Outlook for Rent Prices
Rent is rising in 2022, faster than it did in 2021. That shouldn’t be a surprise that so far this year national rents have risen 2.5% vs 1.9% in 2021 during the first 3 months. However the rate of growth in the past month could send shockwaves into communities if they continue at that pace.
Zumper’s latest rent price report shows how rent prices have leapt year over year, yet also that the rate of growth has stopped. Does this mean the price jump is over?
Zumper revealed prices in March’s reached $1,400 median for a 1-bedroom which is up 12.2% year-over-year increase, another all time high. And 2-bedrooms rose by 13.8% year-over-year to $1,723 per month, another all time high.
New York, San Diego and Seattle saw the greatest increases month to month while Gilbert Arizona, Cincinnati and Fresno saw the biggest declines in 1 bedroom rents. Miami has seen an astonishing rise of 38% over March of 2021. Tampa has seen it’s rate rise 32% while Austin TX saw rent rise 30% in the same period. Seattle saw it’s 2 bedroom price increase 35% YoY while 2 bdrms in West Palm Beach Florida are up 38%.
Why the flattening of price rises overall in the last 5 months? It might be that landlords are asking for the steepest increases already and aren’t recovering from the pandemic as such. However, with rising home prices, rising mortgage rates, and fewer people buying homes, more of them will enter or stay with the rental market, to increase demand, thus prices.
How Will Raise Your Rent Prices
It may not surprise you, but some landlords have not raised their rents.
If you are about to raise your rent price, it’s wise to consider why you’re doing it, what amount is good, and how you’re going to communicate the increase to your tenants. You’ll need to adhere to local and state bylaws such as 30 days to 120 days written notice.
Before you advertise vacant units, it’s better to create a strategy for rent increases, or at least do it artfully to avoid resentment and turnover.
Rents Have Been Too Low for Some Time
Landlords have suffered a great deal during the past two years and need to recover financially. While raising the rents brings hostility from some tenants and rent control activists, growing rents help to:
- create funds to maintain/repair the apartment/house
- create funds to adopt rental property technology to modernize management
- keeping the landlord solvent so he doesn’t sell the house/apartment to a live in homebuyer
- more money to provide new digital services and other amenities
- create funds for emergency repairs which the landlord could conceivably not afford to do
- helps encourage bad tenants to find alternate accommodations
How Much to Raise Your Rent Prices?
Use a formula to estimate your rent increases. A rent price software tool might seem workable, but these are strange times and you’ve got to consider a lot before committing to that price. Rent price legislation will handcuff your ability to maneuver.
List and assess your expected costs including inflation, maintenance, repairs, and legal fees, for the coming year and divide by 12. Amortize your planned renovation costs over 10 years and add that too. Then add a percentage which reflects the general market rises in your city to grow your profit.
You should go with a % range rather than fussing with exact costs because costs change. Anchorage, New York, Seattle lead the way 5% rises just over the last month. These rising rates will force landlords to screen renter prospects for financially capability as the rent rise continues throughout 2022.
Rent Prices across US Cities:
Here’s Zumper’s latest list of cities with the fastest rising rent prices.
|1 Bdrm||1 Bdrm||1 Bdrm||2 Bdrm||2 Bdrm||2 Bdrm|
|New York, NY||$3,260||5.20%||30.40%||$3,380||2.40%||26.10%|
|San Diego, CA||$2,280||5.10%||26.70%||$2,900||5.10%||20.80%|
|Los Angeles, CA||$2,300||5.00%||20.40%||$3,010||0.30%||13.60%|
|Des Moines, IA||$930||4.50%||6.90%||$980||3.20%||6.50%|
|New Orleans, LA||$1,430||3.60%||-1.40%||$1,880||4.40%||10.60%|
|Santa Ana, CA||$1,950||2.60%||14.70%||$2,600||-4.80%||9.20%|
|Kansas City, MO||$980||2.10%||-1.00%||$1,100||-3.50%||-4.30%|
How To Raise Your Rent Prices Strategically
To avoid issues with tenants, it’s best to prepare them for the realistic necessity of raising their rent. IMHO, it’s better not to get into details of why you are raising the rent, other than a general statement of costs, upkeep, management, and meeting inflation. Details invite points of friction that some tenants will use to argue or balk at paying.
With strategy, you can avoid alienating your tenants and suffering through vacancy or increased unit damage.
Here’s the process:
- communicate professionally, in a friendly business like manner consistently via your property management system to your tenants about how you’re meeting their expectations
- respond, notify and keep tenants informed
- ask tenants questions, keep communications open and answer as best you can
- use an online payment service to accept payments in as many ways as possible
- do inspections and check on your rentals condition and repair needs (calculate maintenance and repair requirements such as new roofing, appliances, and window repairs, etc.)
- ask tenants what is wrong with their house/apartment and try your best to remedy any issues
- create a renter report newsletter to keep tenants informed of general housing market conditions and what local rents are like in your city/state (they’re always going up)
- make a contribution to local food banks and homeless resources and encourage tenants to do some good things for their community too
- give tenants at least 60 days notice of rent price increases
- make rent increases twice a year and make them substantial enough to solve your needs
If you’re not profitable, and losing money, owning rental real estate makes no sense. Add on financial risk, and you realize how you’re sticking your neck out. Rental property success is long term.
When you do raise your rent, use your ManageCasa property management software platform to communicate it to your tenants, then ask them to acknowledge they have received notice. If necessary in your state for legal reasons, have them digitally sign the notice (docusign) so you have certain proof that’s legally acceptable.
Given today’s political environment, it’s best to have all communications documented so you’re covered. You can do all this within ManageCasa.
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