When determining a reasonable market rental rate during a period of significant inflation, it’s critical to stick to the fundamentals. Look for comparable property prices in the area to establish a benchmark before deciding on the rent. Then, to vary from the base rent, take into account additional elements such as location, amenities provided, unit quality, and leasing season.
Renting markets can vary greatly during periods of high inflation. It’s crucial to follow local microtrends rather than just those that exist nationwide. This enables you to decide on a fair rate that won’t dissuade potential tenants.
One might compare inflation to an army on the horizon. It assaults from every angle, causing widespread mayhem and frightening everyone. Your rental property business could perish in the conflict if you are not careful. Inflation in the United States is at its highest level in forty years. Renters and landlords, particularly independent landlords, are feeling the pinch as the housing market takes center stage in these talks.
With unanticipated economic fluctuations, it’s simple to feel overwhelmed or confused about how to stay up.
Finding fair market rent for your unit might be challenging as practically everything’s price continues to grow.
Do you need to think about increasing your rent for current tenants? Should you reconsider the monthly rent you’ll charge new tenants?
Should you conduct additional investigation into the quickly shifting market rates?
The rent should be set so that it covers your costs while also ensuring a respectable profit. However, if you set it too low, your rental won’t generate enough return on investment. If your prices are too high, you run the danger of having pricey vacancies.
To make better price selections, there are some things you can do. You can set a rental rate that is well-positioned in an economy with high inflation by using the following advice.
Advice for Setting Rent During High Inflation
It’s simple to become engrossed in the panic of growing costs and worry over shrinking margins during periods of economic instability and inflation. Nevertheless, it’s crucial to keep in mind that, regardless of any present inflation patterns, pricing rental demands a disciplined procedure.
In the end, you still want to set a fair market rent, which is a rental amount that represents current market trends, is still appealing to the tenant, and also leaves you with enough money to live on.
Regardless of the state of the economy, being true to the following principles could help you stay grounded.
1. Identify the Appropriate Comparables
Prices may vary as a result of inflation, but your approach to determining the rental rate shouldn’t. There are some fundamental concepts you should always take into account when calculating how much to charge for rent, regardless of market changes.
You must identify the “comps” in your particular neighborhood or nearby communities in order to determine a reasonable rental price. In essence, what rental prices are being offered for properties like yours?
You’ll have a better sense of where other landlords set the monthly rent for properties identical to yours by looking at rental listing websites for comparables. You must base your rental pricing on the baseline rentals and take into account how your rental compares favorably or unfavorably to the available comps because no property will ever be a flawless pure-play comparable.
These factors include:
Location: Is your rental property in a prominent downtown location? on a charming residential street? adjacent to an oil refinery Setting the rental fee depends on the neighborhood, walking distance to amenities, and the location’s attractiveness.
State of Property: Does your rental property need a lot of love or is it brand-new? Rent for better-maintained properties is typically higher than for deteriorating apartments. Be truthful about the state of your property, and make sure the asking price matches that state.
Amenities: The cost of renting your house typically includes all the benefits and extras that your tenants enjoy.
Season: It goes without saying that rent tends to be more expensive for leases that begin in the summer. When determining your fair market rent, consider the season.
2. Keep an Eye on Market Trends in Your Area
It’s crucial to take local economic conditions into account when determining the rental rate rather than only looking at national averages. Although prices are rising across many areas, some are doing so more quickly. For instance, according to USA Today Money, Florida has experienced the biggest rent rises, with rentals in the Miami area climbing by a staggering 50% in the past year. That’s not all, either. The National Association of Realtors reports that out of 390 metro areas, 127 are experiencing double-digit rent growth.
When determining your rental rate, you must consider these regional tendencies. When inflation is strong or if you oversee several units that frequently open up, this is very crucial.
The Following Resources Can Be Used to Monitor Expenditures Over Time:
Consumer Price Index: Monitor prices and inflation across a variety of consumer categories.
Zillow Home Value Index: View home market trends in your neighborhood.
Redfin Real Estate Market Trends: Review local property and housing valuations.
3. Be Realistic About Your Price
You might be eager to raise your rates as well, given the booming marketplaces and prospects to increase the rent. But not everywhere is in the same predicament. Additionally, rogue markets don’t always persist.
Many industry professionals believe that the housing market is stabilizing overall even though rental prices increased in some markets in early 2022. The average rent in the United States increased by over 17% in 2021, but only by 6% through 2022. This might indicate that the market is beginning to stabilize once more.
