In good rental times, every landlord must ask themselves the following question:
Should I raise the rent on a good tenant?
In many cases, landlords are hesitant on raising the rents during the renewal time for good tenants because they are afraid this good tenant will leave and look for another rental property. The reality is, if you are below market value and the rental market is competitive, you absolutely should raise the rent to market rates. Here are a few things to think about if you decide to raise the rent on a good tenant you currently have in the property.
What are the average rental rates for your area?
How long has the tenant been in the property?
When does the currently lease end?
What are the average rental rates for your area?
It is hard to raise the rent if you don’t have data to back up the reasoning of the rent increase. For example, if your tenant is currently paying $1,000 a month in rent and you tell the the rent is going up to $1,200 a month, a 20% increase, you better have really good data to back up this increase. One reason for doing your research is that if you know what the rental rates are, you can help educate the renter as well so they can make a better decision whether or not they want to begin looking for a new rental and absorb the high switching costs of moving.
There are numerous rental rate tools you can use to help collect your data on comparable rentals within your area. Here are a few:
How long has the tenant been in the property?
Even in a slower rental economy, you should always raise the rent for a good tenant who has been in the property for over 3 years and where they have been paying below market rate. Don’t be afraid to approach the tenant 3 to 6 months before the rental agreement renewal and state your case with your data that the rent will increase to x. You can also say the rent is going to x which is still below market rate by y. This is a good strategy to lessen the pain the tenant may feel.
When does the currently lease end?
Every lease you sign with a tenant, you must try to have the lease end in good summer months. If you can, never have the rent term end in the middle of winter. If the tenant decides not to renew, you will have a tough time filling the vacant in the winter when less people are moving. If the current lease ends in the winter months, try to renew the lease to where it falls within better moving months. The best months to have a vacant property are May through August.
All in all, it makes sense to raise the rents on a good tenant if you have been under market value for a decent amount of time and your lease does not end in the winter months.
