A responsible landlord increases or maintains the ROI on their asset. A regular, consistent and well documented rent increase schedule does just that. Managing rent increases requires regular review of market rents, consistency and documentation.
This article discusses how Fresh Look Management stays current on market rent and how to fairly and ethically increase rents in your investment real estate.
Our process starts in a simple excel spreadsheet, here we have columns for each each unit being managed, square footage, current rent, market rent, last increase date, post date, and increase date. This sheet is labelled Rent Schedule.
Within the same file, we have another sheet labelled "Rental Comps" to help us determine market rent for our subject properties. We enter in 3-5 comparable rentals nearby our subject properties, average the $/sqft to determine the market rent for our units, which autofills on our Rent Schedule.
Finding Rental Comparables
Every other month, we go to Zillow and find comparable units. We input the asking rent and the square footage and adjust for parking, water, sewer, garbage, whether there’s a balcony and an elevator, and what kind of pet policy is in place.
Rental comps can be somewhat of an art to determine, because they are not like the MLS where we can pull sold comps. We don’t have anything that shows us what each unit actually rented for, for example, the landlord may advertise a unit for $1,600 per month but actually lease the unit for $1,450 per month, and we wouldn't know.
The best we can use is the ads. Potential renters are looking at the same ads we are, so as long as we are in the appropriate price range, our pictures and copy are the best on the market, and our lease terms are competitive, we will schedule showings and secure a lease.
Implementing Rent Increases
To increase rents ethically and fairly, set a rent increase policy, document that policy, and document your follow through utilizing this policy. Our rent increase policy is as follows:
- Review rents every 2 months and make appropriate adjustments
- Increase rent once / year; Do not increase more than 1 x per year
Documenting Rent Increases
At each review, we update the Market Rent Spreadsheet, save as a pdf document and upload to our Property Management Software so it is dated stamped. Any comments and observations are noted here as well, such as, "Not much change from last review" or "New building .3 miles away, 24 units"
We keep careful records so that if someone wants to know why the rent was raised, we can show them the documentation demonstrating how we came to the rental amount. Showing tenants that rent review and increases are part of routine processes and procedures, and the documentation to back it up, is vital. You don’t want anyone accusing you that their rent was increased because of their kids, pets or because of a recent maintenance request.
The primary responsibility of a landlord to is increase or maintain the ROI on their asset. By maintaining a regular, consistent and well documented rent increase schedule, landlords are ensuring they keep up with market rent and have available funds to maintain the property appropriately. Falling behind in either of these efforts will diminish returns and result in substandard housing for tenants. Documenting the rent increasing process keep landlords and tenants alike safe from intentional or unintentional mistreatment or retaliation.