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Planning on increasing your rent? Negotiating rent increases with tenants is always tricky (and awkward!), especially if you haven’t got a letting agent as the middleman.
While rent increases are part and parcel of the rental world, the process has to be managed carefully by landlords.
You want to avoid good tenants becoming annoyed and looking elsewhere, or unable to meet the new rental demands and getting into financial difficulty, impacting your rent.
Also, you have some landlords that have no problem discussing rent increases with tenants, while on the other hand you have those that could think of nothing worse to do!
No matter what side of the fence you sit on, see below for a few tips to manage increasing rent for your tenants & ensuring you maximimise profit as a landlord.
- Know the market
- Ask letting agents
- Understand your property value
- Lower your costs so you don’t have to increase rent
- Get a letting agent to manage your tenants instead
- Managing the timing
1. Landlords, Know The Rental Market!
Before any rental increases, understand the property market on a national and local level.
It’s pretty simple for the UK market, there’s always a shortage of property (i.e the UK housing shortage) so landlords are in a healthy position.
On a local scale, you’ll need to know about developments in close proximity to your property.
Perhaps there is a new apartment complex opening up which will increase supply in your area. This extra supply will give your tenants alternative options if they aren’t happy with your rent increase.
Alternatively there could be a new shopping centre or entertainment complex opening up. These types of developments will attract more people to the area, justifying your rental increase therefore making it more acceptable to tenants
2. Asking A Letting Agent
Tip 2 for increasing your rent is to ask a letting agent. Rather than doing all your own research, a letting agent would have valued many similar properties like your own.
Having a conversation with the local experts is a quick method to understand what other local landlords are doing.
The quick way is to describe your property over the phone and ask for a ball park figure.
However to increase accuracy, have an agent view your property and have a look around. This will ensure nothing is missed and their estimate of expected rent is correct.
3. Lower Your Rental Costs
The profit a landlord receives is down to two things: costs and revenue.
Increasing your rent will increase your revenue, but if you have high costs eating up your profit, you’re not being efficient.
Are your legal documents costing a bomb?
Is maintaining the property getting expensive?
How about you’re current letting agent, do they have high fees?
Landlords use Rent Round, to compare letting agent fees and ratings. This will enable you to pick a letting agent that has acceptable fees, able to maintain property at a reasonable cost and offer legal templates as part of the service.
In addition a poor letting agent will mean more of your time is eaten up by the property, so you need to factor in the opportunity cost.
Could time spent on your property (which the letting agent should be taking care of) be spent on the things you enjoy or other revenue generating tasks?
4. Know Your Property Value
Knowing your property value is another tip to help increase your rent.
Has the area recently spiked in value? If so, you’re well within reason to explain to your tenant they’re now living in a more expensive asset.
I’m addition, with a higher valued asset, you may be more inclined to sell and bank your profit.
As a result, the rent increase your charging is a premium to keep the property on the rental market (due to the opportunity loss of not selling just yet even though the price is high)
5. Get A Letting Agent To Do It
Letting agents are better equipped than some individual landlords to have the difficult conversations.
Their experience will indicate what to say to the tenant and how to deliver the message sensitively.
As alluded to earlier, one way to make sure you’re getting a highly rated landlord with acceptable fees is searching on Rent Round.
Timing can be a major factor when planning rental increases.
If your tenant is in a fixed term contract, then it’s difficult to push a rent increase without going into the detail of certain clauses in the contract (which will annoy the tenant no doubt – who doesn’t when the small print is brought up!)
Usually the best course of action is wait until the end of the agreement is approaching and add the new rate into the new agreement. Even then, giving notice even ahead of a new agreement will go down well with tenants as it gives them more time to plan.
The rental market is ever being shifted by new rules, laws and governance. The recent ban on tenant fees is pushing costs onto letting agents and landlords. These changes can be deemed as true justification of rental increases.
It’s important to value good tenants. A good tenant who looks after your property, stays for the long term and pays on time is worth far more than a 5% rent increase.
On the flip side, getting a bad tenant who is willing to pay the higher rent will cost you more in maintenance, late rent & if they vacate the property.
In addition, tenants can reject the rent increase. “The Landlord” has provided details on a Section 21 notice which states (to quote): “Hey, as soon as the tenancy comes to an end (e.g. the fixed end date has expired), I want you to vacate the premises”.
Therefore you’ll need to decide if the increasing of your rent is rejected by the tenant, do you want to find a new tenant or live with the old rent amount?