When you finally find a quality tenant, you want to hold onto them. They comply with the building rules and regulations, get along well with other neighbors, and most importantly pay their rent on time.
However, due to changes in property demand and infrastructural changes in the neighborhood, you want to increase the asking rental price when the time comes for the lease renewal. How do you know when the right time is? And how should you go about it?
The experts from Blue Doors, a leading property management firm in the area, are here to offer their experience to advise landlords in the area. Our article will allow you to raise rental prices at a minimum risk of losing your current tenant.
Regulations on the Rental Price
From your experience as a rental property owner, you can appreciate the role that laws play in the industry. Almost every element of the rental property industry is regulated, and that includes the rental price.
Before you decide to raise the rental price, peruse the local ordinances and State laws. What do they provide for raising rent? State laws may restrict increases in rent in some neighborhoods or they might provide for an increase by a certain percentage.
Implement Rental Reviews as Part of the Lease
Should the laws be in your favor, you may be able to raise your rental rate annually. This doesn’t mean that you should blindside your tenant who has been faithfully paying rent. The ideal would be to incorporate it as part of the lease agreement.
By signing the lease agreement, the tenant affirms that they have read and understood the lease and they will meet the obligations therein.
The lease agreement is the most important document in a landlord-tenant relationship; outlining each party’s obligations, rights, and responsibilities. A well-compiled lease agreement also contains clauses. One of the clauses should be a rental review clause.
A lease agreement should be unique to your rental property unit. That’s why we recommend that you get in touch with an experienced property professional, like Blue Door Realty. A property management company will be able to create and customize a lease agreement to your unique specifications.
Calculate the Rental Increase
The amount you raise your asking price should be comparable to similar properties in the neighborhood. Otherwise, why wouldn’t your tenant leave your premises to go rent a comparable unit in the same area?
We recommend that you perform an intensive comparative analysis. You will be analyzing the quality of the amenities, square footage, number of bedrooms, number of bathrooms, and the plinth area. This information should give you a firm basis for your upward rental review.
In your analysis, don’t forget to analyze the market conditions. While you might want to increase your rental rates, it might not be the ideal time. Only increase the rent when you are in an advantageous position.
As a rule of thumb, the typical rental property has an increase in rent of about 2 to 5%. Most tenants would not stay in the unit if there is an increase higher than this.
Make Upgrades and Renovations
If you have made significant renovations or upgrades to the property, you may be entitled to charge more rent. This increase in the utility of the unit justifies an increase in the rent of the property.
On the flip side, if there are no changes to the property, what is the justification for the rental review? You need to do your research in the area and justify your rental increase.
In unique circumstances, renovations and upgrades could be specifically requested by the tenant. The tenant may love your unit, but requests that you install newer kitchen appliances and make some changes to the landscaping.
Come to an agreement with the tenant on the potential renewal of the lease agreement and also an increase in the rent.
Notice
Most tenants feel blindsided by their landlords when it comes to rental reviews. We recommend that you give your tenants at least 60 days’ notice prior to the expiry of the lease agreement. This will give them ample time to decide on whether to renew the lease or look for a different space.
If you have had a good relationship with the tenant, be ready for negotiations. What can you compromise to maintain a good relationship?
The ample notice also allows for the other possible scenario, a termination of the lease agreement. With 60 or so days to go, you will be able to market the property and lock down on a new tenant. This good practice will ensure that you can enjoy continuous rental income.
Conclusion
There might be several factors that have led to an increase in the demand for rentals in the area. With our professional advice, you can properly increase the rent of your property investment.
Renewing the lease agreement and raising the rental price is just one of the various issues when it comes to rental property management. Should the management of your property become overwhelming, you should rely on an experienced service provider to guide you.
Serving Rio Rancho, Corrales, Bernalillo, Placitas, and Albuquerque, Blue Door Realty is the property company to rely on. We offer professional property management services to individual property owners, condos, and homeowner associations.
Get in touch with us today and receive a quote for our property management services.