You aren’t in the business of buying and managing rental properties because it’s fun. In fact, you take on a lot of risk and deal with too many problems to be in it for some sort of service project. You do what you do because you want to generate some income. But before you go raising rent in an effort to increase income, consider the big picture.
The Dangers of Raising Rents
Raising rent seems to be the most obvious way to increase profitability and generate more income, but it’s not foolproof. In fact, you face a number of potential risks anytime you send out a rent increase.
- You could lose a good tenant. The first risk is that you could actually lose a good tenant who takes care of your property, pays on time, and plans to stay for a while. The costs and fees associated with cleaning the property, putting it up for rent, and screening new tenants won’t justify a small increase – so think twice before doing it.
- The increase could be deemed “unfair.” There are legal stipulations on how much and how often you can increase rent on tenants. If you go too high, you could actually be breaking the law.
- You increase the likelihood of late payments. In low- and middle-income rental properties, a significant increase could negatively impact a tenant’s monthly cash flow. Thus, you may actually hurt the financial stability of your tenants and increase the likelihood of receiving late payments. Is that worth it?
- You could price yourself out of the market. If you go too high with your rent, you could price yourself out of the market. The longer your property sits vacant, the more money you lose. An extended vacancy could even put you at risk of foreclosure.
Having said all of that, there is a time and place for increasing rent. If, for example, you’re charging $1,000 for your unit when all of the comparable units are going for $1,500 per month, then it’s definitely reasonable to bring your rate up closer to market value. But before you go chasing down a few dollars, make sure you explore alternatives.
7 Alternatives for Increasing Income
Depending on the type of rental properties you own, where they’re located, how much you’re charging, and any bonus features and amenities that are already available on your property, you may find some of the following options attractive for increasing your income without raising rents:
Charge Pet Rent
With nearly three-quarters of all US households owning a pet, it may not make sense to have a pet policy that prevents renters from keeping animals on the property. Instead, you can use this as an opportunity to generate extra income.
People will do anything for their pets – including pay an extra $50 per month. If you have five rental properties, a pet fee could help you generate another $250 per month (or $3,000 per year). You can also collect a pet deposit to protect against some of the damage they may cause.
Be Strict With Late Fees
It’s one thing to show kindness and to respect your tenants, but that doesn’t mean you have to be a pushover. Late fees exist for a reason and it’s important that you enforce them.
“If your tenant sends you a late check without including the late fees, politely explain that rent is not considered paid until all fees are collected, and that unfortunately you cannot accept this payment until all fees are paid,” real estate investor Blake Hilgemann writes. “If you hold firm, they will quickly learn that you cannot be taken advantage of and will most likely comply.”
It’s not uncommon for a rental property to sit for a few weeks between tenants. It can take a while to list your property, collect applications, screen tenants, and get all of the proper paperwork squared away. But rather than just let the property sit, try using Airbnb to generate some temporary income. Depending on where you’re located and the type of property you own, you could bring in more income than you would in a typical month.
Allow Tenants to Sublet
There’s an age-old debate over whether or not you should let your tenants sublet. Most landlords choose to deny this privilege, but perhaps you should reconsider. Give your tenants the option of being able to sublet and charge them a fee for the right. Something like a flat fee of $50 per month could work. You could also charge a percentage of their sublet rate – though this requires you to be more hands-on.
Charge for Storage or Parking
If you’re located in the city, you could charge tenants an extra fee for parking. If they don’t take you up on the offer, try renting it out to someone else. In desirable locations, there’s always a demand for parking. You could make a few thousand dollars per year. (The same goes for storage units. If you have a shed or garage, charging for storage may allow you to generate additional income.)
Rent Out Appliances or Equipment
If you own a multi-family building or apartment, you can rent out appliances or equipment for an additional fee. For example, you can offer to include a washer and dryer in the unit for $10 or $15 per month. You could even rent things like vacuum cleaners, lawn equipment, and other items that renters don’t already own.
Lower Your Vacancy Rate
At the end of the day, the key to maximizing income is to lower your vacancy rate. The less time a unit sits empty, the more opportunity you have to generate income. Learn to price your properties competitively and treat your tenants well. This will solve most of your problems.
Work With Green Residential
Green Residential is Houston’s leading real estate management company. We’ve been in business for more than three decades and, over that time, have worked with thousands of clients to provide comprehensive property management services. From tenant screening and property marketing to rent collection and evictions, we handle it all. Contact us today to learn more!