If you own residential investment property, you are constantly asking the question "What is the best strategy for getting the highest rent value for my property?" The answer to this question changes all the time.
Starting in 2020 with the COVID crisis, we saw rent values increase at a rapid pace, in some areas as much as 20%. Many renters chose to stay where they were because of uncertainty and it created a shortage in the housing market, driving prices up. When paired with a housing market that made it difficult for first time homebuyers to buy, it left a surplus of renters and not enough rentals to meet the demand. Landlords were able to increase rent for their existing residents and when residents shopped around, they saw their options were not any better and chose to accept those rent increases.
Fast forward to 2024...the market has cooled. Interest rates are up, so houses are staying on the for sale market longer. This is giving first time home buyers a better opportunity to convert from renter to buyer. The demand for rental housing has slowed, which gives a renter more options out in the world. Rent values are staying flat and, in some areas, going down. The rent value boom is over for the short term at least.
So what does that mean for a residential property investor in Central Kentucky? It means that if your resident choses to move right now you may be faced with keeping rent the same or even lowering it to get the next resident into your home. When you factor in increases in turnover costs, property taxes, utility costs, and insurance costs it means you may earn less money on a new lease than you did on the previous one. Not what any investor wants to hear!
That is why the current recommendation to our clients is to renew residents instead of replacing them.
Provided residents have on time payment history and a track record of caring for the home, the goal is to keep them in the home for at least one more year. Unless a home is severely under rented we are offering competitive but not overly aggressive rent raises in the 3-5% range, coupled with a 12 month renewal offer to residents. We start 60-90 days out from the end of the lease with a conversation about future plans. Then we create a custom rent renewal offer for them that incentivizes signing a new 12 month lease.
In the current market we know the best strategy is for our clients to avoid turnover costs and the possibility of having to lower rent to place a new resident so we are doing everything we can to keep a good resident in their home! This will help property owners ride through a flat rental market and be better prepared for when rent value begin to increase again.
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