http://www.REIClub.com - Raising Rents Can Be Difficult For Some Landlords. Here Are Some Important Factors To Consider As Real Estate Investors Before Raising Rent...
Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I’ve got quick video on some important factors to consider when raising rents.
There comes a time for every landlord when the rent has to be raised. It is not a pleasant subject from the tenant’s point of view, but it must not be overlooked by Landlords.
Real estate costs rise over time, from property tax bills, to insurance premiums, to mortgage rate increases - so landlords sometimes need to raise tenants' rental payments or leasing fees to maintain profitability
Why Is It hard for some Landlords to Raise Rents?
- fear of confrontation
- fear of shaking the boat
- fear of possible vacancy
- Not sure how to justify the increase
- Maybe rent is high enough vs. market rent
- Existing tenant can’t afford the rent increase
- Fear of damaging a relationship
*** Have to remember, this is a business so your bottom line is the focus.
Market Forces That Affect Rent Increases
- Interest rates - unless its a fixed rate - will increase mortgage - forcing higher rents
- Unemployment rates - higher unemployment equals more renters
- Businesses that are nearby - brings renters from out of town
- Rental Availability - other properties for rent - supply and demand
- Average income of the area?
Additional Factors That Affect Rent Rates
- High maintenance property
- High maintenance tenant
- Scare a tenant into leaving
- How is your rental being treated?
- Quality of current tenant vs. costs for finding a new tenant
Types of Leases
Annual Leases - can only raise rent when contract expires
Month-To-Month - charge a premium monthly rent, allowed to raise rent every month if you like
Multi-Year - Scheduled rent increases - but cannot change in middle of agreement without tenant approval.
Scenarios:
- Annual increase with a new tenant every year
- Set annual rent increases with a long term tenant
- Fixed rent agreement with a long term tenant - usually appropriate for tenants unhappy with initial increase
Nominal vs. Percentage Rent Increases
If your rent is 500 and you get a 5% increase, that's only $25 per month (not worth moving). If your rent is 1200 and you get a 5% increase, that's $60 per month (now we might start checking rent ads).
So, you cannot state rent increases based on % or a certain dollar amount because it depends on the base amount..
Raising rents may not be an easy task, but it's often necessary if you intend on actually earning a positive cash flow on your real estate investments. It’s important to remember that there are many external factors that influence rental rates for your property. In many situations, you will have to justify your rent increases to your tenant, so it’s important you can explain it with competence. Always remember to be fair and honest.
