November 24

The buy-to-let landlord’s guide to maximising rental income profit: Part 4

How buy to let landlords raise rents and retain the best tenants

Many buy-to-let landlords find one of the hardest things to do is to raise rents. If you’re like seven out of ten buy to let landlords that we meet, you’ll be worried about upsetting a great tenant with a rent increase. You’re between a rock and a hard place, completely conflicted. Your not serving their needs but your own. You need to increase the rent to maximise your profit from rental income (or only to cover higher costs). At the same time, you might be afraid that doing so will make your tenant look elsewhere, leaving you with a costly void period.
In this final part of our buy-to-let landlord’s guide to rental income discussing how to maximise your profits from rental income, I examine how to raise rents without feeling guilty about doing so. You’ll also discover strategies to get your tenant’s buy-in on the higher rent – eliminating the fear buy to let landlords have of losing your best long-term tenants.

Reasons for buy-to-let landlords to raise rent

The only time you’ll be seen as a money-grabbing, good for nothing, tight-fisted, so-and-so of a landlord is if you raise the rent without just cause. (I am, of course, assuming that your keeping on top of the other aspects of property management, such as maintenance, gas safety certificates, emergency repairs, Legionnaires’ disease checks, etc.)
The first secret to raising rents without fear of a backlash is to always to do so for reasons that you can explain. You’re going to sell the rent rise, explaining why the rise is necessary and helping the tenant to see the benefits. Here are the seven most common reasons to increase rents and maintain or increase rental income profit:

1.     Inflation

It may well be the easiest reason to explain and sell to the client. Prices rise. Your tenant will have experienced their weekly shopping bill rising, utilities and fuel costs going up, and their Friday evening jolly at the local costing a little more. Simply to keep pace with inflation, the chances are that your tenant will expect you to increase the rent.

2.     Taxes

A little harder to explain, but perhaps helped by headlines in the news that have warned of millions of buy-to-let landlords going out of business because the government is going to tax them more harshly. I’m sure your tenant wouldn’t want you to go out of business – they love the home they live in, and keeping it depends on you making a reasonable profit. If this means passing on some of the tax rises to the tenant, they’ll understand.

3.     Rising mortgage rates

The rent that your tenant pays helps you to pay the mortgage on your buy-to-let investment property. It’s the largest cost you have, but without the aid of a mortgage you would not have been able to invest, and the tenant would not have the benefit of living in such a lovely home with a great landlord. If you can’t cover the mortgage, you may have to sell your property. Where would that leave your tenant then?

4.     You’re undertaking major maintenance or making improvements

A new kitchen, updated bathroom, new white goods, state-of-the-art central heating, or the latest double-glazed energy-saving windows and doors are all improvements that will make your tenants’ lives a little easier and more comfortable. They may also reduce their monthly bills (utility costs, for example). It’s not unreasonable to request a higher rent for improvements that improve your buy-to-let property.

5.     New local services or infrastructure

If the local authority or government undertakes infrastructure build, then the likelihood is that property values will rise. New schools, shopping centres, or upgraded roads and rail will probably have a positive impact on the local property market. That means rental values rise as demand in the area increases.

6.     Keeping in line with the competition

If rents are rising all around your property, then you’ll need to increase your rent to stay in line with your competition. Your tenants will probably have heard from neighbours, or seen rents rising in the windows of local letting agents, so may be partly prepared for an increase in their rent.

7.     Personal reasons

It may be the hardest sell of all, but sometimes you simply need to raise the rent. You may have kept you tenant’s rent low for longer because the overtime in your job made up for the shortfall. Now you’ve lost that overtime, and you have no option but to increase rents.
Whatever your reason for increasing rent on your investment property, how your tenant takes the news depends on how you deliver it. If your reason for increasing rent is framed in a logical argument not an emotional one, then it’s more likely to be accepted as part and parcel of the lifecycle of renting.

Strategies to make a rent rise easier to sell for buy to let landlords

Having established the reasons for the rent rise, we now come to the hard part: telling your tenant. It’s natural that you’ll feel a tinge of guilt, but remember it’s a business decision. If the going rate for your day job is £40,000 a year, would you accept £30,000? The principle for the rent you charge on your buy-to-let property is the same.
You’ve invested in property to make money and bring you closer to your financial goals: that’s not going to happen unless you maximise your rental income profit, and raising rents is an integral part of this. Here are seven strategies to employ that will make it easier to break the news of a rent increase:

1.     Know your tenants

The best buy to landlord / tenant relationships are founded on you knowing your tenant. Understanding why they rent, and why they have chosen your buy-to-let investment property as their home will help you to frame the conversation. They’ll be more receptive if you’re seen as a caring landlord.

2.     Know what your competition are doing

Stay on top of the local rental market and do your rent setting research regularly. It’s easier to propose a rent increase if you know that you’re remaining competitive or simply coming back into line with general market rates.

3.     Be prepared with the numbers

As well as knowing the rental rates in the local market, be prepared to back up your rental increase with solid numbers. If inflation is running at 5%, then a 5% rise in rent simply accounts for your increased costs. Explain the rent increase with comparatives like this, and the tenant will understand why you need to increase the rent. If there’s an interest rate rise, this adds to your buy to let landlord costs too as well as changes in buy to let landlord legislation or taxation.

4.     Plan ahead

The worst thing that you can do is surprise your tenant with a demand for more rent. Let them know in advance that you are considering a rent increase. Put it in writing in the tenancy agreement, by including a clause that allows regular rental reviews. Send a letter or email in advance to remind the tenant that the rent is due to be reviewed. These measures show respect for your tenant and prepare them for a possible rent rise.

5.     Be human

Show your tenant that you are human. Explain the rent rise regarding how those extra costs, an increased mortgage rate, or the need to carry out improvements affect you. Your monthly income is affected – the tenant will understand. Empathise with the effect on the tenant. Do this face-to-face. This further shows that you’re human, and not concentrated on the numbers.

6.     Act reasonably

Reasonableness includes giving plenty of notice and being human about the whole process. It also includes the willingness to negotiate. If your tenants are long term, pay their rent on time every month, and don’t make ridiculous requests, then you won’t want to lose them. Listen to what they have to say, and be willing to reduce your rent increase to help them, or perhaps to stage the increase in two or more steps. It will help them adjust their budget, and increase your standing as a good landlord.

7.     Give the tenant extra options or guarantees

There may be some sweeteners that buy to let landlords can offer a tenant. For example, a period during which you guarantee no further rent increase. It will make it easier for your tenant to budget for a longer period, and that will help to ease the pain of an increase.

Maximise your rental income profits

In these series of articles, we’ve covered some aspects of rental income and maximising your buy-to-let profits. This has included:
The job that rental income does and why you shouldn’t confuse rental income with rental income profit
The importance of setting rent at the right level
Tips for setting the rent
In this article, strategies to raise rents and ensure you don’t lose your best tenants
While these articles have covered these aspects in general terms, your objectives, properties and tenants are very individual. We understand this and help you develop strategies and tenancies that maximise your rental income profits.
With more than 1200 properties under management, we’re one of the UK’s most established property management companies. Our individual approach, national coverage and local knowledge are just three factors that help buy to let landlords in their quest to be a property investor and enjoy effortless property management. Contact one of the Ezytrac team or me on +44  1522  503  717 to discuss your buy to let property in more detail, and discover how we can help you to maximise your profit from rental income.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA


buy-to-let landlords, rental income

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