In Part 1 of this blog series, Melissa explained reported rents are not effective rents. There could be back-end concession or other facts that overstate rents. Landlords should always have their property manager provide a market analysis before considering changes.
In Part 2, I want the property owner to determine what their goals are and some considerations and potential costs before looking to maximize rents.
Goals
Most investment properties are intended to be held for a number of years and therefore decisions tend to support the long-term, such as maintaining market rents. Maximizing rents by choosing rents at or above the very top of the market range tends to be more of a short term goal, like the example we used in part 1 with the builder selling the newly constructed multifamily building.
Considerations
Bad will
Many landlords feel increasing rents at lease renewal should be expected and are not personal whatsoever. I can tell you that a good portion of tenants take it personal. They really do associate rent increases to poor performance, which is not the case. Some get defensive. Others fight back.
Goodwill
By showing a tenant what market rents are and offering a renewal lease within the middle of the market range, the landlord and/or their property manager can show some goodwill. Additionally, by offering a renewal incentive like free carpet cleaning is a nice way of saying thank you.
Tenant performance
Do not increase rents because the tenant is regarded as a bad tenant. If the tenant has a history of lease violations and other performance related issues that are of real concern, just give notice to terminate. Then you can focus on maximizing rents once vacant.
Market Data
Know the actual market rent range and be able to identify differences between comparable rentals, to include amenities. Know the market and current occupancy rates.
Market Seasons
Identify the peak and slow seasons and know that being aggressive in the slow seasons can result in extended vacancies. With multi-family rentals, be consistent throughout your property.
Improvements
How recent and to what degree has the interior and exterior of the property been updated. Additionally, what improvements have been made in the area that makes it a “destination” location?