Real estate predictions for 2019 suggest mortgage rates will continue to rise. House hunters who were lingering on the edge of a potential purchase will slowly back away and take retreat in their rental properties. While some buyers will certainly continue to forge ahead, those who are waiting for the right moment, may take the next 12 months to watch the market.
Whether you have a portfolio full of rental properties or you’ve only collected a house or two, 2019 may be the time to raise the rent. Higher rents obviously signal more income for investors. Consider your local market conditions and whether the rent hike is appropriate. While it may seem like an easy task, there are a few legal elements to consider before raising the rent on your tenants.
Research Local Rental Rates
Before jumping at the opportunity to raise the rent, assess your market to see if a price increase would keep your properties comparable to other rentals. Some markets host heavy renters who are willing to pay top dollar for an ideal property, while other areas rarely see a monthly increase and could leave an investor with an empty house.
Research the market to see what other owners are charging in rent for comparable homes or units. Use online resources like rental ads or Rentometer to judge your list price. If you discover that your rent rates are below the market average, be confident in raising the price. If your prices fall within the market average, compare specifics of the property. Do you offer amenities that other landlords do not? Consider the quality of your property to know if you have a legitimate argument to raise rates. If your rates are at the higher end of the rent scale for your market, you may want to avoid a rate hike.
If you discover that your rates are below average and could sustain an increase, the change doesn’t happen instantly. The lease between you and your current tenants regulates the rate. You can’t modify any portion of the lease until the current term expires. So, if the current lease has another 18 months, that’s the soonest you could negotiate an increase. Unless of course your current tenant is just up for paying more each month, but we wouldn’t count on that.
Local Rent Laws
If you’ve determined a rent increase is needed on your property and the current lease is set to expire, you must abide by your local rental laws to make the change.
- Timing: Most municipalities will require a landlord to give the current tenant a 30-day notice ahead of the price increase. Some cities mandate a 90-day notice.
- Delivery: Know how the alert must be delivered. Can you explain it over the phone or does it have to be in a certified letter?
- Increase percentage: In some cities, there is a maximum percentage you can raise the rent on the property. Know your laws before you set the new rate.
Once you’ve determined a rate increase is needed and you’ve studied local laws to know you’re within your rights, it’s time to prepare for the pushback.
Is The Increase Worth The Trouble?
When you make your tenants aware of the rent increase, some will be comfortable with the change and stay, while others will leave. Consider your revenue loss if the property sits vacant for a few months. It’s also worth your time to consider your current tenants. If they’ve occupied the property for years and you’ve had no challenges during their stay, is the rate increase worth the risk of losing good tenants to take on unknown renters? You’re the only one who can answer that question, but sometimes it’s better to keep a trustworthy tenant than fight for the extra $50 a month.