Our team has been talking a lot about renewals recently and how to go about increasing rent. With this market, things are going up and we have a lot of tenants renewing their leases right now.
So it’s been top of mind for us, and probably it’s been top of mind for you. Here are three things that we think you as an owner should consider when going to renew with your tenant and considering doing a big price increase.
Should I consider increasing rent?
The first thing you will want to consider is your turnover costs. Your biggest expense at renewal, or when a tenant moves out is the cost to get it back into market standard.
If your tenant moves out, you need to know how much it’s gonna cost you to get it back in shape and get it re-rented and those costs can add up quickly.
When you’re comparing this with what you’re considering doing with your tenant, is it worth risking a $200 price increase to have a tenant move out and having to pay $3,000 for the new paint job that you’ve been delaying? or updating your appliances to get them into stainless steel, because you have really old ones?.
Those kinds of things are what you need to consider. If you’re gonna get a $200 price increase, you better be spending minimal money.
To put it into simple terms, if you spend $3,000 getting your house rent ready again, by updating the appliances, you would need to increase your rent by more than $250 per month on rent amount to cover that cost alone.
This is really something to consider then. $3,000 does not go a long way when turning a property. If you’re going to do a full repaint, you’re gonna be over that budget immediately.
What about vacancy?
The second thing you have to consider before increasing rent is vacancy time. If your tenant moves out, you should plan on the property being vacant for some time to get your home rent-ready again.
And one month of vacancy on a $2,000 home equates to $165 a month in lost rent if you average it out. So you would have to increase your monthly rent $165 or more just to cover that cost of vacancy rather than just keeping your tenant at the same price.
The third thing to consider is raising your rent. This is not a bad thing. And most tenants are going to be expecting rent increases coming with the market that we’re in, but you need to do it strategically.
Think strategically when increasing rent
Raising a tenant’s rent to $300, $400 or $500 a month is not an easy pill to swallow, but if you do it strategically and you look at the market like we’re doing and say most three-bedroom homes are renting for X amount of dollars.
We’re gonna come in just slightly below them on this rent increase so that you don’t have to spend $3000 or more dollars rent fixing your house up or have a month’s vacancy for the time to do that.
And we’re gonna get that highest amount of rent that we can while still saving you money from not having that turnover.
The last thing to consider is that your renters are people and they’re taking care of one of your assets, if not your biggest asset.
Take care of your tenants
So if they agree to you increasing rent by $300- $400 a month, do something nice for them. You can clean their carpets, you could send the carpet cleaner to their house through us. We can get that scheduled for you and it makes the house nicer.
It keeps your carpets in better shape so that you don’t have to replace the carpets right now. Or if you’ve got older appliances, upgrade one of those appliances to say thank you. Adding a newer appliance so that they’re not dealing with a broken-down fridge Every time the summer comes around and the freezer can’t freeze whatever it is, or if you can’t afford to do that right now, just have us send them a gift card to Say, thank you. Say we really appreciate what you’re doing. Send them out to dinner and just show them that you appreciate them.
They are taking care of your home and the more they know you care about them, the more they are going to take better care of your home.
Keep those three things in mind. And if you have any questions about your lease renewal, please reach out to us and we’re happy to help you get things squared away for your tenants.