Raising the rent is a delicate process: you don't want to lose a renter, because getting an investment property ready for the next resident is where most real estate investors lose money.
You also don't want to lose out on the income eaten up by inflation when you don't raise the rent. Most renters understand that an annual increase is 'business as usual.' Still, there are things you can do to reduce tension—and ensure you don't lose income when you raise the rent.
Let's look at some best practices and cover how often you should raise the rent, how you should let your renter know about rate increases, and how you can keep renters long-term!
Fancy legal note: Of course, this article is not an attorney—so while we're sharing some generally good information, every pricing situation is unique. We always recommend working with your attorney or an experienced Baltimore property management company like Rentwell to ensure you stay on the right side of rental law. Being on the wrong side can be worse than losing an excellent renter!
How Often Should I Raise the Rent?
Raising the rent at every lease renewal is a generally acceptable practice—but you need to be mindful of where your rent is set and what the Baltimore rental market will support. In a strong economy, you don't have to worry about it as much as you do in times of economic uncertainty.
Many Baltimore apartment communities that had renewals come up during the height of social distancing and furloughs opted not to increase the rent. Why? Many renters were uncertain whether they were going to remain employed and smart communities knew that raising the rent at that moment was not as likely to get a renewal as throwing the renter a small bone and leaving the rental rate as-is.
Remember that single-family homes are often in competition with apartment communities, so you want to be sure that you raise the rent at an appropriate time if this is the type of rental property you operate.
How to Let My Renter Know I Am Raising the Rent
Again, most renters understand that rental increases happen during lease renewal times, but it is still best to:
- Put your rent increase policy in the lease
- Give plenty of notice.
Using 90-day notices for lease renewals gives your renter plenty of time to decide whether they are going to accept your offer—or hit the ol' dusty trail. If you aren't (or they aren't) interested in renewing the lease, this approach also gives you plenty of time to start planning to find another renter. Reducing vacancy times between renters is one of the best ways to protect your ROI when you own investment property.
If you are going to raise the rent, be sure to put everything in writing—a practice that will always serve you well.
Get More Renewals
How much should you raise the rent?
- Generally, we see increases of around 3-5%, similar to what the average employee sees for a raise each year—if they happen to have a thoughtful boss.
- You'll want to do the math to see what you'll need to bump your pricing to, and then be sure to run a rental analysis to see what the market will support, so your increase is reasonable and in line with what is happening in your neighborhood.
- If you raise the rent too much, you might send your renter looking for another option nearby. Of course, moving is expensive, so most financially savvy renters won't go looking for a new place to call home as long as you keep your increase standard.
What If My Rent Is Way Too Low?
Sometimes, a Baltimore property owner will make a knee-jerk decision or take a deal that they later regret. Sometimes, you have a renter that stays a long time—and your increases didn't keep up with market rates.
Should you just raise the rent enough to compensate come renewal? That depends on how far under market rate you are. If it is more than $100, you might want to raise a little extra over the next couple of years. You can also choose not to renew and find a new renter.
Regardless of your situation, let us help! As the experts in Baltimore property management, we know what renters expect in the Baltimore area—and we can not only help you set the right rate form the outset, we can help guide you to the right rates if you need to make course corrections.
Try a Free Rental Analysis
Before you decide to raise the rent, you should be sure you won't be placing your Baltimore rental property outside of what the market will support. Start by letting your Baltimore property management team at Rentwell help you with a FREE rental analysis.
This report comes from top-of-the-line rental management software, and will compare activity in the area, comps, listings, vacancy rate, and even more key details—so you know what you can ask without risking long periods of vacancy.
To get a free rental analysis, just click the link below! We'll need a little information about your Baltimore investment property to run the report for you, and then we'll get you your free rental analysis!
If you'd rather talk to someone, you can always contact our office, and we'd be happy to help explain the complexities of setting the perfect rent rate. We're here for you, Baltimore: Go forth and Rentwell!