QA401 – How to conduct annual fixed lease term renew
Question (dated on 2021-08-07)
What’s the current rent in Edmonton (north east) on 4bedroom newer duplex (1100sq ft)with 2.5 bathrooms detached single car garage and finished basement. I’m currently charging my tenant $1,550.00 (utilities not included) and her lease is up in November. I asked her today what’s she planning to do and I got text back that she would like to stay longer if I drop down the rent to 1450.. I think my rate is pretty reasonable.
Answer
The key to set up a reasonable renewed rents is to keep the rents up-to-date to the current market while offering the right incentive for the great tenants to stay and enjoy whenever is possible. To achieve this, the landlord needs to get the current and convincible information communicated with the resident in a timely manner.
Below are the steps that may guide you to do just that.
Step 00, Internal review – 90-days prior, you may review the whole year of rental experience and decide if you like to extend the lease. If yes, send a rental renew letter to make the tenants aware that the lease renew letter will be sent around 70 days prior to the current lease expiration.
Step 01, Median average rent – Around 80 days prior to lease expiration, do a market comparable quickly around the area for the last 60 days and get the median average. This number is used as the baseline to decide if the current rent should be adjusted or not.
There are many ways to do the market research. For all the standard and vip members, we provide the monitoring software to collect the local data for comparable for the last 60 days which will allow us to get a fairly accurate exact market median average. The comparable median average rent for the example above is at $1645.00.
A quick and dirty way is to go to RentBoard, or rentfaster to check out their comparable number.
Step 02, Inflation factor – Check out the inflation rate for Alberta of the current Year 2020-2021 and calculate the inflation adjustment.
In the question above, the current inflation rate in Alberta is 3.1% (2020-2021), so the inflation adjustment for this property is 1550*3.1% = ~$48.00/month
Step 03, proposed rent – The newly adjust rent should be the current rent + the inflation factor. Double check to make sure this number is no higher than the median average rents; In addition, to keep it an attractive to the current residents, you may also want to make sure the difference between median average rent and the proposed rent is still an appealing offer.
In the question above, the newly proposed rent is $1598.00, which is still $47.00 per month lower than the current fair market rent. This is an attractive 3% discount indeed which is a good offer.
Step 04, 7-day renew period – 70 days prior to the lease expiration date- send the renew letter with 7 days to reply.
In the example above, the new rent will be $1598.00 not $1550.00. You may call it no rent increase, only with the adjustment to reflect the inflation factor; and also
In addition, you may share what is the on-going average median rental price if you like to make the point. Psychologically, you are being up-front, fair and also transparent. It is a “full” offer with a full picture that is easy to be appreciated.
Step 05, result – If the current resident accept, great. if not, you still have options to 01), get hold of the current tenants to find out what is the reason they haven’t renew yet, and anything you may do to make their decision making easier; or, 02). If they do like to move-out, you will still have up to 2 months to rent it out, with the home work has been done ahead of time, the home is likely have a good chance to be rented out right after the move-out.