Our Process: How We Handle Rent Increases

  • The MerGo Team
  • 08/26/20

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If you want to get the most out of your investment property as a landlord in the Greater Boston area, you need to be increasing your rent each year to account for inflation, increased maintenance costs, real estate taxes, insurance, utilities, and rising property values. But figuring out how much to increase the rent and actually getting that money from your tenants is a tricky process.

The result is that many landlords who manage their own properties forgo rent increases or postpone them due to the many hassles involved. That means they’re leaving large amounts of money sitting on the table while their expenses increase, resulting in a loss of income.

Let us help you with this process!

At Mergo, we assess each of our properties to determine the right market value out of the gate. Then, we calculate rent increases that are both profitable for owners and realistic for tenants so we can maximize the revenue of each property year after year.

Keep reading for all the specifics on how we do this and a few tips on how to increase rent in your own properties.

Why Does Rent Need to Be Increased?

There are three main reasons to increase rent in your investment properties: vendor cost increases, inflation, and rising property costs due to increased taxes, insurance, and utilities.

As time goes on, vendor costs tend to increase. Materials and labor become more expensive over time, and that means the routine maintenance on your properties will end up costing slightly more each year. This isn’t a massive amount, but it does add up over time and, as an owner, it will eat into your take-home revenue at the end of the day.

Inflation is pretty self-explanatory. As the value of the dollar decreases over time, you need to ask for more money to make up for it! This is one of the most easily justifiable reasons for a rent increase, as inflation tends to increase by around 2% each year. Tenants understand it, owners understand it—it’s straightforward and hard to argue against.

Rising property costs are the final and most important reason for increasing rent, particularly in the Greater Boston area. Insurance costs rise each year along with real estate property values and taxes, utilities, and other costs related to owning a property. As more and more companies continue to set up their headquarters in Boston, it has become a destination for both young professionals and established workers looking to raise a family. Property values have been steadily increasing year after year—especially within city limits—which results in higher cost of ownership.

One of the most common issues we encounter with rent prices is when an owner has had a tenant living in their unit for a significant time—say, five or even ten years—without increasing the rent. 

At that point, the market value of the unit could be several hundred dollars over what the owner is currently charging. It’s a tricky situation—on one hand, you want to maximize the rent in your unit, but on the other hand, you want to keep your tenants happy. This is a problem we deal with all the time, and we work with owners to decide what is best for everyone involved.

How We Handle Rent Increases Each Year

Before we look into rent increases for our owners, we first need to understand what their property is worth. We have a process for determining the ideal rent price of a unit by analyzing the current market value and comparing it with similar, recently rented units. We use this process for any new properties that we take on, and then continue to analyze the value each year to ensure our owners are staying competitive with the market and getting the maximum return on their investment year after year.

If we’re taking on a new property that we find is under market value, we generally need to have a discussion with the owner. We’ll let them know how much they could be getting for their unit, and then talk with them about whether they want to pursue that (and risk losing their current tenant) or go for a smaller increase that will keep their tenant happy and in the unit. In the end, it comes down to what the owner values most. Do they want to maximize their revenue or keep their tenants happy?

For properties that are already at or near market value, we still try to increase rent by some amount each year. Generally, this is between $25 and $100 per month (depending on unit size) to account for all the things mentioned above—vendor cost increases, inflation, and rising property values.

We always inform tenants of rent increases when we send out lease renewal notices in March (for June or September lease cycles) with 14 days to respond. That way, we have plenty of time to market the unit in the event that a tenant chooses to leave.

Looking to Get the Maximum Return on Your Property?

We get it. No one wants to tell their tenants they’re increasing rent, and it can be difficult to figure out the risk versus reward when increasing rent on your properties. But as the owner of an investment property, this is something you need to be doing if you want to get the maximum return on your investment.

We’ve been handling rent increases for our owners for years, and we do our best to make sure that everyone involved is happy and getting what they want out of the deal.

If you need help increasing your rent, just get in touch for a free consultation. We’d be happy to analyze your property and determine the right market value, then provide our suggestions on the best way to increase your rent.

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Lucas has been in the real estate business for nearly 10 years now, and he is totally crushing it. He constantly brings an incredible energy to every meeting & has such expansive knowledge on anything from rentals to residential to commercial.

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