Factors to Consider Before Raising Tenant Rent
November 18, 2016
As with many other landlords across the U.S., one of the more common decisions facing Phoenix area rental property investors is whether or not they should raise their tenant’s rent when it’s time to re-sign their lease agreement. If you have hired a professional property management company to oversee your single family rental home, they will be able to help you with the decision-making process. However, if you are the landlord, then there are certain factors that you will want to consider before moving forward with a rent increase.
Compare what other homes similar to yours are renting for – Although you may be tempted to increase the rent on your property, you’ll want to check what other similar properties in your area are currently renting for. Take a look at specific elements such as amenities, location, size, etc. since it may be difficult to justify raising the rent on your home if you haven’t made any improvements over the past year or two.
Consider relocation costs – When it’s time to discuss the issue with your tenant(s), you want them to consider if it makes financial sense to them to continue renting from you versus what it will cost them to relocate. While you may be considering an increase of only $50 to $100 per month, it could cost those people hundreds, if not thousands of dollars to relocate out of the area or even across town. In these circumstances, it would benefit them to continue leasing from you for another year. And it helps you have higher retainership on your property.
Research the business climate in the area – Another must-do before raising the rent on your property is analyzing how businesses are doing in the area where your rental property is located. For instance, have you seen any new businesses open up in the past 12 months? If so, how many opened? New businesses such as entertainment venues, grocery stores, and retail shops generate more money for the local economy. It could also make your tenants happy when they see their favorite food market or retailer opening up in their area.
Think about your local economy – By the time you’ve sat down to read this content, there may have been a negative shift in your local job market. Whether it’s a negative or positive shift, it’s still going to impact the local economy. Consequently, you need to consider how your tenants will be impacted by such an economic shift before raising the rent on your property. A rent increase could pose a financial hardship for your tenant and his or her family, thereby forcing them to consider renting a cheaper property.
The bottom line is that you want to consider these different factors before increasing the rent on your property. Keep in mind that losing a tenant and having to replace them will hurt you financially.