The Driving Factors Behind the Ability to Charge Higher Rental Rates

As a landlord, it’s essential to recognize opportunities that will allow you to charge higher rental rates. Why is this the case? Because the rate will directly impact your income and, therefore, your return on investment. Plus, being able to identify when certain factors justify upping the rent can ultimately keep you on track for profitability and financial independence. That said, here’s a glimpse into how to get your rental rate where it should be:

How can I charge higher rental rates? Setting a higher rate can be justified by an increase during a tenant turnover, owning a property in a desirable location with a high demand for rentals, or by offering a newly built property. Also, rent can rise when there’s a growth in home prices or during periods of inflation.

Key Elements that Justify Charging Higher Rental Rates

Setting the right rate can be a delicate balancing act; you want to charge the highest rate while making sure it’s actually justifiable. With that in mind, it’s a smart move to increase your knowledge base as to when higher rents come into play. Below, we’ll discuss several key elements that allow for charging more when the right opportunity presents itself.

1. Location Can Directly Affect Rates – Stronger Markets Command Higher Prices

Location is everything when it comes to how much you can charge for rent. This means if you would like to set a high rental rate to maximize profits, it’s best to closely research an area before setting up camp in a city or neighborhood.

So, what should you look for? Well, a good place to start is a location’s employment rate and job growth. When these factors check out as great, with the location experiencing a booming economy, a high employment rate, Fortune 500 companies moving in, and wages on the rise, you’ll be able to charge higher rent, and also be protected from the next set of data points that can also affect rental income.

In the opposite scenario, when employment rates are dropping, along with wages, you tend to have higher crime rates. These elements will have families moving out of the area to find good jobs and escape the undesirable neighborhood, and this, in turn, pushes the vacancy rate up. Vacancies are costly, and when you have too many of them for extended periods of time, it can destroy your ROI. The bottom line is that when you have a location that no one wants to live in, you have to keep the rent low and hope you get a good tenant to move in, and until then, you pay the mortgage out of your own pocket.

The location you choose should also have a sought-after school district, a high demand for rentals, and freeways that are easy to reach for commuters – these elements can drive rent rates up because people are willing to pay more for them.

Morris invest spends years researching an area and only builds in locations that have a lucrative market with a high demand for rentals, as well as recession-proof qualities. That said, dive into the following article we put together that does a deep dive into all things “location”, as well as describes one area we think is highly profitable – Why Location Matters in Real Estate Investing.

2. New Construction Properties Pull In Higher Rents

It goes without saying that you can charge more when the rental property is new. A new rental will have a modern and high-end feel, as well as new appliances and fewer repairs, and this, along with an incredible location, adds up to being able to charge full rates.

In addition to being entitled to charge higher rental rates with a build-to-rent property, you’ll save an incredible amount of money on your taxes, specifically from a cost segregation analysis. There’s much to be said about this topic, so I’ll just direct you over to our latest article on the subject – A New Construction Cost Segregation Study Can Save You Thousands.

Find out how much money you can save in taxes with a cost segregation study by diving into the video below:

 

Tenants love living in new properties, and if you’re in the right location, you’ll find that there will be a waiting list to get into your rental. You’ll also find that you can end up paying less money upfront with a new construction property than you would with an old renovated piece of real estate. You can also get better financing from banks when the property is brand new.

If you’d like to hear about our new construction properties that are available in Lubbock, TX, feel free to book a call with Morris Invest – we would love to hear all about your investing goals and provide you with details about our available rental properties. In the meantime, check out our post that covers the additional benefits of investing in new properties.

3. As Housing Prices Rise Rents are Pushed up Along With it

Many of you are well aware of the fact that mortgage rates have lowered recently, allowing those who have been waiting for a break in rates to move forward with their plans to buy and sell. We’re starting to see more market activity right now, but will see much more this spring.

This increased buying and selling, at a time when there is low inventory, is causing housing prices to soar. When housing prices rise, rental rates rise as well. So, for those who are buying a rental property at the current moment or in the next few months, you’ll be perfectly justified to charge higher rental rates. Also, with housing prices on an upward path, if you get in at the right time, you’ll be able to capture equity, which you can use to buy an additional property. You can read more about this by diving into our article – Investors Buy to Secure Equity as Home Prices Rise.

Quickly getting into the market before it’s too late can take some experience and knowhow, so we suggest working with a full-service real estate company such as Morris Invest, who can make it happen for you. We have new construction properties available and will take care of all the details for you, making it possible for you to get in on this lucrative housing market. Take a look at our post on this very topic – Invest Early 2024 for Significant Financial Benefits.

4. Lease Renewals and Tenant Turnovers Present an Opportunity to Set a Higher Price

Although I tend not to raise rents when a tenant wants to renew, hoping this will keep them in my rental longer, most people do increase the rate because lease renewals, as well as tenant turnovers, present an opportunity to adjust rental prices to keep them in line with market dynamics. This allows property owners or managers to evaluate the rental market’s current status, compare similar properties, and potentially set a higher rate.

5. Property Managers Monitor The Rental Market and Know What to Charge

With their full knowledge of local communities and market trends, property managers are experienced at determining the optimal rental rates. They often conduct annual reassessments of rates to ensure a continual profit growth. It would be worth your time to head over to this related article I put together – Financial Advantages of Using a Property Manager. It will give you a clear understanding of how essential it is to work with a manager. Knowing how important this element is, Morris Invest assigns a property manager to each rental that’s built, one that lives in the area and knows the neighborhoods and rate potential intimately.

Power Resources for Real Estate Investors

• The Financial Freedom Academy
• Freedom Number Cheat Sheet
• 90-Day Financial Empowerment Bootcamp
• Morris Invest & SDIRA Program Overview

Boost Your ROI by Setting the Highest Possible Rental Rate!

As you can see, the ability to charge higher rental rates is influenced by a multitude of factors – prime location, newness of the property, increased demand, tenant turnover, and rising housing prices all contribute to this. Inflation, the employment rate, and overall economic conditions also play a big role. So, understanding these driving factors can help investors effectively set and justify their rates, ensuring a rental property that performs well and increases their net worth.

If you’re interested in finding a property that meets all the necessary criteria for a high rental fee, or if you would like help investing in real estate during the current housing market upswing, we’re here to help. All you have to do is schedule a free call with our team – we can provide you with a cash flowing rental property that will generate an uninterrupted income stream for you and your family year after year.

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