Raising the rent on your investment properties can help you keep up with inflation and changes in the market. But doing so is tougher than it seems. Raise your rent too quickly, and you could lose great tenants or cause lengthy vacancies. Raise it too slowly, and you'll be leaving valuable income on the table—income you could use to upgrade and improve your rental properties.
Here are some tips from Baltimore property management experts to help you learn how to raise your rent the right way.
If you’ve just purchased a property and need to raise the rent to make up for the money you’ve invested into it, it's time to take the plunge. Be honest with the renters straight away and let them know that you will need to increase the rent. Some renters might leave, but if you adjust the rent by a reasonable amount and give your tenants notice, this is unlikely, especially if you're already been delivering a great experience for them.
To improve your chances of success with this strategy, you'll want to wait until the end of the current lease term. If your renters have been good to your unit, try and give them a good deal. You might want to increase your rent to $900, but opt to rent for $800 or $850 instead as a sign of good faith to your renters. Let them know that this will only apply to the end of the next lease term, and then an additional increase will occur. Otherwise, you'll continue losing the profits you need until your renters renew their lease.
If you have had your property for a long time and need to increase the rent to reflect market changes, it’s better to make the increase in increments. When you do this, you will find that most renters understand that there should be a small increase in the rent each year to reflect increases in taxes and rates. Let them know in advance that you need to make this small bump, and because it is a relatively small amount, they will often be fine with the change.
Suppose the renter is already locked into a lease when you purchase the property—don’t raise the rent. It is illegal to raise the rent when a renter is still under contract. Wait until the lease is up. If you need to instantly increase the rent because you want to refinance or sell the property, you need to find legal ways to do it. For instance, you could inform the renter about your situation and offer them a new contract with the increased rate. Alternatively, you could offer to pay them to break the contract and sign a new lease with you or go elsewhere.
Otherwise, your only recourse is to inform the renter that you will increase the rent by a certain amount when the lease is over in, say, six months from now. But, if they’re willing to sign a new lease right now and break their contract, then you’ll increase the rent by a smaller amount to ease the adjustment. Giving your renters options shows that you value them, and most people would rather have a small increase now while they can afford it instead of a large increase later that they can’t afford. You could also hire professional Baltimore property management to determine the best course of action based on your unique circumstances.
We live in a world where things are constantly increasing in price and the value of the dollar is worth less each year. So, as a property owner, you are going to have to raise rents at some point. It’s inevitable. You may also need to increase the rent because you have overpaid for property and need to get the rent up to reflect fair market rates.
Sure, this is a difficult conversation to have, but if you are fair to your renters, you’re unlikely to lose them. However, if you raise the rent above market conditions, you’re going to have huge vacancies, so it’s in your best interests to stick to fair market rents.
As a property investor, you are running a business at the end of the day, and you need to make a profit. If you need help to increase rent to place yourself in a profitable position without taking advantage of your renters, hire a Baltimore property manager. Our property management professionals will consider market conditions and state laws when raising rents to protect your investment and keep your business profitable. Give us a call today to learn more about how we can help you get the most value out of your rental properties.