In 2020, landlords and tenants struggled financially as stay-at-home orders left many without income. Protections were put in place to prevent mass evictions during the height of the pandemic, allowing tenants to skip rent without the risk of losing their home. Some tenants moved away from the city to work from home during this time, and others moved back in with family. As house sale prices skyrocketed, some landlords opted to sell their investment properties, while others held onto their rental units in hope of better days.
Fast forward to 2022, and landlords are experiencing better times. With the cost of rent on par with the cost of homeownership in some areas, not all tenants have savings for a downpayment. As a result, there is a sizable pool of potential tenants available. Ongoing predictions for the remainder of this year forecast a continued, high demand for rentals due to the competitive housing market. Individuals who desire flexibility and space away from their family are also looking to rent once again.
However, new challenges face landlords and tenants once again. This time, the culprits are rising inflation and fuel costs. In May, the annual inflation rate was 8.6% (the highest since 1981) and in July, news headlines celebrated regular gasoline falling under $5 for the first time since April. Price increases are hitting everyone’s wallet where it matters–groceries and fuel.
Should you raise rent to keep up with inflation?
Before you calculate next year’s rent, consider the following:
What are Your Fixed Expenses?
Factor in fixed costs like landlord insurance and property taxes. Fixed costs tend to go up each year, so you’re automatically profiting less than the year prior if you don’t raise the rent and your fixed costs increase. Depending on your finances and tenant relationships, you may be okay profiting less for a time, but you should be aware of the numbers each year to make informed decisions.
To keep up with fixed cost increases, it’s recommended you raise the rent 2-5% annually. For a property with a $1,200 monthly rent, this increase is between $24 and $60 each month.
What is the Rent at Similar Properties?
Compare what you receive for rent with the market rate to find out if you’re overvaluing or undervaluing your investment property. There are free and paid tools online that let you compare your property’s rent to similar properties in a zip code. You might also search for apartment listings on websites like Apartments.com and Trulia, as if you were a renter.
Is Your Rental Home Modern or Dated?
When considering what to charge for rent post-pandemic, factor in your rental unit’s condition. If you haven’t touched the property in some time, don’t expect top-dollar from tenants. Instead, give your investment property a visit and identify the renovations it needs. Research which projects are most likely to attract renters at a higher price point, and make the changes that make sense.
If your rental property is in a prime location, you may not need to wait long to attract new tenants after a few updates. In contrast, if you own a dated property in a less desirable location, you might be giving up your competitive edge if you don’t update it.
Do You Have Good Tenants?
Good tenants should never be underrated. If you always receive the rent on time and have courteous renters who take care of your property, there’s a non-monetary value in retaining your tenants. Depending on your finances and the relationship you have with your tenants, it might be worth maintaining the rent for a time (even at a loss compared to years prior) or gradually increasing it in small increments.
List the Pros & Cons of Raising the Rent to Match Inflation
Ultimately, the goal of being a landlord is to profit from investment properties while providing a good home to tenants who need the flexibility and peace of mind that renting an apartment or rental home delivers. You don’t need to maximize your rent each year to match inflation, but you should factor in what a fair and acceptable raise in rent looks like based on the unique circumstances of your rental properties.
At WILMOTH Group, we offer consultations regarding rent increases. We will assist you in determining if it’s time to increase the rent and by how much. Our team also takes on difficult conversations with tenants who have concerns about the higher cost of rent. In the event your tenant leaves due to the increase, we will locate new tenants for you.