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Rent Magic Software: Commercial and Residential Property Management Software

Complete and Effective Software Solutions
for the Property Management Industry
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It has recently been reported that the January through December 2015 rent increase guideline will be 1.6 percent. While many were hoping for a higher increase, at the very least, it is twice the allowable amount from the current 2014 increase of only 0.8%. Whenever you have a scenario that will allow you to increase more in the upcoming year a little analysis is in order. You see, the Ontario guideline allows a landlord to increase every 12 months. However, if you choose to delay the increase, that is your right. In this article, we will show that is more beneficial for you to skip the 2014 October, November and December increases, in favor of pushing them until January 2015.

Let’s take a simple example of a tenant paying $1000 per month who moved in December 2013. You now have two options: Raise the rent in December to $1008 or hold off until January and charge $1016. To increase at the soonest available time you are going to immediately gain an extra $8 for one month. However, you are going to have to keep this rent amount for another 11 months which would give you only another $88 ($96 for all 12 months) related to the increase.
 
Now let’s take the delayed scenario. Here we are forgoing the $8 in 2014 by not increasing the rent at all. However, in January you already will make an additional $16; by February $32 and so on. In this scenario, you already break even in January and from then-on you will be making more than the immediate increase method. In our story, the landlord therefore stands to gain almost $72 more than the immediate increase. This can be very significant, especially factored over a large portfolio.
 
To see this background to this calculation, please see http://www.rentmagic.ca/increases/2015.  Note the income for increasing in January is in the far right column. Compared to increasing at your first opportunity in December, you gain $71.87. Similarly, the gain is $47.47 if you hold off on a November increase, while there is a smaller, yet significant $23.62 gain for delaying the October increase. (The reason October and November are less of an opportunity is because you are able to increase the last few months of 2015 for these tenants using the higher rate, as displayed. This minimizes the overall 2015 gain.)
 
Are there any downsides? Only if you think that 2016 will have an even lower increase than 0.8%. However, 0.8% was the second lowest rent increase guideline in 38 years, with the the lowest, 0.7% in 2011. Unless you predict large deflationary effects on the economy, it would seem a statistically unlikely event.
 
Postcript: Even if you have already sent out increases for September, October and November, you can still opt not to increase these tenants; just resend them new increases for January.
 

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