Planning on Raising Rent? Consider the Following:
If you own rental property, you may already be aware that there are steps you can take and guidelines to follow when it comes to raising rent. At first the answer to “should I increase the rent” may seem obvious; by raising the rent the income generation will increase, and by not raising the rent, you miss the opportunity to compound the increases year over year.
Choosing to raise the rent is often the right decision, but before issuing the requisite notice, we wanted to offer 6 points worth considering:
1. Will raising rent rock the boat?
Perhaps you hardly hear from your tenants who pay the rent predictably and on time each month. When issuing a notice of increase, it may spark a dialogue or a reconsideration of the existing relationship. We’ll go over more specific scenarios below, but we want to highlight that a rent increase can cause a change in an otherwise smooth, silent tenancy. It is important to consider the temperament of the tenant, their obligations under the lease, and some of the additional services which they may take care of through their own good will before applying the increase.
2. What’s the market value of your rental property?
This is an important point. If you are significantly below current market value, you most likely will want to take advantage of every opportunity to increase the rent. On the other hand, if you are at or slightly above market value, perhaps it’s best to hold off. If the tenant feels they may be able to secure a comparable property elsewhere at a better rate, this notice of increase may pique curiosity and encourage them to start their search. The costs associated with placing a new tenant may greatly outweigh the increase in rent and you may not necessarily achieve a greater rate through a new tenancy.
3. Do your tenants offer you non-monetary value?
Non-monetary value could be defined as value to the landlord from the tenants that comes in a form other than rental income. Perhaps you have a quiet mature couple living in the property. They care for the interior and exterior, get along with the neighbors, and the wear and tear they impose on the property is minimal. Perhaps they pay $2,500 a month and the property could fetch $3,000, but in order to achieve the $3,000, you may end up taking on tenants who are less likely to care for the property. There is something to be said for a quiet, low maintenance, predictable tenancy.
4. Remember, raising the rent doesn’t need to apply to all.
Every tenancy is unique, and every tenant has a different relationship with you, the landlord. When you are deciding to increase your rents, it does not need to be a sweeping declaration across all your tenancies. Perhaps the multi residential tenant who takes the bins to the curb each week can go without an increase, while the others in the building receive a notice. You can choose to apply the rent increase to some tenants, and not others.
5. You can change your mind later
According to Ontario Rent Increase Guidelines, you can increase rent 1 year after the tenancy start date or 1 year from the date of the last increase. If you opt out of increasing the rent, you can change your mind and increase it later, keeping in mind that the next opportunity for increase will be re-established as one year from the most recent increase.
6. What are your objectives and horizons for your property?
The final and most important consideration is your own investment horizon. What are your goals with the property and how would raising rent affect those goals? Depending on when you intend to sell or move back into the property, your strategy and whether you choose to raise rent or not might change. Aligning your strategy to your goals is key. And if you require assistance in developing that goal-oriented strategy, our team can help.
The purpose of this article is not to discourage our clients from increasing their rents. Quite the contrary. The costs incurred by landlords are high – higher these days than ever- and the opportunities for increases are often limited. LandLord supports its clients by preparing and issuing rental increase notices as permitted each year by the Province of Ontario. Rather, the purpose of this write up is to encourage a broader consideration and to provide insight into the often-overlooked impact of issuing a rental increase. You can learn more by viewing our Rent Increase Guide, or by scheduling a call with our team.