Property owners and managers in Sarasota, Florida, know that rent increases are necessary for doing business. However, many owners overlook the biggest opportunity to increase cash flow at lease renewal: increasing the rent to offset inflation and market changes.
Why do rental property owners often overlook this opportunity to maximize returns? Why is it important to make a reasonable rate increase at lease renewal? Our Sarasota, FL property management team talks about it today!
Rental Property Rent Increases Are a Part of Doing Business
In a challenging economy, real estate investors often choose not to raise the rent when a resident is ready to renew the lease. While this is understandable (and the struggle to keep good tenants is real), property owners can't afford not to review the numbers and consider an appropriate increase when it's time to sign a new lease with existing residents.
What You Could Be Missing
When your costs go up due to inflation, rising service fees for contractors, property tax increases, or cost increases in materials used for routine maintenance or the make-ready process, property owners see a decline in their ROIs. In addition, if you maintain the same rent amount year after year and renewal after renewal, your ROI continues to suffer long-term.
We want to be clear: we're not suggesting significant rate increases each year simply for the sake of raising the rent or making more money. However, as a real estate investor, you own and operate rental properties to make money and maximize returns. Without adjusting the rent to compensate for rising costs, your long-term investments won't last very long.
Lease Renewal Is a Natural Opportunity
Renewing a lease with a tenant can be an opportunity to increase cash flow by implementing creative strategies, such as offering inducements for early renewals or discounts for multiple-year renewals. In most cases, tenants are happy to lock in a rate that won't increase year after year when signing a multi-year rental agreement. However, with those discounts for multi-year leases, property management companies recommend including a reasonable rate increase to protect against rising costs during the lengthy lease term.
What Is a "Reasonable" Increase?
It's easy to calculate how much cash you'll gain by increasing the rent, but it's helpful to understand what renters are actually paying when considering an increase. For example, a modest 1-3 percent rate increase is reasonable in Sarasota, FL, and could give property owners access to enough extra cash flow per month. It may not seem like a lot of money at first glance (especially if you own 100+ units), but even small cash increases add up over time!
Plus, small increases are easier for renters to absorb with a new lease agreement. You'll find it easier to maintain excellent renewal rates when rent increases don't price existing residents out of your property.
Do the Research
How can investors identify the right amount or percentage to incorporate into a rent increase? Working with a professional property management company in Sarasota is a smart way to find the market research you need and run a rental analysis to identify the ideal rental rate.
The right property managers can also coach you on how to communicate rate increases to residents and work with them for a smooth transition into a new lease term. When an initial lease mentions the potential for rate increases at renewal, renters already expect to see a higher rate for their next lease term.
When talking with tenants about renewing their lease and a rate increase, a property manager also recommends offering incentives to renew. These perks can include gift cards to a local restaurant, a one-time complimentary whole-house cleaning, or free air filter deliveries throughout the next lease term. There's no need to offer expensive renewal incentives that offset the additional income from a higher rental rate. However, sometimes small perks go a long way with helping residents feel appreciated and at home in your property!
Consider the Long-Term Consequences
Real estate investors in Sarasota, Florida, must consider their long-term ROIs when making decisions that affect cash flow. Even if you take the biggest opportunity at lease renewal and offer resident retention incentives for those who renew, a higher rental rate will result in cash flow increases for a Sarasota rental property owner.
It's important to remember that cash flow doesn't exist in a vacuum. Every decision you make affects other areas of your business. When calculating a rent increase percentage, be sure to consider how it will impact vacancy rates, marketing time and costs, and maintenance needs. By increasing the rent modestly each year and with the help of experienced professionals like property managers, you can protect your cash flow while continuing to provide excellent housing options for tenants!
Maximize Cash Flow Opportunities With a Sarasota Property Management Team
The opportunity to raise the rent at lease renewal is a great way for real estate investors or property owners to maximize ROIs and offset rising costs. Our team of experts can help you run the numbers before your next tenancy expires, calculate a modest rent increase, and work with tenants to sign a new lease. If you want more information about our property management services, contact Gulf Coast Property Management today!