The longer your rental unit sits vacant, the higher your stress levels tend to rise. At a certain point, you may be asking yourself if you should reevaluate what you’re charging for rent. In the next two posts, we’ll discuss two scenarios when you should be looking carefully at the amount you’re charging for rent as well as offer suggestions to help you decide what you should ultimately charge.
Scenario #1: Evaluating Rent Rates at Lease Renewal
A good time to evaluate rent rates is when a resident’s lease comes up for renewal. You should be really careful here though because you could end up sending your resident packing if you come across as too greedy.
For example, say a resident has been with you for two years and during that time the market rate in your area has skyrocketed 20 percent. Even though rates have increased, and you may be tempted to adjust your rates by the same 20 percent, it’s not a good strategy if you want to retain your existing resident.
Why? Because it feels greedy to them, and they’re going to shop around for a new place even if it ends up being more expensive and stressful for them in the end because you’ve now left a bad taste in their mouth. We’ve seen it happen time and time again.
Instead, 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.
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. With every new tenant, there’s a slight risk of them going bad. Maybe they won’t take care of the unit, maybe they’ll get evicted, or who knows what. If you have a good tenant already, there’s inherent value in retaining that known commodity.
How to Set Renewal Rates
When you’re selecting a renewal price for an existing resident, you have to bear all these factors in mind. What are the costs of turning over the unit, how much will you lose during the vacancy, and 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 a 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.
If you have questions about setting rent rates in Columbus, please give our team a call at 614-725-3059. And stay tuned to our blog next week when we discuss a second scenario when you would want to reevaluate rent rates – when your existing unit is sitting vacant.
To hear more from us about how to reduce vacancies in your rental properties, watch our webinar replay on the topic where we discuss several strategies for reducing vacancy and helping you become more successful with your property investment.