“12 boilers on the east wing just went out”, Carl from maintenance emails. The same day, your leasing team reveals they’re swamped and need some extra hands to stay afloat. Then there’s your business insurance, which is due for renewal any day now. All these challenges have one thing in common: they need money. Unless you’ve got a substantial financial cushion you’ll need a huge cash injection to make it all happen.😨
With spiraling costs, increased consumer expectations, and market instability, passing the piling bills on to your tenants can be tempting. But raising rent isn’t always the right or only choice. For example, rent jumped by 30.4% between 2019 and 2023, outpacing salary increases by 10.2%.
In this article, we’ll share some instances when increasing rent could make sense and when it’s best to seek alternative income sources. We’ll also share some ways you can increase profits that don’t involve a rent hike.
Raising rent: When to hold and when to fold
To increase rent or not to increase rent? 🤷That is the question. We’ve got you covered. Let’s cover some circumstances that warrant a rent hike or holding off.
When to uphold raising rent👍
Your property just had a makeover
If you’ve made significant upgrades to a property, you’ve likely racked up some eyebrow-raising costs. But the good new is sprucing up a property, whether through a new kitchen, co-working, or fitness amenities, can make it more appealing to tenants. In such cases, tenants may be willing to pay higher rent if you communicate the benefits of the improvements. 🖌️
Operational costs are going through the roof
Even when you’re trying to avoid increasing rent, rising costs for things wages, supplies, and utilities can force your hand. Take the rising cost of utilities over the last decade, for example. In 2022, US electricity prices jumped by 10.7%, the highest spike since the beginning of the century. However, if you go ahead with increasing rent, it’s critical to be transparent about the reasons with tenants to maintain tenant satisfaction and trust.
The local economy is picking up 📈
Are your properties in a growing tech hub, student city, or the like? Such circumstances can lead to a surge in demand. The demand for rental units can outpace supply, making it a good time to consider increasing rent. This move can align your pricing with the market to capture the property’s increased value. Just be sure to tailor your rental to your target demographic to increase lease signups.
Similar properties in your area are charging tons more
If your neighbors with similar units have substantially higher rent asking pricing, it could be time to charge your property’s worth. Underpricing could raise flags in some renters’ eyes. It can also create an opportunity cost. For example, undercharging by $200 per month across ten units is a $24,000 loss annually, which you could have used on strategic initiatives. Raising rents helps you avoid such losses.
You’ve had tenants at the same rate for three years or more 🤝
A lot can change over a few years, from inflation rates to renters’ financial position. So, if a tenant has been paying at the same rate for multiple, raising rent could be reasonable. This is especially true if your property’s market value and operating costs have increased. To lessen the shock factor of raising rent, offer ample notice and explain the rationale behind the increase like upgraded amenities.
When to hold off increasing rent 👎
Competition is stiff in the rental market
Competition is part and parcel of rental property management. But if competition is too stiff, raising rent could backfire. For example, in states like Texas and Florida, there’s been a surge in property development. This fact has made it challenging to secure tenants without offering perks like lower rent, a one-month free stay, or reduced security deposits. So, raising rent could cause tenants to look elsewhere for more affordable options, leaving you with vacancies.
Your tenants are already struggling financially 💸
The cost of living crisis is raging on. Half of renters in the U.S. are considered cost-burdened or rent-burdened, spending more than 30% of their 2022 salary on rent and utilities. Also, 15 million tenants are paying more for rent than they can afford, a.k.a rent-burdened. Knowing these facts, it’s possible that some of your tenants may be facing financial difficulty. This is especially likely in areas with high unemployment or tenants on social assistance. Some tenants could view raising rent as unsympathetic, leading to issues like late payments, delinquencies, and breaking leases early. Next comes high turnover and costly vacancies.
You’ve raised rent recently
Let’s be honest. No one likes paying more for things, especially if they once had a lower rate. Most renters want value for their money. So, if your company has been steadily increasing rent, another hike too soon could cause dissatisfaction. This issue could lead to higher tenant turnover, even if they were initially happy with your property and service. If keeping tenants as many units as possible in your units is a priority, it’s best to delay increasing rent.
Rent controls make increases move sketchy 📜
Raising rent has always been a source of contention among landlords, property managers, and tenants. Some states have caught on to issues like unfair rent increases and brought in rent control laws. These laws limit how much and how often you can hike rent. Failing to obverse these regulations can land your business in legal hot water. Tenant lawsuits, fines, and penalties could soon follow. For example:
- San Fransico limits rent increases to 60% of the consumer price index (CPI) up to a maximum of 7%, and landlords can only evict tenants for just causes
- In July 2024, the “Junk Fees” law went into effect. The aim is to ensure Californian tenants pay the price they receive with no add-ons
- This January, a Colorado tenant won a lawsuit that challenged the legality of landlord-imposed fees for basic services
You haven’t upgraded the property 🏚️
If your property looks and feels the same or worse than it did when the tenant moved in, tenants could see a rent spike as unjustified. Such renters may look elsewhere for units that they consider worth shelling out more cash for. So, if you’re not looking to invest in amenities, services, and overall property condition, hold off on increasing rent.
