How we handled our rent increase
Last week, I talked to you about the increased property maintenance costs landlords are facing on their rental properties. We showed how some repairs are now costing 50% more than they did just a year ago. And we also talked about how price increases are prevalent on both property taxes and insurances. I concluded by showing you how landlords have no other option but to increase rents to compensate for these higher expenses.
Today I’d like to tell you how we went about raising rents and what kind of result we had.
Before we get started, let me ask you something you need to consider when you’re looking at raising rates on a property: Is a rental property an asset, or liability? Going with the definition that an asset is something you buy that puts money in your pocket and a liability is something you buy that takes money from your pocket, what does that make a rental property?
The answer is, “It depends.”
You see, if you have a rental property with a negative cashflow, whether it be from vacancy, costly repairs, or a monthly payment that is too high, it’s taking money out of your pocket. It’s only an asset when it’s putting money into your pocket.
One of my property management teachers, David Tilley, pointed out that the house itself is not what puts money in your pocket and is therefore not the asset. He said the tenant brings in the money and is therefore the true asset. We subscribe to this idea, and at our company we look at our renters as our assets and work hard to get and keep good tenants.
We really do have good people and we want to keep them if at all possible. So, here is what we did with our lease renewals.
I started out by doing a BomBomb video. In it, we talked about how it was time to renew leases but that we were going to need to go up on rent. I explained how our costs have gone up and even let tenants know that we have kept them well below market rates during COVID-19 to make sure they were taken care of. We also let them know that because we have had such marked increases in costs, we would need to raise rents this year.
We then sent them an individualized letter with what market rent rates are on their house currently, what their past rate has been and what the difference between the two is. The next thing we did was to ask them how much more they could afford to increase.
Now, why would we do that instead of just stating a rate?
First off, I want our tenants to know they are valued. They didn’t skip out on us during the pandemic, and I want to make sure they know we are willing to work with them. And we accomplished this by allowing them to make us an offer.
Next, remember that I said last week that we were on average $350 below market rates. I don’t want to bump people up to the max, get them in a bind and cause them to leave because they are facing increases in all areas of their cost of living. That would hurt them, and it would result in turnover costs for us. And as I mentioned before, those costs are much higher than in previous years.
Lastly, I wanted our people to see what the market was doing. And because we let them know what market rates were, and I am sure they confirmed, they realized they couldn’t move anywhere else for the same price. This fact ensured they offered us reasonable amounts, and we took most of them without having to negotiate.
Out of all the renewals, we only had one person terminate. And we were actually glad they did. They had been a somewhat of a problem for us, and I was glad to hear they would be moving on their own so we could get a better asset in place.
And just so you know, no one went up to market rate. You see, I still want my renters to be below market rates to keep them in the situation Peter Fortunato calls the “Golden Handcuffs.” That’s were they don’t want to move because they love the house, but they couldn’t move for the same price if they wanted to. This keeps our tenants happy, allows us to have a vacancy rate of less than 3% and cuts down on our turnover costs.
So, this is how we made our rent increases, and we are we are very pleased with the results.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.
Great strategy Joe!
I also like to be below market rate for long term tenants.
I wrote personalize letters to the tenants explaining cost increases, current market rate for their house, and new below market rate. So far, it worked well.
Great idea Alex. That’s awesome!