As a property owner or landlord, getting a good return on your investment is part of why you do what you do. While you want to keep your tenants happy while they are renting from you, the inevitable truth is that sooner or later, you’re going to have to raise rent. There are ways to do so that can keep tenants satisfied while also boosting your income and profits. One of the trickiest parts of being a landlord or investment property owner, though, is knowing when it’s time to raise rent and by how much. If you don’t have a property management company advising you, that can certainly help, but in the meantime, here are our tips for knowing when to increase rent.
When (and How Often) Should You Raise Rent?
Raising rent can be a contentious subject. You and your tenants both know that it’s something that will eventually need to be done, but when and how often you do it are two things you need to consider. If you give your tenant a great deal on their Chicago apartment when they first sign the lease, then don’t increase rent for a few years, you may find that by the time you decide to increase it you’re getting far below market rate for the unit and may need to raise it by a significant amount. Increasing the price all at once can be a big burden on your tenants, and after developing a good working relationship with them, it can cause a lot of conflict. The worst case scenario is that they can’t handle the increase financially and they’ll move out of your property, leaving you with an unexpected vacancy, but that can be prevented with a little foresight.
In order to avoid finding out that your tenants are paying a few hundred dollars under market rate and increasing by that amount all at once, it’s best to increase rent little by little for each year of their occupancy. Even if you increase the price by just $25 per month, that’s an extra $300 per year–for every tenant you have. Steeper increases, of course, add up to even more profits.
If you don’t want to raise rent every year—for instance, if you want to reward an especially trustworthy and timely-paying tenant—that’s okay, too. Rent increases are a very subjective topic, and when you decide to increase rent should correlate both with market fluctuations and inflation as well as your personal preference and relationship with the tenants. Just keep in mind that eventually, you will need to increase the rate to keep up with your own expenses.
If a tenant moves out, however, you have the perfect opportunity to reassess the worth of your property and increase the rent accordingly. When your units are vacant, that’s the perfect time to capitalize on the market’s fluctuations and change what you’re charging for your apartments and homes.
How Much Should You Increase Rent By?
How much you raise rent should be influenced by a few different factors. While it can seem tempting to raise the rent a lot to keep in time with the market, such as when a neighborhood becomes the “hot” place to live, this can lead to your apartments sitting vacant for longer than you’d like. You should weigh the benefits and drawbacks of raising rent by a lot—will your current tenant move, leaving you to find a new renter? You need to consider if the potential for vacancy is worth the additional income from a significant rate hike.
If you want to keep your current, reliable tenants, the safest way to do so is by raising rent somewhere between two and six percent, after assessing the state of the market as well as local demand. This amount is usually manageable for tenants and won’t typically cause them to need to find a new place to live, but the increase, even though it’s seemingly small, is more than enough to make a difference in your bottom line.
If you’re not sure how much you can safely raise rent by in order to keep your current tenants, or you want advice on how much you should raise the rates to get a better return on your investment properties, asking your property management company can be a great help—they’ll have a lot of information about competing properties and what the average rentals are going for in the area your property is.
Should You Ever Avoid Increasing Rent?
Sometimes, such as if your property tax doesn’t increase (what luck!), you may be tempted to avoid increasing rent at all. While you’re well within your rights to do that, it’s generally recommended to increase rent by at least a little bit each year so that you won’t have to increase rent by a very large amount at a later time.
What to Do If a Tenant Pushes Back
Unfortunately, one result of raising rent can be your tenant choosing to move. Again, this is something you’ll want to weigh before you raise rent, but ultimately, if a tenant doesn’t want to or can’t pay the increase, they’ll have to move. If you do want to help accommodate your tenants’ needs, though, you can work with your property management company to determine whether you can raise rent a bit less or not.
Feeling Stuck or Confused?
Dealing with rent increases can be a complicated subject, and if you own a lot of properties in different areas in Chicago, doing it all yourself can be a big headache—it can seem like all you’re doing sometimes is analyzing the market and adjusting numbers.
At Lofty, we believe that being an investment property owner or landlord shouldn’t have to be a full-time job, and we do everything we can to ensure that you get to live the life you deserve. To learn more about the best ways to manage rent increases, contact us anytime—we’re ready to help you.
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