A rent hike proposal may not always go well with your tenants. If you don’t do it right, you may lose a good tenant when it comes time to renew their lease. And as you probably know, tenant turnovers can be costly and impact your bottom line.
Be that as it may, raising rent is something that you’ll inevitably do at some point during a tenancy. Factors such as market conditions, rising expenses, inflation, and the need for property improvements can all force you to hike the rent amount.
You must know when and how to do it to ensure you don’t lose out on good tenants. In other words, the rent raise should benefit your bottom line rather than hurt it.
Imagine losing out on a good tenant and dealing with long vacancies because your property isn’t competitive. Would the rent hike be worthwhile? Certainly not!
Luckily for you, the following are some tried and tested tips when it comes to raising rental prices.
Understand Your Local Rent Laws
Before you even think of raising the rent amount, familiarize yourself with any appropriate local laws. Specifically, check what the local and state’s landlord-tenant laws say in this regard.
Some states have rent controls that limit how much of a rent hike a landlord can do within a specific period. Others don’t have any restrictions allowing landlords to raise rent by whatever amount.
Luckily for Virginia landlords, the state doesn’t have a rent control law. The state law also prohibits local jurisdictions from legislating their own rent control laws.
So, what does the lack of rent control mean? It simply means that you can raise the rent amount by any amount and as often as you choose. However, it’d be illegal to raise the rent amount out of discrimination or retaliation.
Include Rent Increases in Your Lease Agreement
As a savvy landlord, you know how important having a proper lease agreement is. Generally speaking, it can help you highlight all your expectations to the tenant, helping minimize potential conflicts or misunderstandings.
As such, make sure you also do the same for rent increments. Let the tenant know how frequently they are going to be, and when they become effective. This way, the tenant will always be prepared for it.
In the lease, make sure to include the following information for clarity.
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The percentage of rent you’ll be increasing each year, say, 5%. Alternatively, mention what the specific dollar amount will be.
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The advance notice requirement. Remind the tenant about the advance notice they must give you if they plan on moving out.
The advance notice is to help you plan the re-renting process to avoid potentially long vacancies.
Calculate the Rent Raise
At this point, you’d be ready to determine how much of a rent hike you’re going to make. Of course, before coming up with any amount, due diligence is going to be key.
As such, begin by doing some research on what comparative units are charging in the area. The keyword here is ‘comparative’. These are units that are similar in size, have the same number of bathrooms and bedrooms, and share similar amenities. They must also be located in the same general area.
A normal rent increase would fall somewhere between 3 percent and 5 percent. So, if you’re currently charging the tenant a monthly rent amount of $1,600, that would equate to a rent increase of roughly between $50 and $80. This would be a reasonable amount to increase the rent by.
Make Upgrades to the Unit
Upgrading the unit can give you a good reason for a rent hike. After all, the right upgrades will improve the property’s value, translating to a higher asking rent amount.
Not all upgrades are created the same, however. Some provide better ROI than others. The following are some examples of high ROI upgrades.
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Energy efficient upgrades, such as replacing old appliances with Energy Star-certified models, upgrading insulation and windows, or installing programmable thermostats.
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Modernizing the kitchen and bathroom area. This can include updating cabinets and countertops, installing new energy-efficient appliances, or replacing outdated fixtures and faucets.
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Improving the property’s curb appeal. For instance, by landscaping the yard, power washing the exterior and driveway, or applying a fresh coat of paint.
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Adding desirable amenities, such as offering high-speed internet, adding a security system, or installing a washer and dryer in-unit.
Consider the Vacancy Rates
As you do your due diligence, make sure to check on the vacancy rates. Are there too many comparable units in your area that are vacant? Have you also had challenges trying to rent out the property in the past?
If you answer ‘yes’ to any of these questions, then raising rent wouldn’t be a wise thing to do. If you’re struggling to find a tenant with the current rent price, raising it would only make things worse.
Contrastingly, if your property is located in an area with constant demand, then raising rent wouldn’t present any significant challenges. You’d only need to ensure the rent raise is reasonable and within the prevailing market rates.
Bottom Line
There you have it. Proven tips on when and how to raise rental prices. Before you go ahead with the rent increase, make sure to notify the tenant beforehand. In Virginia, you must provide your tenant with an advance notice of at least 30 days.
For expert help in this regard or overall management of your Front Royal rental property, look no further than Vesta Property Management. We provide landlords with full-service property management services, including determining the best rental prices. Get in touch to learn more!