ARE YOU CHARGING BELOW-MARKET RENT? HERE’S HOW TO GET OUT OF IT.
If you’re renting out a property that you own and are charging below-market rent, then it might be time to consider raising your rates. Even if you’re not facing any competition in your area, you could still be losing money in the long run. Keep reading to learn more about how to get out of below-market rents and charge what your property is worth.
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WHY RENT PRICES ARE INCREASING AND HOW TO DETERMINE IF YOU ARE CHARGING BELOW-MARKET RENT?
According to a recent study, rent prices have been on the rise for the past few years. There are a number of factors that contribute to this trend, including the increasing cost of living, and the decreasing availability of affordable housing. As a result, many renters are struggling to keep up with the rising costs of rent. If you’re a landlord, it’s important to be aware of this trend and to make sure that you’re charging a fair but competitive rate.
There are a number of ways to determine if you’re charging below-market rent.
· First, you can look at local comps to see what similar properties are renting for.
· You can also check online listings to see what kind of prices other landlords are charging.
· Finally, you can talk to your real estate agent to get their take on current and future housing prices and how these are impacting rents.
If you find that you’re significantly below market rent, it’s likely that you’ll need to raise your prices in order to stay competitive.
HOW DOES BELOW-MARKET RENTS TYPICALLY OCCUR?
There are a few ways that below-market rents typically occurs.
· The first is when landlords offer discounts to tenants who sign long-term leases. This is often done in order to lock-in a tenant for a longer period of time, which can provide stability and predictability for the landlord.
· Another way that below-market rents can occur is when a property is newly-built or renovated, and the landlord wants to attract tenants. In these cases, the landlord may offer lower rents in order to fill the units more quickly.
· Finally, below-market rent can also occur when there is a slow period in the rental market, and landlords are looking to make their units more attractive to potential tenants. In any of these cases, below-market rent can be a great opportunity for tenants to find affordable housing.
HOW IS BELOW THE MARKET RATE IMPORTANT?
The current real estate market has been scorching hot, and it’s increasingly hard to keep up with the Joneses.
Additionally, it is very difficult these days for most people who want to purchase a property to do so, as incomes have not gone up in line with inflation.
Of course these results vary by city and state, with some cities seeing flat or even decreasing rental rates and others seeing sharp increases. A recent Rentcom report found that some of the highest increase where in the southeast part of the U.S., with Newport, Virginia seeing a 74% year-over-year increase and Greensboro, North Carolina experiencing a 60%.
Across the U.S., the average tenant experienced just shy of a 5% increase in rent, year over year. For landlords who have not raised rents, they may be facing a significant increase in operating costs— everything from the cost of materials and equipment and home repair stores, to the price that contractors charge— without a commensurate increase in rents to pay these costs.
HOW TO INCREASE YOUR RENT WITHOUT ANGERING TENANTS?
As a landlord, you may find yourself needing to increase the rent l. Maybe it’s been a while since you last raised the rent, or perhaps the cost of living in your area has gone up. Whatever the reason, there are a few things you can do to help make the transition smoother for your tenants.
First, give them as much notice as possible. If you’re planning on raising the rent at the end of the lease, let them know at least a few months in advance. This will give them time to budget for the increase.
Second, be reasonable with the amount you’re asking for. If you’ve only been charging $800 per month and you suddenly ask for $1,200, your tenants are likely to be angry and may even move out. Instead, try raising the rent by $100 or $200 each year.
Finally, be willing to negotiate. Your tenants may be willing to accept a smaller increase if you’re willing to make some other concessions, such as allowing them to have a pet or renewing their lease for an extra year.
By following these tips, you can help to defuse tension with your tenants.
HOW TO DECIDE IF YOU SHOULD CHANGE YOUR RENT?
As a landlord, you may find yourself facing significant increases in costs and wondering how to close the earnings gap.
First and foremost, consider a rent rate that is in line with the market rents for the area. If your rent is significantly below this, determine what’s driving your decision. For instance, if you’re charging below market rent because the property is in need of repairs and maintenance, then you may well be served incurring these costs, both to improve the living conditions and satisfaction of your customer, and to provide you with flexibility to quickly fill the unit, should your tenant determine that the higher rent price does not work for them.
Secondly, you need to think about your financial position. Can you afford to continue to absorb the increased operating costs of the unit? Finally, you need to be aware of the legal implications. Are there any local laws that restrict how much of a rent increase you can charge each year?
Ultimately, there is no right or wrong answer when it comes to setting rent levels. It is up to you as the landlord to weigh up all of the considerations and make a decision that is fair and reasonable.
FINAL THOUGHTS
So, what should you do if you’re a landlord stuck in this situation? There are a few things to consider. First, remember that rent prices are on the rise, so it may be time to raise your rates gradually until they reach market value. You don’t want to anger tenants by raising the rent too much at once, but you also can’t afford to continue charging below-market rent and lose money month after month. If gradual increases still won’t cover your costs or get you up to market rate, another option is to offer incentives for long-term leases or renovations of the property. This will show your tenants that you’re invested in them and the property, and hopefully dissuade them from moving elsewhere.
Finally, if none of these measures work for you or simply aren’t possible, try communicating openly with your tenants about the situation. Let them know why rents need to go up so that they can better understand your rationale. No matter what you decide to do as a landlord, always keep communication open with your tenants – it goes a long way!
