[fa icon="calendar"] 10.13.2016 / by Joseph Mendez
Periodically increasing rental rates is necessary to keep your real estate investments profitable. However, this is a tricky process that requires good business skills, good relationship skills, and knowledge of current market conditions and legal requirements.
If you are considering increasing rent in a multi-family building, these steps can get you started in the right direction:
Determining the Increase Amount
Determining a fair rental price can be tricky. A good place to start is by looking at similar properties in your area to see how much they are charging. However, there is lots more to it than that. Your property is unique and should be priced as such.
Here are a few tips to help determine a fair rental price for your property:
- Look for rentals that have the same or similar features to your own (bedrooms, bathrooms, square footage, parking, etc.).
- Make sure these rentals are the same age as yours.
- Make sure the structure and style is the same.
- Make sure they have the same visual appeal (landscaping, amenities, etc).
- Get at least 5 other rental amounts from properties that are similar to and in the same area as yours.
This will give you the most accurate idea of what the current market rate is for a property like yours.
Increasing Rent for Vacancies
After you’ve done a fair amount of market research and want to increase the price for vacant units, it is time to start advertising. You may need to make adjustments, though, if you are not getting the results you hoped for.
- If you are not generating enough interest, you may need to rework the property description or use additional channels to advertise.
- If you are generating interest but can’t close the deal, you may need to reevaluate the rental price or improve the property.
- If you are getting an overwhelming response, you may need to increase the price after the initial lease has run out.
Don’t panic and drop the rent price if you don’t get a response within the first week. Finding the right applicant takes time. If a few weeks go by and you still are not getting a good response, it might be time to reduce the rate if there are no other options.
Increasing Rent for Current Tenants
This is where rent increases get tricky. You can’t increase a tenant’s rent until the lease term is over. You also need to give your tenant plenty of notice before you raise the rent or you could end up in court.
- Check your state’s laws to make sure you are giving enough notice and that you are not going over the allowable percentage increase.
- Give the tenant an official written notice that is signed, dated, and clearly state the new rental price. Keep a copy of the notice for your records.
- Send a follow-up letter or make a phone call to remind the tenant of the new rental price before it is due.
Be sure to keep a record of all communications with your tenant regarding the rent increase. If your tenant chooses to renew their lease, make sure the new rental price is reflected in the paperwork.
Know the Legalities of Rent Increases
Taking all these factors into consideration will help you keep up with the current market while setting a fair price for your rental. As long as you give your tenants adequate notice and keep the increase within legal parameters, you are on track to keep your investment profitable.