Having been a landlady in Surrey, UK for the past 5 years, I have to admit I am not really good at raising rents to my tenants. I know it is natural to raise rents once a year, but I have been blessed with such great tenants that by the time they have been there for a year, I consider them friends and have a real hard time talking about charging them more for the privilege of living there.
According to the Telegraph, 2014 is offering great prospects for rental yields in the UK, with a current average of 6% per year. This article also says that property prices should raise another 27% over the next four years, and over half of the people interviewed for the survey were interested in buying more property in 2014. That means a tight market and prices on the rise, so you really want to make sure you get the best possible return out of your investment.
You can calculate your rental yields (money in over property price) by estimating the rent with comparable properties, and figuring out the amount of the mortgage thanks to a mortgage calculator.
How to raise your rent in the New Year
While I have not practiced what I preach lately, I think you should raise your rents once a year for a number of reasons. First, you stay aligned with the market, or slightly under, but if a tenant stays for 10 years, there is no big discrepancy between your rates and the market. If you wait for 3 years to raise the rent, it may be hard for the tenant to adjust to the new budget.
A first tip I suggest is to raise your rates in January. If the tenant has been there a little over a year, they shouldn’t mind the first raise, and they probably got a raise themselves at work, so they should not feel too much of a pinch.
Then, keep reasonable with your request. What I have used previously to raise my rents was the consumer price index, so if inflation was 3.2% over the period, I would raise the rents by that much, independently of market conditions. The tenants never said no.
A third tip, as I do have a lot of turnover (but thankfully, only a week of vacancy over five years!) in my college town where lots of students stay for 6-12 months, is to raise the rent between tenants. It won’t be a solution for renting family homes, and you may get a few surprises, like two of my tenants who stayed for three years, when I thought they’d be gone after a year.
Lastly, I would suggest you include a rent review clause on the contract, so your tenants can’t say you didn’t warn them, and also you can refer to it in your request. “As per the terms and conditions of your contract, your new rents will be…”.
When I have risen rates, I have made sure to give the tenant plenty of time, so as we operate on a one month notice contract, I let them know six weeks in advance, so they have two weeks to think about it and give their month notice if they are unhappy with the new rate.
While it may be tricky as a landlord, remember when you were a tenant, and were expecting rents to go up every year, so there is nothing to feel bad about.
I haven’t been a landlord that long (just about to hit my first year at the end of the month) but I found it easier to raise rents when a new tenant is moving in. I actually probably won’t raise them again until the next tenant moves in. I’d rather not give my current renter any incentive to leave, and I feel raising their rents might come off the wrong way.
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It is tricky but if you can justify it (raise in mortgage rates, utilities…) they’ll understand.