Property Management Blog

Will Charging a Higher Monthly Rent Mean More Income for You? | Portland Property Management

Will Charging a Higher Monthly Rent Mean More Income for You?  - Article Banner

Most real estate investors look for ways to earn the highest possible monthly rents. It makes sense. This is one of the main reasons you invest in rental property; to ensure your consistent and recurring monthly income is as much as you can earn. 

Maximizing what you earn in rent is an important part of investing successfully. However, it’s not the only metric of success. And, you might find you earn more money by dropping your rent just below the market demand. It feels counterintuitive, however, if it means you avoid a month of vacancy, it means you’ve earned more money. 

Let’s talk about what we mean when we tell owners that charging a higher monthly rent won’t necessarily mean more income. 

Working Within Portland Rent Control Laws

When we talk about rental values in Portland or the idea of raising rent in Portland, we have to first consider the laws, and what you’re restricted from doing when it comes to increasing your rents. 

According to the law, you cannot raise your rent on a tenant that you have in place by more than 7 percent every year, plus the cost of inflation. With inflation being as high as it is right now, property owners in Portland are able to raise their rent up to 14.6 percent in 2023. That’s the maximum 7 percent increase plus the 7.6 inflationary costs set by the Consumer Price Index (CPI). Next year, you can expect to increase your rents even more since the CPI increased inflationary cap results to 9.9 percent. 

Just because you can raise your rent by 14.6 percent this year doesn’t mean you should. 

Many landlords like to raise their rents as much as they’re legally allowed, simply because they want to earn as much as they can. But, you may be pushing out good residents who cannot afford to pay the much higher rents you’re charging. 

When you’re renting out a property that does not have a tenant, you don’t have to follow these formulas. You can set your rent at any amount. But, the rent control caps will impact what you set your rents at because you’re competing with those properties in the same Portland rental market. 

High rents are the norm in Portland. However, you should not see this as a license to raise your rents or set your rents at the highest possible number. There are some very good reasons to keep them more competitive. 

When to Keep Portland Rents More Competitive 

The rental market remains hot, and that is likely to induce owners into raising their rents as high as they can go. 

You can do this, but here are some reasons to keep your rental values more competitive: 

  • You’ll experience a lower vacancy period. Good tenants are looking for value. They know they have options when it comes to choosing the property they want to live in. A rent that’s even $25 less per month than other, similar properties, will get their attention. When you place a good tenant over an average tenant, you can expect that they will pay rent on time, help you take care of the property, and follow the terms of your lease agreement. Renting a home to a good tenant is always more profitable (and peaceful) than renting a home to an unqualified or difficult resident. 

  • You can negotiate better terms. If you’re willing to drop your rent a hundred dollars below market, you can perhaps negotiate a two-year lease with a renter rather than a typical one-year lease. This ensures a reliable rental amount for the next 24 months of your investment property. Instead of seeing it as less money, make note of the overall income you’ll be earning. No one knows what the market is going to do 18 or 20 months from now. You might end up being very fortunate that you have a renter in place paying the amount you agreed upon. 

  • Tenant retention rates will be better. Happy residents are more likely to stay put and renew their leases. When you keep your rental amount competitive, you're showing your tenants that you value their business and are willing to provide them with a fair price for the quality of housing they're receiving. This increases tenant satisfaction and retention rates. Residents will look around before they agree to renew their lease at the end of the rental term. They’ll evaluate the rental amount you’re offering compared to other rents on the market. When you offer them something they cannot find with other properties, they’ll stay in place. This is good news for you because you don’t have the expense of marketing to new tenants. 

Another great reason to keep rents more competitive is that it serves your reputation. You don’t want to be known as the landlord who nickels and dimes every tenant who rents from you. Instead, you want a reputation that reflects your ability to be fair and competitive. Tenants will want to rent from you. 

Reasons to Charge a Higher Monthly Rent in Portland

Sometimes, charging a higher rental amount every month will mean more income for you. 

The conditions have to be right in both the market and with your property. 

If the market is super competitive for tenants, like it is now, charging a higher monthly rent will bring in more money. There’s little competition for you, as an owner. The demand for well-maintained rental properties is high, and the inventory still struggles to keep up. Even with strict tenant protections in place across Portland and even the entire state of Oregon, you have a good chance of earning high rental incomes in the current market. 

What about when the market is less competitive for tenants than it is now? When can you safely charge higher monthly rent in order to increase what you earn? 

You’ll need a property that has special and unique things to offer good residents. You need a Portland rental home that tenants are willing to pay more to rent. 

That might mean the right size and layout. With remote working not going away, many residents are working and studying from home. If you have dedicated office space, built-in bookcases or desks, and the ability to provide the best in high-speed internet services, you can charge more in rent and find residents who are willing to pay for the live/work convenience. 

Maybe there are upgrades that make your property stand out from the competition. Stainless appliances and hardwood flooring, for example, will increase your rental values. You should not be charging the same amount in rent as a home that has vinyl floors and mismatched kitchen appliances. 

Are you providing a lot of smart home technology? This will allow you to comfortably increase the amount of money you ask for in rent. Tenants are willing to pay more for video doorbells, for example, or energy-efficient lighting and appliances. They’ll pay higher rents when they can rely on a smart thermostat or turn on lights via an app they download on their phone. Alarm systems raise your rent, too. Even if you do not pay to activate all of these tools; having them available for your tenants to use will increase the rental value of your property. 

Balancing Competitive Pricing Against Profitable Pricing 

paying rentSo – should you keep your rental price competitive in order to attract and retain excellent residents quickly, or should you price your home at the highest end of the acceptable range in order to bring in more rent?

Both options can be profitable, and you have to know the market, understand what prospective tenants are looking for, and know the benefits and challenges of your own unique rental property. 

Remember that profit shows up in more than just your rental income. Earning $2,000 a month instead of $1,900 a month seems like a big deal. That difference adds up to $1,200 per year. But, if keeping your rent at $2,000 a month instead of $1,900 per month means that you are left with an extra month of vacancy, you’ll find that you’re losing a lot of money on that one vacant month ($1,900) – more than you’re earning by keeping the rent high. 

This is a balance that isn’t always obvious, especially if you don’t know the market and you’re not sure how to predict where rental values will land over the next few months or even the next year. We expect the rents to stay strong. But, they could always drop. 

Retaining tenants is always profitable. Chasing the off with rental increases that are higher than necessary is not good business. It’s not going to make you more money. 

Talking through your options with a Portland property manager can help you make better decisions around pricing. We’d be happy to share our data with you and make some recommendations on where you should price your rental property. Please contact us at PropM, Inc. We’re here for you seven days a week and 365 days a year.