Considerations for Raising Rent

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If you’ve invested in turnkey rental properties, rent is one of the most important factors you’ll consider. In particular, deciding when raising rent is necessary is a vital consideration that has several factors involved.

At Americas Housing Alliance, we’re here to help with these kinds of concerns. Here are some of the things you should be considering when it comes to raising rent on a rental property investment

Goal of Raising Rent

In reality, narrowing the decision down to a simple yes or no isn’t always that simple. Making a quick decision without considering all the factors can lead to a bad decision. When you consider raising rent, your primary question should be this: “What are my priorities for this property?”

This will allow you to create alternative scenarios and consider the pros and cons of each. Some potential priorities you could have for your property may include:

  • Maximizing profit
  • Minimizing personal involvement
  • Maintaining low vacancy rates
  • Decreasing tenant turnover costs
  • Stabilizing cash flow

“Anchoring”

“Anchoring” is a psychological term that refers to the power that original events have in our brains. Within a rental situation, this speaks to your original rent amount negotiated with a tenant – this price has a powerful effect on future negotiations. The tenant will always base their future thoughts about rent on this original number, and may consider big increases on it to be an affront. This has to be considered.

Tenant Relationship

Another big factor is your relationship with a tenant. If the tenant is excellent and lowers your responsibility level in some ways, is it worth raising rent and risking them leaving? Consider whether they pay on time, how well they maintain the property and whether they’ve had any complaints.

Percentages

As a rule of thumb, reactions to rent increases tend to fall into a few categories based on the percentage increase:

  • 1-5 percent: This is an expected increase, and most tenants won’t move out unless this is far above the market.
  • 5-10 percent: Tenants might consider moving, but if the property is solid they likely won’t.
  • 10 percent or more: Tenants will strongly consider moving unless doing so would add other significant constraints like a longer commute.

Potential Costs

There are a few potential costs to raising rent if a tenant chooses to leave as a result:

  • Vacancy
  • Turnaround costs
  • Advertising
  • Finder’s fee for a new tenant

Keep these costs in mind, and consider whether they’d be worth considering making a raise.

For more on rent considerations, or to find out about how we can help with turnkey real estate investing, speak to the pros at Americas Housing Alliance today.

 

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