Other Factors in a Market with High Inflation
High inflation rates affect more than just how much you charge for rent. Your real estate business may experience further unforeseen adjustments as a result of rising costs and financial stress. Here are some additional factors for landlords to take into account when setting the rent during a period of significant inflation.
Track Increasing Costs
Costs for all types of goods and services rise as a result of inflation. The pressure on your bottom line comes from escalating costs for everything from construction supplies and equipment to expert services, insurance rates, and utility costs.
It’s wise to take a close, honest look at your books during periods of significant inflation. Make a list of all your rental costs and note any price changes for products like the following:
-Utilities \ Maintenance
-Materials, including furniture and appliances
-Professional services such as those provided by accountants and attorneys
-Software that charges a monthly fee to manage insurance premiums
Follow The Terms of Your Lease
Be sure to abide by the conditions of your lease if you decide to increase the rent for current tenants. You typically have to wait until the conclusion of the lease period before making changes to rental prices because the lease agreement is set for a specified amount of time. In most cases, this is true even if you are losing money due to inflation.
If you try to raise the rent in a way that violates your lease agreement, your tenants may be able to take legal action against you. When going over terms to include in your rental agreement, consider adding clauses about expected rental rate increases and how they will be communicated, so that tenants know what to expect ahead of time. Consider consulting with your legal counsel first for guidance on the proper modification of terms throughout your rental agreement.
Negotiating Price Increases With Current Tenants
When it comes time to negotiate a lease renewal, you may be hesitant to raise the rent and face the risk of losing good tenants. But there are effective ways to negotiate the lease at renewal time. If you know that you will raise the rent, give your current tenants plenty of advanced notice. Explain your reasoning. No one likes their living expenses jumping up suddenly. However, having an open, respectful conversation can make the news easier to swallow.
Discussing Price Increases With Current Tenants
You might be reluctant to increase the rent and run the risk of evicting dependable tenants when it comes time to negotiate a lease renewal. However, there are efficient ways to bargain the lease when it comes up for renewal. Give your current tenants plenty of notice if you intend to increase the rent. Describe your thinking. Nobody enjoys having their living expenditures increase abruptly. However, the news may be simpler to accept if you have honest, courteous talk.
Consider allowing room for negotiating a new rental rate if they’re excellent tenants. It can be expensive and hazardous to find new tenants. Even if your present tenants offer to pay less than you like, it might still be preferable to seek new tenants. After all, accepting a little less than intended can be worth having amazing tenants who respect your property, follow the regulations, and pay on time each month.
Respect Local Laws Look into any local ordinances that can place a cap on the amount by which you can raise the rent in a certain period of time. The same states—and even individual cities—limit rent hikes.
Oregon, for instance, set a maximum annual rise in rent of 9.9% until 2022. Find out if there are any similar laws in your area and abide by them. The last thing you want is to accidentally break the law and end up in legal trouble. As always, if you have any questions, get in touch with your legal counsel.
Locate Dependable Tenants Who Can Make Monthly Payments
In any market, you need a renter who can make on-time monthly rent payments in order to be profitable. As a general rule, make sure your tenants have a rent-to-income ratio that is at least three times the needed monthly rent.
For instance, if the monthly rent is $500, you need to establish that the renter makes at least $1500.
How to Locate Better Tenants
It is especially crucial to do thorough screening that involves appropriate financial evaluation and checks for creditworthiness in a high-inflation market when tenants are feeling the strain. First, learn how to confirm the income of rental applicants. Examine financial and employment-related records, such as tax returns and pay stubs.
Additionally, you can lessen the need for manual financial screening by using Income Insights, a proprietary tool that analyzes the applicant’s self-reported income using information from the credit report. This analysis includes, among other things, an examination of how much the applicant pays toward balances, how much money they spend, and the kinds of balances they carry. In order to decide whether extra income verification is necessary, Income Insights compares this credit activity to the applicant’s self-reported income.
You must make sure they are as shining as they seem on paper after confirming income.
What to Look For Includes The Following:
This is to see if anything in their past is a threat to your other tenants, neighbors, or property. Obtain a criminal history record to assist in figuring out the truth.
History of Evictions:
Evidence of a previous eviction is one indicator of a possible renter. What mysteries does the past of your prospective tenant hold? Tenants who have been evicted have almost three times as many prior eviction and rental-related collection records as tenants who have not been evicted.
Payment History: Examine your spending patterns with a renter credit report. You can make a better leasing choice if you are aware of someone’s debt management style.
Better intelligence leads to better strategic judgments, just like in warfare.
Don’t let unsuitable tenants ruin your ability to support yourself.