Your vacancy rate is low and you have great tenants who have rented from you for a long time. Comparable units are renting for more, but why think about raising rents when things are going so well?
Because the rental market is cyclical just like any other market. As the saying goes, what goes up, must come down. That’s why it’s important to keep pace with rents when the local housing market is strong so you can survive leaner times when rents fall and vacancy rates rise.
So how do you raise rents without losing your tenants? You start by doing your homework:
Have your costs gone up?
First, take a look at your operating costs. Have things like property taxes, insurance, and utilities increased since your last rent increase? If so, take note of how much they’ve increased as a percentage. Having this information not only helps you determine if a rent increase is in order, it also helps you explain the increase to your tenants.
What’s the going rate?
Next, determine what the going rate is for similar rental units in your area. But don’t rely on anecdotes from other landlords and property managers; do your own research instead. Start by checking advertised rent using sites like Craigslist or call around, even if it means posing like a prospective tenant.
Are new tenants willing to pay for it?
Finally, test the market by seeing if prospective tenants are willing to pay the increased rents. List rental units at least 60 to 90 days before your leases expire and then see what prospective tenants say about the advertised rent. If they’re willing to pay, you’ll be on firm ground when you talk to your existing tenants about raising their rents.
- 2009 South Bay Home Sales Summary
- Commercial Real Estate Investment 101