5 ways to boost profits without raising rent
Now that you’ve got an idea of when it’s the right time to consider increasing rent, it helps to have some alternative methods for boosting revenue if you decide now isn’t the right time. Let’s cover a few.
Monetize common areas
If your property has busy common areas or highly trafficked corridors, use them to your advantage. Look for ways to maximize the use of and revenue from communal spaces. For example, you could:
- Rent out the common areas or clubhouse for private events
- Add vending machines for groceries, beverages, electronics, and snacks ☕
- Install a self-service laundromat, ATMs, and parcel collection lockers
- Convert underutilized areas into co-working spaces with meeting rooms
- Offer fitness classes like hot yoga and pilates to tenants and outsiders 🧘♀️
- Monetize car parking spaces
- Set up a café or small food kiosk
- Offer storage lockers or bike storage for rent
- Rent out wall space to local businesses for advertising
- Host pop-ups or farmer’s markets 🧑🌾
Offer value-added services
These days, many people live busy lives and end up with too many errands and too little time. Offering services that cater to your tenant’s specific needs can give your rental property management company a kick in revenue. They’ll also provide value to tenants, getting your business in their good books. You could offer services on-site or collaborate with local businesses to offer services like:
- Laundry and dry cleaning
- Pet grooming, walking, and sitting
- Housekeeping services 🧼
- Technology packages (e.g., smart home devices, internet and mobile services)
- Concierge services (e.g., secure package delivery to tenants’ doors)
- Move-in assistance (e.g., van rentals, movers, packing supplies, unpacking, and furniture assembly) 📦
Incentivize referrals from tenants and staff
Have you got great tenants who are happy with your property and service? Encourage them to refer their network. Referral marketing works best in communities where word of mouth is strong. Why? “Like attracts like”, so your tenants will likely know people looking for housing. You’ll also have more chances of attracting model tenants which will aid your tenant screening.
Create incentives for your staff, too. Leveraging connections to those who know your properties well and can vouch for your company’s quality standards is a surefire way to close more deals. For best results, incentivize your employees and renters with monetary gifts. For example, you could offer renters $200 off their rent for referring a friend who signs a six-month lease or cash bonus.💲
Provide flexible payments to tenants
As more tenants tighten their purse strings to cope with the rising cost of living, it’s essential to reduce friction in rent payment policies and processes. Help your tenants stretch cash further by offering flexible payments through a rent payment app. For example, Flex allows residents to split rent into two portions, making payments more manageable.
The mobile app setup means renters can manage their accounts on the go. Plus, the automated features for things like payment reminders, collection, and receipts mean you’ll spend less on admin and eliminate the dreaded rent week. This setup means less financial stress for tenants and more on-time payments for your rental property management company. 💰
Invest in tenant satisfaction initiatives
Whether it’s due to a polished move-in experience or well-manicured buildings, happy tenants stick around longer. For example, renters who are satisfied with property maintenance are three times more likely to renew their leases. This fact means less marketing spend and more profits for your rental property management company.
But despite this huge opportunity for property managers and landlords to shine, most don’t. Just 33.8% of renters are satisfied with their landlord’s service. Also, just 64% of tenants feel heard by their landlords, and that their landlords are focused on acting on their opinions. If your business falls into this category, don’t stress. You can turn things around. Here are a few ways to improve tenant satisfaction [link to happy tenants/ tenant satisfaction blog post]:
- Launch a resident app for easy communication, service booking, and unit management 🤳
- Offer free workout classes or create a club, e.g., for cycling, running, or dance
- Have clear communication and show empathy for tenants’ unique needs. E.g., working with a tenant that needs more time to pay rent due to a recent job loss
- Build great tenant relations. E.g., by implementing live chat and virtual assistants to answer basic tenant queries. Also, you could host community events like BBQs 🧑💻
- Offer quick and high-quality maintenance that is easy to book e.g. via a resident app
- Offer premium amenities such as a state-of-the-art gym, pool, and outdoor communal areas
- Create a third space for tenants to relax in. For example, adapt aging and vacant buildings into flexible coworking spaces and combine them with your property management office.
- Offer short-term rentals and corporate housing options for units in major districts or near airports, hospitals and care facilities. Adapt the building to fit business travellers’ and temporary workers’ needs (These can command higher rents in peak seasons, too!) 🏡
The right way to level up profits in rental property management
Increasing rent is an easy way to boost income and profits quickly. But this approach isn’t risk-free. Raising rent too high or too soon could can be a recipe for disaster.
Rent spikes can push your residents over the edge. Before you know, late payments and high turnover swoop in, causing losses rather than profits.
Knowing this, expanding your property’s income streams is always a good idea. You’ll optimize operations and drive more profit, but you’ll also build a pipeline that turns leads into tenants.
So, take the leap. Build longevity into your rental property management by getting creative with your rental space and providing unforgettable service. Adapt your strategies based on tenant responses, and larger pockets will await.
