After a long dry spell, we have entered a market cycle where rents are increasing. As a building owner, you need to have your rents keep pace with the market with the same diligence you look after your roof. Always remember that in the eyes of your banker, appraiser, buyer or real estate broker, the value of your property is tied to the rents you bank.
Strategy #1 – Provide Discounts to Long-Term Tenants
Review the rents you collect from your current tenants. Likely, a good portion of your renters have been tenants for several years, and our natural tenancy is often to limit their rent increases. We rationalize that we are saving on maintenance expenses that we would incur if we had to rehab the apartment for another tenant. Here is a better strategy. Explain to your long-term tenants that you are going to offer them a discount – say $50 or $70 a month – which is less than what new tenants have to pay. Explain that you are giving them a discount because you appreciate them. In that way, you have softened the blow of raising the rents and hopefully ingratiated yourself to your tenants.
Strategy #2 – Create More Value Than Your Competitors
When renting a vacant unit, you need to stay abreast of what competing properties are charging for rents. If you don’t know what other owners are charging within your area, call your real estate broker. They will be happy to help. Once armed with this information, assess your property and offer prospective renters a superior value proposition.
Strategy #3 – Put Your Vacant Unit Under a Microscope Before Renting
Critically look at the vacant unit as a prospective renter would. Make sure everything is tidy and manicured, fresh and clean. It is more important to have your unit and all of the surroundings look well-cared for than it is to have the unit look like it has expensive appliances in a stylish sty.
Strategy #4 – Boost Rental Income by Including Utility Costs
If you aren’t already, consider adding a monthly utility reimbursement clause into your leases and billing tenants for their utility costs. Many of the new apartments have units sub-metered for water. However, if you have an older building, you can use a Ratio Utility Billing System (RUBS) to transfer a portion of the total utility cost to individual units. There are local companies which specialize in billing tenants monthly based upon the actual bill divided by residents, square feet or other factors. Utility costs can average around $95 per unit per month. Returning some of that money to the landlord is an excellent idea!
Strategy #5 – Gain Rental Income When Turning Your Apartments
Many landlords miss an opportunity to collect rent at the end of a lease or month-to-month tenancy. Landlords typically get notice by the 10th and the unit back late on the last day of the month. Typically, renters want to move-in toward the end of the month because that’s when their lease is up and they want to minimize double rent payments.
In a landlord’s market, a better strategy is to ask the resident to buy back 10 days from them at the end of the month. Often the tenant is happy to move earlier and receive a portion of the rent they paid returned to them. If a landlord can get a unit back with 10 days to go until the end of the month, he can usually re-rent it at current market rent thereby limiting rent loss to 10 days.
Saint Newton is a Founder at Paragon Real Estate Advisors, a leading Puget Sound regional real estate brokerage firm specializing in apartments. Reprinted with permission of UPDATE.