Raising Rent Prices for Better Portfolio Performance
This topic of raising rent prices is a sensitive one for some renters, investors, government staff, economists, and landlords.
Yet all rents must rise one way or another so everyone isn’t going out of business.
Most landlords want to ensure they get a reasonable return on their property investment. Inflation, taxes, operating costs, rent controls, staffing and more make that difficult. And a percentage of landlords actually don’t raise their prices the way they should.
You might say “I’d love to raise rents, but I can’t imagine how I could go about it. It would create a lot of grief from tenants, who think I’m rich.“
Raising Rent Prices is Acceptable, Even Preferable
Establishing how to raise rent appropriately is essential to managing your portfolio professionally. You must earn an acceptable profit. You’ll find it’s very management with the right research, tools, strategy and an executable plan in place.
Basing your rent price on tenant preferences will never turn out well. Tenants will insist on paying the lowest possible rent – and if you can’t run your business, well, that’s your problem.
Yet a well executed strategy will help them appreciate the real value of their rental in their life, and that paying an acceptable rate is the best way to stay happy and housed. Right now tenants fear homelessness, not so much rent rises.
Making Rent Rises an Optimized Process
Our blog goes beyond the mundane to help you look at your business differently, as a successful business.
And on the heels of our popular posts on setting the right rent prices, raising property yields, rent negotiating, capturing rent payments from renters, keeping tenants leased, online rent payment software, and buy vs rent home articles, we’re investigating acceptable strategies to raise rent prices.
There is no law to prevent landlords from providing more essential value to tenants within the rent rise context. Rent rises can help renters avoid getting renovicted or new homeowner evicted. Rent rises can encourage bad tenants to move on, which is something that will help retain your best, loyal tenants.
Look at the situation from good tenants (your ideal customer) point of view and you can keep them leased — more capital assured to make improvements and create the best tenant experience.
Why a Strategy for Rent Price Rises?
Any rent rise may meet with tenant resistance, complaints, and organized, political resistance along with media thrashings.
A well conceived and executed price rise will help you avoid generating tenant resistance, media slander, and troublemaking. And a good plan is the only one that’s going to lead to profit.
15 steps to get you started on your own rent rise strategy:
- create a spreadsheet to account for current mortgage payments, property taxes, building improvements, maintenance costs, salaries etc. so you’re certain of your financial obligations.
- establish what your future operating and financial costs are going to be and how much more you need to cover them and break even.
- get a forecast of future inflationary costs and future mortgage rates.
- assess trending renter demand in your area.
- determine average prices (market rate) in your neighborhood
- evaluate the cost of unit/building improvements.
- assess additional revenue sources you might implement.
- list benefits that justify the maximum increase asked for.
- establish the rent rise needed or desired.
- determine the best time to raise the rent price (season).
- establish some key incentives your tenants would like (upgrades, fixes, paint, appliances, etc.) to help them rationalize the rent price increase.
- prepare a written value proposition for your reference so this is clear as a bell.
- prepare your communications: at first, very subtlely with preparatory statements about rising costs, mortgage rates, and need to improve their rental experience and safety. Add in news events about local buildings/houses being sold by eager investors.
- layout the order of positive communications focused at making them feel good about change, to reduce their negativity about a big price rise.
- communicate your schedule of property/lifestyle improvements to make them aware of value, and make the whole process seem inevitable to them.
Post Implementation: Prepare to Communicate the Value of Rent Price Increases
After you’ve completed changes, perhaps a year later, report to tenants/owners (transparency) about how important and successful it was. It’s vital to shape their understanding of what happened and keep the mood positive.
This preps tenants for the next rent price rise too. Every tenant rationalizes everything that happens and they want to feel good about what happens in their life. Lingering bad feelings need to dissipate.
Raising rents is one of the most important ongoing parts of your business. By optimizing the process, you’re making it a breeze!
Have a great, profitable 2023 and 2024 and increase your adoption of digital property management technology. Take the work out of work.
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