The secret to increasing profits without raising rent
“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
