What to Know Before You Raise The Rents

When to raise rents is a question that many investors ask themselves and sometimes this happens when the tenant leaves and in other cases, it happens when an investor receives a tax or insurance increase or looking to add value and increase rents to provide the promised returns for his/her investors. Rent demand continues to be very high, which allows investors to be optimistic about rental rates but make sure to pay attention to these six things before making your decision.

1. Watch the housing availability.

While larger cities tend to build more apartments, homes, and condominiums to meet tenant needs, this is not the case everywhere. Watch and observe your local news sources like websites, newspapers, and communicate with your local realtors to understand what is happening in your local market with building permits.

2. Opportunities for your tenants.

As consumer confidence recovers, some tenants may decide to buy a home, so always keep your finger on your tenant's pulse. Based on the rental rate of your apartment, can your tenant buy a house at about the price he pays for the rent? One of the best ways to do this is to offer a lease for several years.

3. Market availability.

Determine the affordability of housing in your area and it can be obtained from your local experienced management company or from a realtor. You can also find information on sites to determine the fair market rent for a specific area. Rentals can only go up to the peak of affordability, and a great way to determine this is to set the average income in the area. Affordability based on national averages is when the monthly rent is about one-third of the average monthly gross income of a person in that market. As soon as it goes beyond this point, it may become too high. This is when apartment owners, managers, and investors may be faced with vacancies or lease delays, suggesting that availability has peaked.

4. Directional swings.

This resource can provide you with an important clue to where the market is heading. Information is often readily available, but are you looking for it? Ask yourself, how housing affordability is compared to last year? Is it becoming more or less affordable?

5. How much your competitors are charging?

When the rental market is very high, investors raise their rent every time an apartment becomes available. Sometimes investors think that raising rents will continue forever and then the market starts to fluctuate and suddenly it becomes more difficult to rent. Do what your tenants are doing: if they are renting from competitors, so you should do the same, check how much are they charging for the same units and see how much of that rent increase you can have in your property.

6. Ratio of tenants and population.

Markets with a higher ratio of renters are better safe havens for investors who have a larger pool of tenants from which to choose. Knowing the tenant ratio in your investment market is important for all investors. If you don't already know what your investment market ratios are, the source is this information and the chart from the National Council for Multi-Family Housing.

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