It is not cheap to operate a rental property. The cost of operating a property goes up every year. Insurance rates, taxes and maintenance are some of the things that a rental property investor can expect to increase every year.

Our property managers often wonder whether they should raise the rent in order to cover the expenses. It is important to remember that raising the rent is not like asking for a raise. You cannot say that it is time for you to raise the rent because you have been there for three years.

Experienced property managers have to do a lot more than just send out a notice saying that the rent will be increasing. Your tenants may just move out. It can be hard for you to replace the tenants if the rent is too high and rental pricing should follow market value.

A rental property investor will have to decide whether it makes financial sense to raise the rent. You have to make sure that you will have to make an actual profit from raising the rent.

The rent increase has to cover holding costs for the next tenant. They also have to cover realtor commissions. You will also need to calculate repair costs and the changes that you will have to make before the new tenants come in.

For example, you currently charge $2,000 per rent. You increase the rent by $50 per month. You will only make an additional $600 per year. However, if it costs you $1,000 to make repairs and fill the vacancy, then you will not generate a profit.

It is important for you to not raise the rent above the current market value. Your current tenants will probably move out, and it can be difficult to fill the vacancy. You may find that you have to lower the rent in order to get a new tenant.

How to Tell Your Tenants About the Rental Increase

In many cases, it just makes sense to raise the rent. It is not based on the cost of insurance, maintenance or anything. The price is based on the market value. You will have to show the tenants that the increase is not due to your personal finances. It is due to market value.

Many tenants believe that property managers are rich and just in it for the money. That is why they are more likely to stay if they know that the rent increase is due to market value.

Want to know more about investment property management? Contact Barker Realty anytime.