Do you want to renew this tenant’s lease?
Before you even contemplate changing the rent, consider if you want to keep these tenants in your property. If they pay on time and keep the property in good condition, it’s likely in your best interest to keep them as long as possible. If they’re constantly late with rent payment or you receive complaints from neighbors about the noise level, don’t bother with a rent increase; Forego the renewal all together.
What’s the rental price trend in your area?
Millennials are renting properties longer than any other generation. This is an important metric for rental property owners, as millennials are the largest group of home seekers in America. The need for rental properties in certain areas of the country has given way to a steady increase in monthly rent price.
Before you debate an increase for your tenants, study your local area. Compare your current rental prices to those of similar properties. You should keep your prices in line with comparable homes. By charging too little, you lose out on potential incomes that renters are willing to pay. By overpricing your property, you push renters away and lose money due to ongoing vacancy.
Certain cities across the U.S. continue to see rental prices increase. The average rent in San Francisco (the most expensive city to rent) currently sits at $3,500 a month. Other large cities like New York, Miami, and Seattle all make the top 10 list of most expensive spaces to rent.
Is your tenant willing to renew a longer lease agreement?
While research shows that few tenants are willing to negotiate on rent, offering more than one choice to your current (good) tenants, may be a way to get more in monthly rent and secure a long-term lease. For example, if you’ve researched the rental market in your area and an increase is validated, offer your tenants a year-long renewal at an increased rate or a two-year renewal at a slightly lower rate.
Should you offer a month-to-month renewal?
A month-to-month leasing agreement allows you or the tenant to terminate the lease with a 30-day notice. Typically, this type of agreement means a tenant is looking for another place to live and doesn’t give you much time to market the property once they give the 30-day notice. For month-to-month lease agreements, you should definitely increase the rent. Increase in rent to a month-to-month agreement should be around 10 percent, more if your rental market supports it.
Before you increase the rent, consider the work and income loss you’ll take on if the tenant decides to leave. Is the assumed cost worth the potential monthly income increase? Peace of mind that comes with responsible tenants may not be worth the added income, so consider the risk, study the market and communicate with your tenants.