Investors: How to Price Your Rent Increases

The U.S. rental market is heating up fast but how real estate investors price their rental increases can make all the difference in their net returns.

Do you have the right rental pricing strategy?

Rents across the country are ramping up much faster than some projected. In hot urban areas like Miami and San Diego tenants are finding their new proposed rent payments going through the roof when renewal time comes up.

This is a situation which is only likely to become more pronounced as real estate investors take more inventory out of the market and until American’s credit gets better and access to mortgage credit for buying a home gets easier too.

Some experts predicted a 7-10% rise in rental rates over the next couple of years. However, in some hot zones where there is little available inventory like the San Diego real estate market, Manhattan and Miami’s downtown Brickell area tenants are seeing demands for incredible rent hikes. According to the MLxchange this means a 28% spike in rent per square foot or 17% in monthly payments in the first nine months of the year alone. That’s a $500 to $900 leap on a $3,000 a month condo.

This offers great opportunity for real estate investors to pushup cash flow, but how can you stage increases without sabotaging net income?

You don’t want to force out a great tenant and then have an empty unit for months, bringing in nothing and potentially winding up with a bum tenant in the end.

So make it cheaper to pay more than to move, consider negotiating a deal for a longer lease, or higher amount if they want month to month, and negotiate a cap on future increases so they don’t panic. 10% is pretty standard but renters could face far steeper jumps if moving.