MELANIE KISHK
However, steep rent increases can lead to higher operating costs and may out-price great tenants, resulting in vacancies, expensive tenant turnover costs, and even bankruptcy.
Rising rental rates can put financial pressure on both landlords and tenants. Unit rental rates went up 13.5% in 2021. While this growth sounds great for landlords, such quick vertical growth isn’t always a good thing. When the cost of business goes up, landlords need to make sure they can pay their own bills by setting appropriate initial and renewal rent rates.
When it comes time for lease renewal, landlords must find the sweet spot of rental rates that makes them money and renters who can afford to pay it. It’s important to reassess rental rates every year and research changing costs in the area to determine fair market value for the rental. This includes property values and market comps in the specific neighborhood and city, not just overall trends. Landlords must investigate potential renter income to ensure that they can afford the rent. The industry standard is 3X gross income to rent, so landlords should research the average income in their area and ask for proof of income and employment from potential renters.
However, they must also consider operating costs when determining rates. Mortgage payments are the largest expense for landlords. If they are still paying a mortgage on the rental property, they must take it into consideration when calculating the cost of the unit. Property taxes must also be considered when setting new rates, and landlords should plan for other costs such as insurance, utilities, and maintenance.
Setting appropriate rates can prevent vacancies, expensive tenant turnover costs, and legal proceedings. However, finding great tenants in an unpredictable market can be challenging. Landlords must sort through a mountain of rental applications, verify documents, check landlord references, and conduct thorough rental applicant screenings. Setting appropriate rates can prevent financial wreckage. A reputable realtor can always assist in finding you qualified tenants, it can be costly to try it on your own. Finding the right rental rate in an unpredictable market is easier said than done.
Century 21’s Melanie Kishk is a full-time, top performing real estate broker, owner serving Brooklyn, New York and the surrounding communities.
