Balance your emotional side and business brain to increase rents
Cracking the code of how to raise rents for your buy-to-let properties
For many landlords, increasing the rent they charge is a difficult decision, especially if they are blessed with good tenants. You may be in this situation yourself. You’re torn between making an emotional decision and a business decision:
- Emotionally, you’re scared of losing your tenants. You fear for what a rent hike may mean to them. This shows you’re a caring landlord.
- Business-wise, if you don’t raise the rent, your income will fall. Inflation has increased the price of the goods and services you use to provide and maintain the property for your tenant.
In this first article in a series about increasing rent, you’ll learn how to balance out your emotions in order to make a good business decision.
Increasing the rent – what could go wrong?
As a landlord, you’re getting it from all angles. Mostly this has been caused by poor government policy. For example:
- The tax relief changes on mortgage interest are likely to increase the income tax you pay
- The tightening minimum energy efficiency standards (MEES) could add another layer of costs
- The ban on tenants’ fees is likely to be recouped directly from you by your property managers
Your business brain tells you that you must increase rents. But your emotional side has its arguments, too:
- You don’t like confrontation. Understandable. Not many people do.
- You’re scared that the tenant will decide to move on. An increase in the rent they pay may be too much to bear. This emotion also tugs at your business brain. If the tenant leaves, how much could a void period cost you?
- You’re also fearful that your relationship with the tenant will be badly affected. It could be more difficult to get on in the future, and that will make managing the property even harder.
The tenant has the same emotional issues
Before I discuss how to rationalise rental increases, I want you to think about how your tenant feels. You see, many of your emotions will be mirrored by your tenant:
- You can bet your last penny that your tenant doesn’t want a confrontation. They love living in their home. The last thing they want to do is to get into an argument about a few extra quid each month.
- Sure, they may be worried about a rental increase. After all, things are tight for everyone. Would a rental increase force them to move? They will also need to consider the cost of moving, and the upheaval caused when moving home.
- If they have children, they’ll need to find a new home nearby, or face the problems caused by changing schools. And there is no guarantee that they will find a home as well-maintained as your property or one at the same price or cheaper.
- A long-term tenant who has built a good relationship with you will also be scared that, if they argue the rental increase, the relationship could be soured; that you’ll be less likely to rush to make the next repair they report.
Get over the emotional issues, and make good business decisions
You must get over the emotional issues to make good business decisions. Understand that neither you nor tenant wants a confrontation and that there is fear on both sides.
You may be fearful that your tenant will up sticks and move out, but they fear not having their tenancy renewed and being forced to leave the home they love.
It suits both of you to remain on good terms. You, because you want the tenant to continue to show the same respect for your property. The tenant, because they want their needs dealt with as they have always been.
The secret to increasing your rent, keeping your tenants, and maintaining a healthy landlord/tenant relationship is raising rent for the right reasons. Reasons that can be explained and that will rationalise the increase – logic will overcome emotions.
Ask yourself if the rent increase is warranted
Now you’ve got that emotional argument straightened, you should ask if the rent increase is warranted. The one guaranteed way to ruin your relationship with the tenant is by raising the rent unnecessarily. ‘Greedy landlords’ get enough bad press. You don’t need to join them.
Reasons for raising rent that your tenant won’t enjoy hearing
Here are a few reasons for an increase in rent that your tenant won’t like to hear. Any of these will probably lead to the confrontation you wish to avoid. You may suddenly find yourself with a disruptive and non-agreeable tenant, and one who is probably actively seeking a new place to rent.
- “I need to make more money.” The tenant response is likely to be, “Don’t we all? Go get another job, like I’ll have to, so I can pay this extra rent.”
- “I’ve got to cover my tax bill.” Be prepared for the tenant to say something like, “Wow! You’re making so much money that you’re being taxed more. And you expect me to pay your tax bill for you?”
- No reasons given. OK, now your tenant is going to be so miffed, that they probably will leave.
Reasons for raising rent that your tenant will understand
There are many good reasons for raising rents. While your tenant may not wish for their rent to be increased, given good cause they will understand the need to do so. After all, they are used to prices of goods and services rising. When the local supermarket increases its prices, your tenant doesn’t stop shopping there.
Here are a few reasons for increasing rents that your tenants will understand:
- Mortgage payments have increased
- The cost of maintenance has increased
- New regulations mean a greater financial burden on ensuring health and safety of your property
- Increased maintenance costs
- Higher ground rent and service charges
- The necessity to remain in line with the market
The bottom line is…
You must increase your rents, or your buy-to-let business will die. If you aren’t making a profit or a reasonable income, then you could decide to sell. And that is probably the absolute worst case for your tenant. A caring landlord won’t want this. So, to remain a good, caring landlord, take the balanced view. Keep your emotions in check, and instead be ruled by your business brain.
In the next part of this series, you’ll learn about the mechanics of raising rents. In the meantime, if you have any questions or comments, don’t hesitate to get in touch with the team at Ezytrac on +44 0 1522 503 717
Live with passion,