Are you losing thousands of dollars because your rental property is rented for less than market rent? With the fluctuations in values and rents over the past couple of years combined with the fact that many areas could not raise the rent during the pandemic, you may be able to get hundreds of dollars more monthly for your rental property.
Even just a small increase can make a difference with larger rent amounts. For example, if your property currently rents for $3000 but the market rent is $3300, you’re losing $3600 annually in lost rental income due to it being priced below market.
You cannot increase the rent during a long-term lease but if the lease is month-to-month, then you can notify the tenant that the rent will be increasing. Just make sure that you send the notice far enough in advance to comply with the laws in your area, which could be 60 days in advance. That way the tenant has enough time to determine if they want to stay and accept the increase or give you notice to move out.
If you have a lease in place but it’s coming up for renewal soon, you should check what other similar homes in your area have rented recently to get an idea of the current rental market value. If you have a property management company, then they can pull comparable rentals and do this analysis for you.
There are automated rent estimators online, but they can be inaccurate and overestimate your home’s rental market value if your home is lower than most of the homes in your area or can underestimate it if your home is better than the surrounding homes. The automated estimators also do not usually consider how many homes are currently on the market and what the trend is. If they’re sitting longer, it can be a sign of a cooling or decreasing market, or if they’re renting faster and above what they were listed for which is a sign of a “hot” or upward trending market.
Some owners are afraid to increase the rent and risk losing a tenant but going back to the previous example if you’re losing $3600 a year, then in just three years, you’ll have lost over ten thousand dollars. Over the course of ten years, that number increases to $36,000, and that’s assuming the rent doesn’t increase more than the $3300 over that time which it almost certainly will.
Tenants who are paying below market rent are usually quiet since they don’t want to bring it to the landlord’s attention and have the rent increased. The downside of a quiet tenant is they’re less likely to report maintenance issues, so once they move out, there might be a lot of deferred maintenance and potentially more damage from issues that should’ve been fixed earlier.
More money in your pocket also helps you spend more on repairs and improvements, so your property doesn’t fall behind the market standards. Having ten-year-old appliances and a water heater that needs to be replaced when you go to sell doesn’t help your property sell for what your neighbors, who have replaced their appliances and major systems, sold their homes for.
Having a good property management company that is familiar with the market and the constant fluctuations can help you determine what price your property should rent for and will help your rental property be more profitable which equals more money in your pocket for you to spend or invest on other things.