their lease agreements prior to raising rent prices in order to make sure they are giving sufficient time before making such changes. For example, in some jurisdictions landlords are required to notify tenants at least 30 days ahead of time if they plan on raising their prices by 10 percent or more.
Putting it All Together
Raising rent prices on your properties can be a difficult and sensitive topic, but it’s often necessary in order to keep your business profitable. Hopefully, this article gives you a decent starting point to approach this challenging issue.