One of the questions that you must think through every year if you own rental properties is should I raise the rent for my existing tenant? Whether you have a property manager or self-manage your rentals, your decision to raise or not to raise the rent is a simple calculation and hopefully easy conversation with your renter.
1. Baseline your data:
- What is your current rent?
- What are the comps in the area?
- What is the current known vacancy rate for a like unit? (e.g SF home that is a 3/2 or a studio in a condo or…)
This tells you how your rent compares to the market.
2. How much does getting a new renter cost you?
- How much is a typical rent ready for your unit? (I’ve had some for as little as a few hundred dollars and some that were several thousand. It depends on the size of the unit and the quality of renters you are getting) There are several other factors at play but after your second or third vacancy, you should have an idea of the “norm.”
- How much is it costing you to screen and find the next tenant? (if you have a property manag-er their rates are specified in your contract, mine vary from ½ a months rent to ¾’s of a months rent)
- What is the typical vacancy duration you can expect? This includes time to clean and repair the unit to make it rent ready, the showings and getting a tenant in place including any notice time they may have to give in their current place. Not only are you spending money, but you are also not getting rent at this time
3. How much do you want to raise the rent?
- Either by percentage or specific dollar amount, is this in line with the perceived market value of that unit?
- Legally what % or dollar can you raise the rent in that area (keep in mind that some cities have caps on how much rent can be raised per 12 month period) – be sure to know the local laws where you are a landlord.
4. How much would it cost the renter to move?
- How much would time to find a place, pack, get a mover or depending how small the place may be, getting a friend that might move them for pizza and a beer, cost the renter?
- To move into a new place will likely cost them some combination of first, last and deposit, which for many renters is a chunk from their savings
- If they have roommates, family members or pets this complicates their ability to move easily
- Other factors such as proximity to stores, childcare or schools will also play a factor into whether the tenant is likely to move