Keeping your rental units filled with existing residents is almost always preferred to sourcing new tenants. But at the end of the day, you own an investment property and it’s in your best interest to ensure it remains profitable.
So, how do you balance rent rate increases while minimizing tenant turnover?
When to Evaluate Rent Rates
A good time to evaluate rent rates is when a resident’s lease comes up for renewal. Tread lightly, however. You could end up sending your resident packing if you come across as too greedy. Here’s what we mean.
Say a resident has been with you for two years. During that time the market rate in your area has skyrocketed 20 percent. “Wow!” you think. You may be tempted to adjust your rates by the same 20 percent. Don’t; especially if you want to retain your existing resident.
Why? Because it feels like a violation to them and you’ve now left a bad taste in their mouth. For the majority of residents, that’s a good enough reason for them to shop around for a new place, even if it ends up being more expensive and stressful for them in the end. We’ve seen it happen time and time again.
How to Set Renewal Rates the Right Way
Instead of jacking up rent by 20 percent, what you want to do is set a renewal price that’s somewhere between 0 and the maximum current market rent. You want to set it as high as possible without that resident moving out. Here’s why (and how).
Every time you have a vacancy, there are heavy costs associated with it. Not only are you not collecting rent during that time frame, but you’re also incurring the costs of turning over the unit as well as taking on the risk of an unknown tenant. That can be huge. With every new tenant, there’s a slight risk of them going bad. Maybe they won’t take care of the unit, or maybe they’ll get evicted. You really don’t know. If you already have a good tenant, there’s inherent value in retaining that known commodity.
Consider the Costs
When selecting a renewal price for an existing resident, it’s important to bear all these factors in mind.
- What are the costs of turning over the unit?
- How much will you lose during the vacancy?
- What risk are you willing to take on with a new tenant?
Consider these variables as you assess your market and feel out your resident’s history at your property. How long have they been there, and how happy do they seem?
Then, come up with an educated guesstimate that is as high as you think the resident is willing to pay. If they come back and ask to negotiate the rate, you should seriously consider doing it, especially given all the expenses that go into losing the existing tenant.
Managing tenant expectations when it comes to rent requires you to stay closely attuned to current market conditions as well as the resident’s overall satisfaction with your property. Before making a decision, balance your bottom line with the overall costs (and expenses) that go into potentially losing an existing resident.
If you have questions about setting rent rates in the Columbus area, please give our team at RL Property Management a call at 614-725-3059.
