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Monday, 01 August 2022 21:42

How to Maximize ROI at Lease Renewal

Owning rental properties is a lot of hard work, but with the right strategies in place finding and retaining good tenants can be a breeze. One important thing to think about is your ROI, and different ways to maximize it throughout the lifetime of your business. Without managing your ROI by adjusting rental rates and understanding what goes into a project, profits may begin to slip.

One major opportunity in which a property owner can make adjustments to cash flow and increase ROI is when a lease renewal happens. In many cases, rising expenses can cut into your ROI over time. 


However, with a good understanding of your P/L statements, you can ensure that you make the right decisions at lease renewal. Read more to learn about what you could be missing by not addressing opportunities at renewal.

Ways to Maximize ROI at Lease Renewal

1. The Lease Itself

As a property owner, it is important to build a clear and bulletproof lease that protects you, your property, as well as your tenant from any issues. When putting together a rental agreement there are several ways to think about maximizing your ROI over the length of a lease.

By clearly stating in your lease that price increases are possible at renewal, you have a chance to build trust with your tenant through transparency. This kind of authentic communication can go a long way in building solid relationships between you and your tenants, which can keep them locked in for longer periods of time. 

To alleviate any worries of extreme increases, make sure to include verbiage that states that increases will not exceed a percentage per year. 

In addition to setting expectations in the lease, property owners need to communicate new prices with tenants when it comes time to renew. Renters can decide whether or not they want to deal with a rate increase so that property owners can figure out what is next for their property

2. Raising Rent

Renewal is a great time to raise the rent on your property. Not only is it a good idea, but it should happen even if it is a small amount. 

While it may be uncomfortable to adjust, the economy is constantly changing. If you want to keep your profit margins comparable to the year before, raising prices is a must.

3. Factors in Calculating ROI

Of course, raising rents should be done systematically and not with haphazard abandon. Thinking through your average P/L and taking note of any price increases can help with setting new rates. 

Your monthly rent must cover all the costs that come with owning rental properties while also making sure that cash is left over. Some factors to look at when determining your ROI are:

  • Initial investments such as down payment, closing costs, and initial repairs.
  • Operating expenses such as management fees, HOA dues, and maintenance.
  • Insurance premiums and property taxes.
  • Mortgage, interest, fees, etc.
  • Rental income and occupancy rate.

To determine your ROI you can simply use the formula ROI = Annual Returns / Cost of Investment. Your annual return formula = Rental Income - Operating Expenses. By having an idea of your operating expenses and cost of investment, you can dial in your rental rates to be competitive in the current market while covering your costs. 

4. Exchange Value and Understanding for Rate Increases

Property owners should not simply expect renters to absorb rate increases willy-nilly. There must be some sort of value add or rationale for an increase. Even though you don’t have to tell your tenant every detail, building trust with tenants will keep them around longer. 

Letting them know the reality of the situation (whether it be inflation, increased management fees, etc) will help the renters understand what is causing the rate hikes.

Another way to ease the pain of rate increases is by adding value for your renters. Maybe offering free air filters, or lawn care can help tenants see value in renewing their lease. 

5. Hiring a Property Management Company

Property management companies are a great hire when looking for ways to max out the ROI on your rental. Not only do property owners benefit from more integrated services, but residents do too. This in and of itself can be a huge value add, and the benefits are well worth a price increase for residents. 

Letting residents know that they will receive quality customer service, and timely response to maintenance calls can help them understand rate increases. Property management companies can also use their experience to ensure that renewal rates are well within reason while maximizing returns on your property.

Maximize ROI with Asheville Phoenix Properties

A reputable property management firm like Asheville Phoenix Properties may be able to assist you to steer clear of many of the challenges associated with renting out real estate. By serving as a liaison between you and potential renters, we take care to carefully evaluate and choose only the top candidates for your rental properties.

We help owners by managing every aspect of a rental property thanks to our more than 20 years of real estate management expertise. Contact us today for more information on how we can increase your rental property’s ROI at lease renewal.