This might seem like a simple question but often times the amount of money to be gained by raising the rent isn’t worth the actual costs in doing so. Let’s consider the following scenario.
The market rent for the property is $1300. The tenant is currently paying $1250. The tenant has a lease that will expire in 90 days. With the end of the lease coming up – you decide that raising the rent is a good idea and an increase of $50 per month will bring in $600 more per year for the owner.
You give your tenant notice that you intend to increase their rent by $50 at the end of the 90 days. Unfortunately, your tenant already thinks they are paying too much, and no improvements have been made to the property that warrants the increase.
Rather than paying the increased rent, your tenants look around and find another home in the same neighborhood that is $100 less than they are currently paying. 15 days later they give you a notice you that they will move at the end of the lease term.
This will save the tenant $1200 a year in rent rather than paying $600 more to you.
Even under the best circumstances there will be “turn around” expenses that can not be charged to the departing tenant’s security deposit.
Utilities will need to be turned on, landscaping must be maintained, painting in the unit may be necessary because of normal wear. Carpets may need stretching etc.
Chances are that the home will be vacant for at least one month and the loss of rental income will be $1250 – plus, $1200 to $1800 in refurbishing costs associated with getting home ready for next tenant.
That totals $3050 for just one month of vacancy. Each additional month the home is vacant will add $1250 to the cost of raising the rent.
If you factor all of the costs involved, the decision to increase the rent $50 per month, will take several years to break even.
It is always your decision to make, but we recommend that you keep the cash flowing into the property and not just raise the rents to raise the rent. However, if you want to be strategic about keeping your investment on target with cost of living increases – working with a property management company provides you that extra protection.
In fact, our team at Orange Property Management, will conduct a thorough market analysis prior to every lease ending to determine where best to position rent and we use our years of experience to negotiate the best value for you.