When you own rental properties, you know how important it is to maximize your return on investment (ROI). One of the most obvious ways to do so is by increasing rental rates. However, when you raise rates too much, you may risk losing tenants. So, if you’re wondering how you can increase rental rates without losing great tenants, just keep reading.
How Can I Increase Rental Rates Without Losing Tenants?
Raising rates at a rental property is almost inevitable and commonly expected. After all, landlords must adapt to market changes and make money with their rental investments. However, relying on increasing rental rates isn’t an excellent method to do so. Instead, investors must research the local market and calculate rates accordingly.
In most jurisdictions, there’s no limit on increasing rental rates. However, landlords can’t raise the rent for just any reason. For instance, it’s illegal to increase rental rates based on discrimination or retaliation. Doing so can end in legal and financial battles.
If you want to avoid losing tenants while increasing rental rates, landlords should carefully choose fair and warranted rates. If you need help determining whether or not to raise rates, consider reaching out to residential property management in Northern Virginia.
Some of the most common reasons landlords may increase rental rates include:
- A hot housing market that allows landlords to set competitive rates.
- Property taxes, insurance, HOA fees, or other expenses increase.
- The rental property needs repairs or renovations.
That said, if you’ve decided it’s time to increase your rental rates, there are a few steps you won’t want to miss. Here’s how to increase rental rates on your investment property.
How To Increase Rental Rates
Rent increases can be highly beneficial for landlords looking to increase their ROI. However, increasing rates can also negatively impact your business if not done correctly. Before raising rates, consider some of the following points:
- Legal Compliance
- Fair Pricing
- Proper Notice
Before you raise rental rates, ensure your property isn’t located in a rent-controlled area. This legislation limits rental rates and increases based on various factors, and landlords must comply.
Landlords must search whether or not their property is in a rent-controlled area to avoid any legal trouble. Furthermore, pay attention to any laws that may do any of the following:
- Regulate the timing of rent increases
- Limit the frequency of rent increases
- Limit the eviction process
- Allow special rent increases
- Determine reduction in services
One of the significant points for landlords to consider is fair rental rates. That said, raising the rent on an occupied property is a risk. Although it can increase your profit margin, it may cause tenants to vacate instead of paying the higher rate. Therefore, landlords have to be careful while raising rates.
To determine fair rental rates, landlords should know the area and the local market. Additionally, it’s helpful to use an estimator tool to ensure you’re rates fall in line with the local housing market. After all, blindly raising rental rates is never a good idea, so make sure to do your research beforehand.
Although landlords can determine rental rates, they can’t raise the rent whenever they want. Instead, when they can increase rates and by how much depends on the lease and local laws. Most often, rent increases occur during a lease renewal, and landlords must give tenants proper notice of lease changes.
Whether it’s a month-to-month or a year-long lease, it’s typical to provide tenants with at least 30 days’ notice before raising rents. Some states require even more notice–up to 90 days.
How to Calculate Rent Increases
Calculating fair rent prices is crucial if you think it’s time to raise rates. However, if you’re unsure how to calculate your rental increase, here are a few tips.
- Research the Area- One of the first steps is researching the area to see how much other rentals are going for. To get a comprehensive idea of rates, look at rentals currently on the market as well as ones recently rented. Additionally, look at rentals similar to yours in features, square footage, structure, and visual appeal. The goal is to be competitive but not too pricey.
- What’s the Local Demand?- Regardless of what you think the property is worth if the market is down and you increase prices, you could drive potential tenants away. That said, landlords must balance rent increases with the local demand to avoid vacancies.
- Cover Your Expenses- While increasing rental rates, consider any larger expenses on your end during the lease. For instance, factor the price into your new rental rates if insurance premiums or HOA fees increase.
- Use an Estimator Tool- An average rent increase of around 2 to 5 percent is entirely normal. However, some locations may exceed this percentage by three additional percentage points. One of the best ways to see where your property stands are by using a rent estimator tool.
Best Practices for Increasing Rental Rates
When you increase rental rates, you may get questions or complaints from tenants. After all, nobody wants to pay more for a rental property they’ve been living in for a year already. However, depending on the market and economy, some rent increases are necessary.
If you want to keep your tenants and remain on good terms, there are a few things you can do to take the edge off. For instance, giving proper notice is the first step in communicating a rental increase to your tenants. Without at least 30 days’ notice, it may come as a surprise to tenants, causing them to find a new rental instead of renewing the lease.
Furthermore, if tenants come to you with questions about the rental increase, answer them. If they don’t understand why you raised the rent, explain your circumstances. For instance, if your business expenses increase, raising rental rates helps make up for these expenses.
Overall, the best thing you can do as a landlord during this time is to communicate with your tenants and perhaps offer perks for signing a lease renewal at a higher rate. After all, tenant turnover can be extremely expensive, so it’s best to stay on good terms with your tenants and see their perspectives as well.
Stress Less With Professional Property Management
Increasing rental rates is a huge part of owning and managing rental properties. Therefore, it’s crucial to explore all of your options and do your research. Look at the current market, consider your property features, and compare your property with other rentals. Contact your local management professionals if you need help managing your rental properties.
If you need rental management services in Northern Virginia, reach out to Professional Property Management. Whether you need help with tenant communication, home inspections, maintenance issues, or legal knowledge, reach out to PPM today! Our team of dedicated professionals is ready to help your business reach its maximum potential.