Rental rates can fluctuate in the short term, due to many economic variables; however, over a long period of time, they will almost always increase. This means that you are probably leaving money on the table if you never modify the rent amount for your property and may end up costing you more in the long run than a vacancy.
If you are charging a below market rate for your property and want to raise the rental amount, it is very important that the implementation is strategic. If not, your decision can result in unanticipated consequences.
How Below-Market Rent Occurs
There are primarily three reasons why some Utah landlords would charge rent below the market rate. These include, but are not limited to, the following:
Avoiding annual rent increases
A significant number of Utah landlords find themselves with below-market-rental properties due to their refusal to raise the rent, due to a fear of vacancy. However, having a property that is grossly under-market ultimately costs far more. Therefore, all landlords should increase rent yearly at renewal, even if it's only by a small percentage.
Sometimes, rental properties are purchased with a tenant already occupying the unit. Depending how the previous owner or property management company handled the rental, the rates may be significantly below market. Thankfully, tenants typically understand that rent will probably increase when a property changes hands (particularly if the new owner makes capital improvements).
Long-term month-to-month tenants
Utah landlords may occasionally have a long-term tenant with a month-to-month lease. Consequently, since there is no renewal date, there is no new lease term present to increase the rental amount.
Just as with annual leases, it is important to ensure that you place your month-to-month tenants on a schedule for annual rent increases or have them sign a lease renewal.
How to Recognize If You Are Below-Market Rent
There are a few effective ways to determine local market rates and if you are currently charging below them. The following are a few:
Local property managers
Property management companies in Utah typically have a clear grasp of the rental rates in particular areas. They have access to the Multiple Listing Service (MLS) and historical data based on other similar properties that they have leased.
Free rental analysis
Most property management companies offer a free rental analysis for determining how much you should be charging for your property. This technology allows you to enter the specifics of your Utah home and compare the rent to those of other properties similar to yours. When performing calculations, the tools utilizes real-time data with a variety of mathematical models to determine current rental rates.
Another resource for determining accurate rental rates is Zillow. Utilizing their internal rent estimator tool, in addition to browsing current rental ads in your area, will provide useful information regarding how much other landlords are charging for similar properties.
How to Increase the Rental Amount
Since it is impossible to determine a tenant’s reaction to a rent increase, it is understandable to worry about raising rates to be competitive with the market.
If you do decide to raise the rent to align with the current market, be sure to approach it properly. The following tips could help you increase rent without losing your tenant:
You should always research what other similar properties are being rented for before raising the rate. Asking your tenant to pay more will probably be received better if you can show specific examples of rental rates for comparable homes.
Do it gradually
When increasing rental rates, ensure you are only doing it incrementally. By doing this, you can avoid overwhelming your tenants and inadvertently forcing them out.
Do not negotiate
You should try to minimize negotiations and avoid asking a tenant if they feel an increase would be fair. If you've done the necessary research, trust your calculations and adhere to them.
Openly communicate with your tenant
Ensure you are recognizing your tenant's concerns and communicate with them honestly throughout the entire process. You can do this without sacrificing your own interests as a landlord.
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If you need a reliable Utah property management company to collaborate with you and create a long-lasting partnership, contact us immediately. At Wolfnest, we work closely with landlords and real estate investors to ensure they maximize cash flow and safeguard their Utah properties with less stress.