Many landlords currently find themselves in a tricky position. Skyrocketing inflation, the rising cost of running a property portfolio, and the gradual attrition of buy-to-let tax advantages mean that many are struggling to cover their operating outlays.
The situation is further complicated by the fact that many property owners agreed to tenancies with significantly discounted rents during the pandemic, leaving an even greater shortfall.
The market has now recovered and asking rents are higher than before the pandemic, leaving many landlords in a position where they are considering approaching their tenants to increase the rent. This creates a dilemma in that, while many have no option but to charge more in order to cover outgoings, few landlords want to alienate good renters in the process.
In the article below, we discuss the best way to approach this sensitive process with tenants, whether increasing the rent is the right move, and how to ensure your investment remains viable while reaching an agreement that works for everyone.
Consider the case for raising rent
Before sending any correspondence to your tenants, it’s important to think carefully about the factors that would warrant an increase to the rent (and whether it’s the right move at all).
Your tenants will almost certainly want to see a justification for increased costs, and it will also help you to strike a balance that allows you to raise prices without losing your tenants.
There’s no one-size-fits-all approach to calculating the right approach for your investment, but in general you’ll want to consider the following:
- The current market value of your property.
- Rising inflation and the related increase in the cost of managing a rental property (e.g. maintenance, repairs, safety inspections).
- Rising interest rates and whether these have had any impact on mortgage repayments.
- Any improved amenities or renovations provided in the property since the tenancy was agreed.
- The rising cost of any bills and services included in the rent.
- The cost of meeting new compliance requirements (e.g. MEES requirements, recent electrical safety reporting regulations).
- The cost of replacing tenants if they decide against accepting new terms.
- Your relationship with your renters - it can be difficult to find great tenants that you like and trust, and their value shouldn’t be understated.
The balance of factors above should determine whether you decide to increase the rent, and by how much. You might decide to ask for rent in line with the full market value of your property, or you may find that it is better to reach a sensible compromise with your renters. Meeting in the middle with great tenants is usually the best course of action, ensuring that you have people who will take care of your property while also avoiding the costs associated with tenancy turnover.
Always remember to think about the long term. The market can be fickle, and if you raise rents significantly with the wind at your back, your tenants are unlikely to remain open to negotiation to renew a lease if things change and the outlook is less favourable to landlords.
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