For most property owners, increasing condo rent price is one of the most challenging parts of renting out their unit. After all, expensive rent is a top reason tenants move out. However, evaluating and updating your rent prices are vital if you don’t want to undervalue your property and lose rental income.
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You don’t change rent prices on a whim. Take into consideration factors such as comparable rent prices, market demand, and property value to set a fair condo price increase. This way, you can provide a reasonable explanation to your current tenants to keep them from leaving. Determining the right rent for your unit will also attract prospective renters who are most likely to sign the lease.
As a condo owner, you’ve probably read countless guides to renting out your condo. However, getting your rental price adjustments right can be tricky the first time. That’s why DMCI Homes Leasing has compiled all variables you need to consider for rent adjustments as well as how to implement them so you don’t lose tenants. Read further to learn more about them.
Signs it’s time for a rent increase
Figuring out the right timing to raise the rent of your condo for rent is much more challenging than it sounds. While you don’t want to bring it up to your tenants for fear of straining your relationship with them, you still need to make sure you’re getting a return on your investment.
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Fortunately, evaluating your property regularly will provide you with a valid explanation for the rent raise. Here are some of them:
1. Market demand
When there is a high demand for condos and a limited supply, you can naturally increase the price range of your rental property. As a landlord, it’s your responsibility to keep an eye on market trends to better prepare for adjusting your rent. The balance between market supply and demand for condos are usually affected by new housing developments, mortgage rates, changes in consumer preferences, and more.
2. Comparable rent rates
Another variable that can serve as a basis for your rental price is rent rates of nearby properties. Although you can get a decent estimate by researching the average condo rent price in the country, it’s still better to set your rate depending on the rentals near you because they are your direct competition.
Check out what amenities they offer and the condition of their rental. When they start raising rent prices, investigate to find out why. This is an indication that you should consider doing the same.
3. Property upgrades
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If you’ve made recent improvements to your condo like installing new flooring or remodeling the bathroom, your tenants are less likely to feel wronged about a rent raise. They’ll be happy to see the changes even with an additional price tag because they’re benefitting from them.
Adding amenities like covered parking, pool, and lounges can also justify a rent increase. After all, they provide extra value and convenience to your tenants.
4. Property value
For most landlords like you, getting a rental property is a means to grow passive income. However, if you’re not pricing your condo according to its market rate, you’re not getting a fair return on your investment. This defeats the purpose of why you even bought a property to lease.
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To get an idea of your property’s fair market value, you can check online portals, schedule an appraisal, or research comparable properties. From there, you can make yearly rental increases to start making profit.
5. Inflation and increased cost of living
As the cost of living increases, the expenses associated with maintaining and operating a rental property also rises. Since you’ll be paying more for the upkeep of your unit and processing payments, you’ll have to offset these costs through rent one way or another.
In addition, inflation makes it harder for people to afford buying a home. This means they’re most likely to opt for a rental property, which increases the demand in the rental market. With large demand and little supply, property owners have more leeway to charge a higher rental rate and still get tenants willing to pay for it.
6. Property taxes
Many people think that they don’t have to care about property taxes as long as they are a renter. However, that couldn’t be farther from the truth. When property taxes arbitrarily increase because the government needs more funding, landlords will have no choice but to raise the rent to balance the additional costs.
7. Maintenance costs
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One of the largest expenses that property owners spend on is maintenance costs. That includes routine maintenance, repairs, replacements, and unexpected emergencies. When maintenance gets too expensive because of factors like inflation or extent of work needed to be done, offsetting the costs through a rent increase is understandable.
8. Tenant turnover
When your current tenant leaves, the time of vacancy until someone leases your rental again will cost a lot of money. It involves terminating the current lease, getting your unit ready for the next tenant, and signing them. It becomes an expensive problem when you have to do this process often because you’re just not retaining tenants long enough.
To avoid this, you need to balance a rent price hike with tenant retention. Since rent increases are inevitable, consider implementing tiered increases with tenancy length as a standard. Long-term residents will get small increases while newer tenants will get a price range that’s closer to market rates. It can also help to get their feedback regarding the change or offer concessions and incentives.
9. Financial goals
Renting out your condo is a great way to build wealth. However, once you notice you’re not meeting your financial goals, it’s a clear sign that you need to increase rent. A good tip to remember as a property owner is that your rent should be able to cover your expenses.
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Create a spreadsheet to track mortgage payments, property taxes, maintenance costs, and more to make sure everything is accounted for. If you’re barely breaking even just from your expenses, it’s time for a rent raise.
How to implement rent increases
No one wants to hear that their rent is increasing even if it’s necessary. As a landlord, you’re torn between wanting to cultivate a pleasant landlord-tenant relationship and meeting your financial goals. To minimize the possibility of losing renters during a rent hike, make sure to do these steps:
1. Learn the market rate for your property
As mentioned earlier, a good benchmark for determining if you need a rent increase is to know the market rate for your property. You can do this by comparing your current rent to the rent of other similar properties. If you’re charging below the market rate, you can justify an incremental increase to follow that standard.
2. Review existing terms and conditions of the lease
The actual rent increase will depend on the content of your existing lease. If the agreement clearly states that you can’t increase the rent at a specific duration of time or by a certain amount, you’ll have to respect that.
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3. Check out landlord-tenant laws in your city
Another important step you should pay more attention to is the landlord-tenant laws in your area. You want to make sure that you don’t run into legal troubles by hiking your rent price arbitrarily. For example, Philippines rental law states that rent of up to ₱3,999 shouldn’t increase more than 4% every year. Meanwhile, Rents of ₱4,000 to ₱10,000 shall not rise more than 7% per year in a contract with the same tenant.
4. Discuss with the tenant about the rent increase
Take the time to talk to your tenant about the upcoming change. Either give them a phone call or arrange a meeting with them in person to explain why their rent is increasing. It’s best to be transparent and empathetic during the conversation so you can help them understand the reason behind the decision.
5. Post a notice before raising the rent
If your lease doesn’t include a required written notice before raising the rent, you should still provide one as a landlord. Whether it’s a 30-day or a 90-day notice, you should give tenants time to prepare for a higher monthly rent or decide to not renew their lease.
Keeping your tenants happy during a rent increase
Everyone wants affordable rental prices, but you have to remember that you’re running a business first and foremost. While adjusting your rent, you might encounter a little resistance from your tenants. They’re less likely to object if you’re able to do the following as a landlord:
Be as honest as you can
Negative reactions from tenants on rent increase are always due to them thinking that landlords are just greedy for money. Whether it’s because of property taxes skyrocketing or catching up with the market rate, patiently explain to renters why the rent raise is necessary.
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Make property improvements
Time your maintenance or improvement projects with the rent increase. When tenants see the positive changes in your rental condo, they’ll respond more favorably to raising the rent.
Offer incentives
At this stage, the tenant is already debating whether to renew their lease with a higher rent or terminate it. Consider giving them a discount on the rent increase when they renew early instead of last minute. As a landlord, you can also offer other non-monetary incentives to keep your tenants happy.
Key takeaways
Now that you know when to increase your rent and how to implement it without losing your tenants, you’re now ready for that rent hike. You just have to remember the following:
- Setting the right rent price is important. Understanding rental prices, how they change, and what affects them will help you know the best strategy to get an ROI for your property investment.
- Balance tenant retention and your expenses. If your current rent price is not helping you meet your financial goals, you’ll have to disappoint your tenants a little and implement a rent raise.
- Rent increase doesn’t have to be unpleasant. Despite popular opinion, a rent increase can be pleasant when the landlord is transparent about why it’s needed.
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