Knowing how much you should rent your rental property is incredibly important to maximizing your income as a landlord. You may have to deal with unwanted vacancies if the rent is too high. On the other hand, if your rent is too low, you’re leaving money on the table. Although in California, you’re limited to how much and how often you can raise the rent for your tenants, savvy investors will do a rental price analysis to be well informed.
Today, we’ll review how often you should do a rental price analysis and when to implement this knowledge.
Although in California, landlords are allowed to raise rent twice per 12-month period, the total increase can't exceed the yearly limit of either 10% or 5% plus the percentage change in cost of living based on whichever is lower. Some owners and investors may take advantage of this and continually increase their rental rates every 6 months. However, these investors tend to own larger apartment buildings that can afford high turnover rates and vacancies. Most times, landlords who own fewer rental properties will opt to increase rent once per year, typically around the time a lease agreement expires.
By waiting until a lease is up for renewal, you allow your tenant to decide to resign if they’re pleased with the rental property. Keep in mind that increasing rent doesn’t always equate to higher yield. For example, suppose you had an exceptional tenant living in the rental. In that case, it may be worth delaying an increase in rent to ensure the tenant renews their lease, as it's more cost-effective to preserve a good tenant than to fill a vacancy.
Doing major property upgrades is an excellent opportunity to raise a tenant's rent. It can prove to your tenants that you’re investing in the rental property and you value your tenant's comfort. Upgrading your rental’s core systems, such as electrical, plumbing, and HVAC, is an expensive investment that can improve your rental income. Although the California yearly cap still limits you, a tenant is more likely to accept the increase in rent without contesting.
Additionally, you can justify a higher rent increase when it's time to renew the lease. Some tenants may not be able to resign, though the base asking price would be increased for any future prospective tenant.
It's an accepted practice to do rental price analysis annually. This can help you to maximize the amount you can charge for new vacancies for lease renewals. It gives you time to adjust to market trends while avoiding substantial fluctuations in rent, as this can be disruptive to your tenants. However, once again, you’ll have to navigate the rental increase cap for existing tenants.
Long Beach’s real estate market is constantly changing, and while it usually goes up, there are the occasional drops. It's a good idea to monitor the local market indicators. These include neighboring vacancy rates, aggregate rental prices, and major infrastructure developments.
Significant changes in these factors can greatly affect rental prices and demand. This is especially true if your rental property is in an exceptionally sought-after market.
Managing your rental prices can feel intimidating or overwhelming, but this doesn't have to be the case. If you have questions about analyzing your rental prices or need a hand managing your properties, we invite you to call us today at (562) 888-0247 or fill out our
Owner Application online.
