As a property owner, you don’t want to find yourself in a situation where your investment is not generating returns. One of the common causes of this scenario is being bound to a lease agreement with a low rent rate. If you are a landlord and find yourself in this predicament, the urge to raise rent immediately might be high. However, majority of lease contracts guarantee tenants that there will be no rent increase until the lease is terminated. Increases may only be requested before the renewal of the lease.
Some lease agreements with tenants may have terms that permit you to raise the rent at will. However, doing so excessively or suddenly may result in difficulty retaining that tenant. Hence, before considering any rent increase, it’s critical to have a solid understanding of the current market rent. This will help you maintain your current tenants despite a hike in the rental price.
What Is Rent Market Rate?
The rent market rate is a dynamic number that is influenced by multiple factors. First of all, each neighborhood has its unique rent market rate. It is determined by the amount of money tenants are willing to pay for properties in the area.
The rent market rate of a neighborhood can be influenced by several factors. This could include upgrades to the neighborhood’s infrastructure. Examples are constructions of new schools, office buildings, stores, and other facilities that are beneficial to the residents. Other factors include fluctuating inflation rates on a city or national level, and many more.
How to Determine Your Local Market Rate
Determining the rent market rate of a neighborhood can be a complex task. This is because of the multitude of factors that can impact it. The most effective way to assess the market rate in the area where your property is located is to determine the rent that tenants are paying for properties in the vicinity. This can be done by exploring local housing listings on platforms like Padleads, and other listing websites. You can also seek advice from a real estate agent. They are usually updated about the rental and sale values of various properties.
By doing this, you can determine whether or not the rent amount you are currently charging is below market rate.
How Do Landlords End Up Charge Below Market Rent?
Landlords generally aim to charge within or above the current rental prices. However, there are instances where they may end up charging below market rate unintentionally. For example, property investors may acquire a property with an existing tenant. These “inherited tenants” are usually entitled to the same rent they were paying prior to the change in ownership. This can result in the landlord charging below market rent until the lease is renegotiated or the tenant moves out.
Additionally, landlords may choose to renew leases with tenants without increasing rent, hoping to encourage lease renewal. If they are happy, they will continue to rent, and the landlord don’t have to deal with a vacancy. It may seem like a win-win situation. However, this can result in the rent becoming below market rate over time because of inflation.
Raising Rent Prices: A Guide
As a landlord, it can be challenging to broach the topic of raising rent prices to keep up with the market. However, with the right approach, it’s possible to negotiate a higher rent with your tenant without causing them to leave.
Justify Your Request with Market Data
When proposing a higher rent, it’s important to provide evidence of the current market rates in your area to justify the increase. Showing that the current rent is below market rate can help make the request more reasonable.
Maintain Open Communication
Discussions about rent increases can be sensitive, so it’s important to actively listen to your tenant’s concerns. Maintain open communication throughout the process would make it less uncomfortable. Ensure that both your needs as a landlord and your tenant’s perspectives are taken into account.
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