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Rent Hikes
By James Davidson
Maintaining property is an expensive affair as costs rise continuously over time, which means, it may be necessary for the owner of a rental property to raise his / her rental charges to meet the challenge of costly repairs and property maintenance. But, before raising the rent, several things should be taken into consideration.
The first thing that needs to be done is to check, if tenant leases contain any clause that states there will be no rent increases during the term of the lease. In case, there is such a clause in the lease, it may not be possible for you to raise the rent, unless and until, the lease expires. New landlords taking over ownership of existing rental property, must honour their new tenants' lease terms, even if the rent they are paying does not cover their expenses.
The best time to negotiate a rental increase with new or old tenants is when their lease comes up for renewal. Some of them may not mind having to pay more, but there is bound to be a percentage of tenants, who baulk at the idea of a rent increase, perhaps, even leading them to move out. A rental property owner should be prepared for this eventuality and should advertise to fill any vacancies arising due to an increase in rent rates.
As well, tenants need to be given adequate notice about rent raises, usually 30-days is sufficient, but the notice period can differ according to state or local laws. Also, a landlord should be aware of the fact that certain states and cities have enacted rent-control measures, in a bid to prevent tenant exploitation, a result of overcharging by landlords. If, the state or city your rental property is located in has rent-control laws, it means you are restricted in the rental amount that can legally be charged from tenants. To avoid getting embroiled in a legal battle, first ascertain whether or not you are complying with all applicable rent-control laws.
Moreover, you need to ensure the rents being charged in the local housing market support your demands. Research rental charges of other properties in your area and base your rent increase on what is being charged by other owners in the rental business. In case, others are charging less than you, your higher rents probably may have a problem attracting new tenants, or even retaining existing ones.
Small rental increases over a period of time are tolerated much better than large one-time raises. For example, if a rent raise of $100 per month is needed to make a profit; such a huge jump may find little support with your existing tenants and keep new tenants away. Instead, a small rental increase of $25, with another $25 raise after six months won't raise too much of a murmur from your tenants. You may continue to reduce your vacancy rate, as well as, maintain your property's profitability.
And, if a tenant cannot meet the rental increases, negotiate with a good tenant as they are so hard to come by. Bend a little to keep them by asking them to trade services for the rental increase amount, such as, taking care of the lawn and doing other odd jobs around the property. As making an exception for one tenant, may lead to accusations of favouritism, as protection against such claims, document and keep a record of the trade-off in exchange for a decrease in rent.
And if, a tenant has offered to provide services in exchange for a decrease in rent, ensure they actually do so. Take time out to check on their work so they don't slide on their rental responsibilities. Even if you have allowed a trade of services in lieu of rent, remember you still need to claim the entire rent amount as income on tax returns. For example, if rent charged by you is $500 a month, but your tenant pays only $450 and cuts the grass for you, the entire $500 amount is to be claimed as income, since you are receiving a service in exchange for $50. However, the $50 can be deducted as a property expense. But, it would be best if you cleared up all tax issues by consulting your tax advisor before taking this step.
In conclusion, what is more important is to avoid problem tenants by carefully selecting them to ensure they are not only models of good behaviour, but will remain with you for many years to come. Screen prospective tenants, renting out to only those who will not only respect and maintain your property, but limit property damage to simple wear and tear. For help in suitable tenant selection, visit www.e-renter.com for tenant screening and background checks, the best and only way to prevent expensive litigation, penalty charges or property damage.
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