As a Colorado Springs real estate investor and landlord, one of the most important decisions you’ll make is how much to charge for rent. This decision will depend on the market, what your rental property has to offer, and how much competition you’re working against.
Once you’ve set that price, you also need to be prepared to raise that rent over time. Rent increases can be tricky, especially when it’s time to renew your tenant’s lease. Most tenants expect that their rent will go up when they sign a new lease, but you don’t want to shock them. You don’t want to chase them out the door.
We’re talking about how to handle rent increases. As professionals providing Colorado Springs and Pueblo property management, we have experience raising the rent in a way that’s market-driven and focused on tenant retention.
Evaluate the Colorado Springs Rental Market and Talk with Your Tenants
When you know that the lease will renew in a few months, you’ll need to start thinking about how much to increase the rent. While the market can change quickly, you should have an idea 60 days out whether or not you can reasonably expect your tenants to pay more once their lease ends and a new lease period begins.
Decide how much a reasonable increase will be, and think about the timing of your lease renewal offer.
Before you offer a new lease to your tenants with a higher rental amount, decide how important it is to you that you keep your existing tenants in place. Generally, we recommend that you prioritize retention. It’s always more cost-effective than turnover. When your tenants have a record of paying rent on time, taking care of the property, and being easy to work with, you’ll certainly want to retain them. Keeping good tenants allows you to earn more money and enjoy a pleasant rental experience.
When you’ve decided that it’s in your best interests to make an offer of renewal, decide how much you’ll offer as a new rental amount. To decide where your new rental price should land, we recommend that you take a look at the market and see what similar homes are renting for.
Set the rent at an amount that gives you both an advantage. Tenants are going to do their research just like you will. They’ll know what the market demands, and they won’t be willing to pay more than they have to.
The best way to handle a rental increase is to go ahead and raise the rent, but to keep the new amount just a hair below what the market demands. If your data says you could charge $1,800 per month, for example, why not charge $1,775? Here’s why this works for both you and your tenants:
- Your tenants will immediately understand that you respect their tenancy and want to keep them in place. They’ll know you’re not charging as much as you could.
- You’re still getting more rent every month.
- You’ll avoid an expensive turnover and vacancy period, which can potentially cost thousands of dollars.
- Your tenants will feel comfortable that they’re still getting value by renewing the lease agreement.
Rental rates have been on the rise across Colorado Springs and the rest of Colorado. While they are generally peaking and may not climb too much higher, you’re still likely to charge more rent than you did when your tenants initially moved in. That’s good news for you. But, you have to balance those extra earnings against the needs of your tenant and the competition on the market.
Well-qualified tenants will not stay in a place that they believe is overpriced.
Timing Your Rental Increase and Documenting the Amount
Check your lease agreement before you increase the rent. How much notice are you required to provide your tenants? Colorado state law requires 60 days of notice.
Provide reasonable notice before raising the rent. The best way to approach rent increases is to be upfront and transparent with your tenants. Let them know well in advance that their rent will be increasing when their lease is up for renewal. Provide them with a clear explanation of why the increase is necessary and how it is calculated. When tenants feel like they are being treated fairly and honestly, they are more likely to accept a rent increase.
Offer your tenants a lease renewal in writing with the new proposed rent.
Be sure to document everything related to the rent increase and the renewal of the lease. Put the rent increase in writing so that both you and your tenants have a clear understanding of the new rent amount. Make sure to update the lease agreement to reflect the new terms and have both parties sign the updated lease.
Then, give your tenants a specific amount of time to respond. You’ll want to know as soon as possible if you’re renewing the lease or preparing for a turnover.
Offer Incentives as You’re Raising Rent
If you’re looking to motivate your tenants to stay in place even with a rental increase, think about the incentives you might provide to earn that lease renewal. Yes, you can say, rent is going up, but we are also offering you a free carpet cleaning or a new appliance. Maybe you can offer three free months of upgraded cable or internet services.
Most tenants are willing to pay more if they feel that they’re still getting value. When you’re proposing a rental increase of $100 per month, they may initially bristle. But, if they’re also getting free snow plowing, a new microwave, or a gym membership for three months, they will feel like they’re getting something in return.
Talk to your tenants. Be willing to negotiate with the good tenants you want to keep. You don’t necessarily want to come down on the price you’ve named, but you can be willing to provide an incentive in exchange for the increased rent. Maybe they’re hoping for tile floors in the living area instead of carpet. Or, they’d like fresh paint or a backsplash in the kitchen. Maybe they want a pet. You can negotiate the rental increase and its terms during renewal time.
Negotiate and Remain Flexible
If your tenants are unhappy with the rent increase, try to be flexible in finding a solution that works for everyone. Consider offering a smaller rent increase if you sense they’ll move out. Or, discuss other options such as signing a longer lease term in exchange for less of a rent increase. Can they refer a tenant for one of your other properties? Maybe you’ll waive the increased rent for another few months in exchange for that new business.
When you’re working with tenants who are good renters and have a good rental history, it may make sense to collaborate with them to find a mutually beneficial solution.
There are also the current economic realities to consider. As you think about raising your rent, you need to make sure you’re not out of touch with the existing economy and the squeeze of inflation. In general, employment numbers are up, economic indicators are strong, and we can be grateful that we never did get that huge recession that some had predicted. Right now, rents are higher. That’s good for property owners like you, but it’s likely a bit alarming to your tenants.
There’s a huge demand for well-maintained rental housing, and that’s driving prices higher. There’s also a larger pool of tenants out there looking for their next home. You want to raise the rent in order to earn more on your rental property, but you don’t want to put your tenants in a position where they won’t be able to pay.
When you screen tenants before they move in, you evaluate their financials and verify their income. You want to make sure they can afford your property. But, most landlords and property owners don’t do that at renewal time.
You’re not taking another look at your tenant’s credit score or their income. So, you’ve qualified them based on the screening criteria and the rental amount that was in place at the beginning of your initial lease term. You don’t know how things have changed for them financially or otherwise.
This is not to suggest you should abandon your hopes for raising the rent. It’s simply a reminder that if you want to continue collecting rent consistently, it’s important to make sure you know where your tenants stand and where the economy is going.
Working with a Colorado Springs or Pueblo property management company can provide you with some resources and expertise when it comes to rental increases. We are constantly studying the rental market and gathering insights into its trends and shifts. We know what tenants are looking for and what they’re able to pay. We also understand the competing properties and the local economy. We know how long properties are vacant before tenants are willing to rent them.
All of this expertise can help you more effectively raise the rent on your own property. Please contact us at Muldoon Associates when you’re ready to strategize around a rental increase.
