Managing Renewals in a Wild Rental Market
Self-managing renewals in a stable rental market can be hard, add in a pandemic, rapid rent growth and ever-changing landlord laws and suddenly it becomes much more difficult. Here are a few actions you can take to help manage the process.
The first step in every renewal is to get a pulse on market rents in the neighborhood. Educating yourself on the status of current rates for rental submarkets will give you the ammunition needed to push rents if, for instance, you plan to be aggressive in rent growth in order catch up from pandemic-caused losses. We all had to be cautious with renewal rents during the pandemic, as no one wanted to lose a paying renter during unstable times. Today, rental platforms like Zillow.com and hotpads.com log interest to a specific rental to help you gauge those interested in a property listing. The higher the interest in a property, the more quickly it will rent at the asking price. Knowing where the current rental market sits for your specific submarket gives you the ceiling and potential trajectory for your renewal offer.
The second step in the process to is evaluate the cost of a turn, should you lose your current tenant. If your current rent is $1800, the market rent is $2400, and the cost to fix up the property is $3000, you will reach your ROI at the 5-month mark. In this case being aggressive on your renewal price—that is, asking for a rent increase of $300— means that you can feel confident that even if you do lose the tenant, your return will be increased.
Additionally, you have the market data to present to the tenant demonstrating that you are still offering an excellent rate for the neighborhood; thus, they are still getting a great deal.
Often, when residents are presented with a rent increase, whether small or large, they respond with a litany of issues or problems about the home. The list can be long, and rather than deny or avoid it, this is your opportunity to maintain the property, or at least take care of some of the deferred maintenance items that will ultimately add to your property’s value. By doing so, you are also showing your resident that you care about them and the home they are living in. This speaks volumes about your commitment to them, and consequently, you’ll often see residents reciprocate. If you approach the renewal negotiation with this in mind, you can use it as a bargaining tool to make your residents feel as though they are getting something beneficial out of the transaction. Everyone walks away happy.
To sum it up, the rental market is stronger than ever so don’t be afraid to make warranted changes. With the cost of buying a home higher than ever, you have the leverage to be aggressive about rents and renewal offers.