Raising the rent might seem simple, but often times the amount of money gained by raising your rent isn’t worth the actual cost of doing so. Consider a common scenario:
Raising the Rent: An Example
Your home currently rents for $1,150. You raise the rent by $50 per month, bringing it to $1,200. This will give you $600 more per year. The renter already thinks they are paying too much and no improvements have been made to warrant the increase. So, they decide to look around the neighborhood for another house. They find one for $100 cheaper per month, and they move out of yours. They are saving $1,200 instead of paying the additional $600.
Cost of Tenant Turnover
Even under the best circumstances, you will face turnaround costs that cannot be charged to the departing tenant’s security deposit. Utilities will need to be turned on, landscaping must be maintained, and painting and carpets may need attention due to normal wear. During this process, the home will be vacant for at least one month. That loss of rental income will be $1,150. Fees to consider include the following: $1,150 loss of rent $100 landscaping $575 Realtor fees $150 Utilities $1,200 - $1,800 refurbishing
Maintain Your Cash Flow
Under the best circumstances, you’d spend $3,800 for one month of vacancy. Each additional month the home is vacant will add another $1,150. So, when you factor all the costs involved, the decision to increase your rent by $50 will take years to recover. Divide the $50 increase into the $3,800 cost, and you’ll get 6 years and 4 months to break even.
Our advice is to keep the cash flowing into the property. Don’t just raise the rent for the sake of raising the rent. It could make a great tenant move. If you have any questions about rental increases or Las Vegas property management, please contact us at Blackbird Realty and Management.