Whether you own residential or commercial spaces for rent in Melbourne, New York, London, or any other city in the world, you’re tasked with the challenging job of informing your tenants about rental increases. Typically, rental increases are not a decision most reputable landlords make lightly, especially when they can affect your tenants’ livelihoods.
If you’re unsure whether now is the right time to make rental adjustments, here are a few things to consider:
Market Rates
Look at other spaces available for rent in your area. View comparable properties and see what their owners seek weekly, monthly, or yearly. With this information, you can determine whether what your tenants pay now is fair, not enough, or too much. Failure to explore market rates before making your rental increase decision might result in tenant loss. If tenants don’t want to pay what you’re asking, they can move to a more affordable property, leaving you with a vacancy you need to fill urgently.
Property Condition
Some property owners charge more competitive rates than others because they know their properties aren’t in the best condition. They might be outdated with wear and tear or have older features that don’t make them worth the same as a property in better shape. If you need to make rental increases to cover your growing costs, consider how you can add value. For example, you might update appliances in a residential property or make contemporary upgrades in a commercial building.
The Law
Ensure you’re on the right side of the law when raising a residential property’s rent. Just as landlords have rights, so do tenants. If your tenants have a lease, you can’t increase the rent until the lease period ends unless it’s written in the agreement or the tenant agrees. On a month-to-month agreement, you can raise the rent or change terms if you give adequate notice. In most states, the notice period is 30 days. Some states also have rent control, a government program limiting how much you can request for leasing a home or renewing a lease. There are fewer laws in place for commercial properties, but check with a property lawyer before making your decision.
Your Reasons for Increasing the Rent
If you want to maintain a healthy relationship with your tenants, being able to explain why you’re raising the rent is an excellent place to start. To be able to do that, you must first know why you’ve made this decision. Rising costs like interest rates and property taxes can make rent increases inevitable in commercial and residential properties. However, you might also be thinking about increases to fund property improvements or keep up with market rates. Have a clear explanation in mind so you can pass this information on to your tenants if you wish to explain your position.
Incentives You Can Offer
Commercial and residential tenants sometimes hesitate to renew a lease at a higher rate than before. If you’re concerned that you might receive push-back from your tenants, think of possible incentives you can offer to sweeten the deal. You might offer a discount if they renew early. For example, rather than a 5% increase, you might settle for a 4% discount if they renew within 60-90 days. Alternatively, you might explore non-monetary incentives like carpet cleaning, lawn mowing, or other services.
Raising the rent on your property is not a decision to make lightly. Cover all the points described above, and you can present your proposal to your tenants more confidently.
