Factors in deciding a rent hike

I’m often asked by owners when would be a good time to raise the rent. Of course, they have income property for a reason — to earn a profit.

We most often rent to tenants on a one-year lease. This ensures tenancy for both the tenant and the owner, and it ensures that the tenant won’t have an increase in rent. When the year is up, the tenant is hoping that the rent stays the same. Most owners wonder if it should.

As a tenant moves into a property, it's after determining what they can afford in terms of rent and utilities. Generally, as the year passes, their income remains the same. It seems that every year, everything else has been getting more expensive, if even by a few dollars. Necessities such as food, gas and health insurance have been edging up higher and higher as time goes by.

Purchasing a home and, therefore, investment property also has gone up, so the cost of owning an investment property is then passed on to the renter. Rents rise when there is a high demand for housing. In the meantime, salaries are slow to rise, adding more burden on the tenant to dedicate more income toward housing.

There are a couple ways to look at the question of whether to raise the rent or to keep it at the same level. It depends on your goal for your investment. Many owners feel that if they have a good tenant who is paying on time and taking good care of the property, keeping rent stable could keep the tenant in the property for many years with minimal problems. The other option is to raise the rent annually by a small percentage.

The other day, I received an email from an owner who had purchased a condo through my company and was calling for advice on raising rents. The Homeowners Association had raised fees and they had received a supplemental tax bill that they needed to cover. The tenants had been in the property at the same rent for three years. The owners were concerned about losing them. After discussing it with me, they decided it would be fine to raise it enough to cover their extra cost of $50 a month.  They let the tenants know and the tenants stayed. It was a reasonable raise that didn’t make the tenants feel that they wouldn’t be able to continue to afford to live there.

On the other hand, we have been asked to raise the rent after one year by 6 percent, which equated to a $150 per month jump in rent. The tenant was concerned and decided to find another place to live. The house needed a small amount of work done, as well as vacancy time between tenants. Additionally, there are often leasing fees attached to finding a new tenant. All in all, the $150 raise in rent ended up costing this homeowner more than raising the rent.

If the homeowner had decided to raise the rent, especially if the tenant is a good one, a gradual increase may have kept the tenant in the property, keeping income flowing in and giving a nice family a good place to live.

In this economy with the cost of living rising faster than income, it's my opinion that it's wise to weigh the options and make those decisions with all possible outcomes in mind.

Stephanie Wood is a broker and property management specialist with Preferred Property Management and Real Estate in Ventura. Do you have a question regarding rental property as a landlord or tenant? Send questions to stephanie@gowithpreferred.com.