When a tenants lease is up for renewal, the first thought that crosses many owners minds is “should I go for a rent increase.” While going for that increase is any owner’s prerogative, keep in mind the risk of losing a good long term tenant.
As interest rates begin to rise owner investors may feel like their wallets are shrinking, and in an effort to cover costs may consider increasing the rent on their property. Before making the decision, the financial considerations should be balanced against the importance of keeping a good long term tenant in the property. In times of economic uncertainty it is important to consider that tenants also have financial obligations of their own. Raising the rent too high to meet mortgage repayments may force a tenant to search for a place with a lower rent.
While small bumps in rental price of say $5-10p/w are often received well by long term tenants, especially if it is the first bump in a few years, a large increase of say $20-25p/w can often result in a tenant moving out. As it usually takes anywhere between 2 and 6 weeks to find a new tenant for the property, owners need to consider whether having the property vacant and generating no income for this long is worth the increase in rent. It is also possible that the next tenant to move in will not care for the property the way the old tenant did.
Good tenants often fix things themselves and care for a property as if it were their own. In turn this can equal money the owner doesn’t have to spend maintaining the property. This, coupled with the security that comes with knowing you have a set amount of rent coming in over a long period can also offer peace of mind to the owner.
All this doesn’t mean an owner should never raise the rent on their property; it does mean owners should think carefully before significantly increasing the rent. Often it may be worthwhile rewarding a good long term tenant by keeping rent rises to a minimum.
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