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7 Things To Check Before You Raise Rent

Nov 27 2016

When to raise rent is a question many landlords ask themselves. Sometimes it comes up when a tenant leaves. Other times it comes up when a landlord gets an increase in taxes or insurance. Rents have been increasing and it is a great time to be a landlord. In fact, landlords have been enjoying some of the fastest growth in rental rates in recent history. But you want to be aware there is a cap to that growth and we have begun to see this in some markets already.Rental demand has continued to remain very strong, which allows landlords to be bullish on rental rates.

The questions investors are now asking about rents are:

  - “How high can they go?”
  - “For how long can we raise the rates?”

Great questions, and one needs to look deeper at the market in which you are investing to find the answers.

You want to consider what is going on in your local rental market in order to know whether you can raise rent and what your rental future will look like.

No. 1 - What effect will the new presidency have on housing? 


 With the unprecedented presidential election year, and neither candidate talking about the housing market, many are uncertain what this may mean for the housing market?

 Many suggest the feds will begin raising interest rates after the election. While some speculate this will slow the housing market, others believe it will spring people into action to hurry and buy before the rates go up too high.

My belief is it always boils down to consumer confidence. It may take a while for the dust to settle and consumers to feel comfortable with job security and job growth.  Which is why I always suggest investing in those job growth markets before consumers are confident to buy such a large ticket item such as housing.

No. 2 - Your tenants' other options

What is the probability that your tenants may choose to buy a house?

As consumer confidence rebounds some tenants may opt to buy a house and you always want to keep your thumb on the pulse of your tenant.

Based on your unit’s rental rate, can your tenant actually buy a house for about what they are paying for rent, if so you may want to know your tenants future desires? I found the best way to do this is to offer multi-year leases. Two-or three-year leases help to establish this and often are beneficial for both parties.

No. 3 - Affordability of the market

One of the first things you want to determine is your local affordability for housing. This can be obtained from an experienced local property management company or a Realtor. You can also find information on sites like HUD’s local housing portal to determine fair market rents for a particular area. Rents can only rise until affordability peaks and a great way to determine this is to establish the area’s median income. This may be subject to change after the election so if you think you already know this it is important to update this information annually.

Affordability based on national averages is when a monthly rent payment is around one-third of what the average person’s monthly gross income would be in that market. Once it gets beyond this point it may be getting too high. This is when apartment owners, managers and investors may experience vacancies and/or late rents suggesting that affordability has peaked. If you are evaluating property where you need high rents you may want to look deeper, as sustainability of cash flow may be threatened.

No. 4 - Know what your competitors are charging because your tenants know

 An interesting thing happens when the rental market is hot.Landlords raise rents every time a unit becomes available. How easily we slip into complacency as landlords. We think this rise in rents will continue forever. Before you know it, the market takes a swing and suddenly it becomes harder to rent and as a landlord you wonder why.

Do what you know your tenants are doing.They shop the competition so you should be too. Here is a great tool to do just that, rentometer.com which will tell you what other homes have recently rented for in your area. Also, this cool tool is a great asset when buying property to make sure your anticipated rents are in line with the market.

No. 5 - Housing availability

While bigger cities tend to be building more houses and apartment complexes to help fulfill the needs of renters, this is not the case everywhere.

Most local newspapers display building permit activity. I always suggest you watch this for insights. Talking to Realtors can also provide information.

No. 6 - Renter-to-population ratio

It goes without saying that markets with a higher ratio of renters are better safe havens for apartment owners, managers and investors who have a larger pool of tenants from which to choose.This also puts the leverage in favor of the landlord.Knowing your investment market’s renter ratio is important for all owners and investors to know. If you do not already know what your investment market ratios are, this information and chart from the National Multifamily Housing Council is a resource.

No. 7 - Directional swings

Many of these items are prone to swing in one direction or another.This untapped resource can give you a huge clue as to where the market is heading. Often the information is readily available but are you looking for it?

For example No. 5, housing availability, how does this compare to a year ago? Is it becoming more or less available?
Or No. 6, are more people opting to rent in your market? Or buy?  As business owners it is paramount to know your numbers. Keep this information updated and compare the directional trends.

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If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases. 

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment. 

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman:  You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

  • Painting and paint removal
  • Drywall repair
  • Minor appliance repairs (fixing a leaky toilet or faucet, among others)
  • Installing tiling or flooring, moldings, windows, doors
  • Refinishing decks, cabinets and other wood items

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

  • Serve as a handyman
  • Advertise vacancies in your units
  • Show apartments to prospective tenants
  • Review rental applications
  • Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. 

Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.

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