You’ve probably heard about how competitive the rental market is – it’s true that rent prices are skyrocketing with no sign of coming back down. If you’ve owned a rental property for a while with a long-term tenant, there’s a good chance that you’ve found yourself with underpaying tenants in Arizona. They’re likely at the same or close to their original rental rate. Now that average rental rates in Phoenix have risen more than 50% in the last five years, what should you do?
Do you renew the tenant at the current rate, or raise it and risk losing them? Do you keep them in place, or do you maximize your investment return? The short answer is this – it depends. There are several factors to consider when deciding whether or not to keep long-term tenants paying less than the market rate.
Should I Keep My Underpaying Tenant? – The Tenant-Landlord Relationship
What is your relationship like with the tenant? Are they your dream tenants, paying on time and treating the home with care? Or has the relationship been less than ideal? If they check off all the boxes, then keep reading to navigate the other factors that go into deciding if you should raise the rent rate and risk losing them.
Underpaying Tenants in Arizona – Capital Improvements
As a landlord, it’s important to keep your rental property in good condition. Not only will this help to attract and retain tenants, but it will also ensure that your property maintains its value over time. Occasionally, you may need to make capital improvements to your rental property. These are typically major upgrades or repairs that are necessary to keep the property in attractive and worth higher rents.
Underpaying Tenants in Arizona – Increased Risk
This is probably obvious. If you raise rent, you risk losing your reliable tenant and trading the known for the uncertain. It’s also important to keep in mind that renters who are willing to pay top dollar often view higher rent as a convenience fee – they’re willing to pay more for a short time. They may be in between homes or jobs or making major life decisions. They probably will not stay more than a year or two. Consider if the resulting in vacancy and turnover fees will make the higher rent worth-while.
Underpaying Tenants in Arizona – What’s the Compromise?
Should you keep your long-term underpaying tenants? Or make improvements and risk vacancies and other costs? Good news – there’s another option many landlords don’t consider: renew the existing tenant at a midpoint between the current rent and the going market rate. You could also offer incentives like new appliances or other small upgrades. This way, the slightly higher rate makes sense for tenants, and you avoid major capital investment and vacancy.
And you could do nothing at all. If you like your tenant and the financial arrangement is lucrative, it is perfectly fine to leave things as they are. There’s no rule saying you must increase rent. As residential real estate brokers, we are transparent with our owners. Every time we propose a renewal rate, we let them know what the current going market would be for their home in that area and make recommendations based on our experience with the tenants and the condition of the home. Then, we do whatever the owner wants – sometimes it makes sense to increate rental rates, other times they’re happy to keep a great tenant in place who will really take care of their investments.
Final Thoughts
If your rental is up for renewal and you’re wondering what your property could command in today’s red-hot market, call a seasoned real estate broker at Desert Dimension Properties. We’ll help walk you through all of the considerations and determine how much your investment property could command in today’s market.
Or maybe it’s time to sell. You can absolutely do this with a tenant in place – and we can help with that, too. Whatever your needs may be, Desert Dimension Properties is here to help you make the most of your assets. Calls us today at 480-270-5355 today.