Increasing the rent for properties is part of doing business, it can also sting a little for both parties if you are not well versed in how to handle it!
When you run a business you must first understand the reasons behind the choices you make. Today let’s dig in and get you prepared for how to execute the business decision to raise the rent!
One example would be when I recently increased the rent at one of our smaller units. Based on all of my research into local laws, I sent an official letter stating we had the intent of increasing the rent by $50 a month and offered the new lease at that time.
At first the tenant was hesitant because after all, what changed, he paid on time everytime and nothing he did caused the need for a raise in the rent.. Understanding the position that most renters will take I decided to also ensure to remind the tenant that costs were going up and that we appreciated him very much and are always looking to keep our tenant’s cost down.
Throughout the year we have checked with all of our tenants to see if there are any issues they want addressed and ensure that we take care of all maintenance issues quickly and in a more than timely manner. Understanding that this increase was going to be difficult we also took the appropriate steps to prepare by building a trusting relationship. As a landlord hitting hard maintenance issues quickly and building trust is by far the most important two foundational rules I believe in!
This is just one example to prove how it is vital to balance fair business practices with tenant satisfaction. Here’s how to raise rent effectively and maintain happy tenants.
Why Does The Rent Amount Increase?
The rental amount may increase annually or when the leases are up due to various factors such as an increase in property taxes, increased maintenance costs, inflation, or property improvements, or simply because you need to catch up to the market. It is important for landlords to strike a balance between covering these costs and maintaining good relationships with tenants.
When Can You Increase the Rent?
Rent increases usually happen at the end of a lease term and are dependent on local laws. Notice must be given to tenants, which often occurs 30-60 days in advance, and the increase must be reasonable and fair. In some states there are limits on rental increases when a tenant is in place. This means at the time of renewal you may only be allowed to increase by 5% for the tenant if they stay. This fact alone should drive you to ensure that if you want to continue to keep the same renter in your home you increase every year so you do not fall behind and lose serious amounts of money as taxes and other factors drive costs up. By ensuring to give notice ahead of time you allow the tenant adequate time to review the submission and either accept the new terms or decide to vacate the property. In most cases a tenant may explore other options, this should not be a threat to you. In this situation if your market research is correct you will most likely be a fair offering landlord, and in many instances you will be less than what they are likely to find starting over at another property.
What to Consider Before Raising the Rent on Your Properties
Before deciding to raise rent, landlords must take into account the current rental market, tenant retention, legal requirements, and their financial needs to support the property.
If the rental market is sliding downwards, it is not feasible to think you could increase the rent. If the tenant is compliant with all requests and keeps the property clean and habitable, it may not be beneficial to possibly price them out of the home. Legal requirements should always be researched in the local area to ensure you are legally sound.
Checklist for Raising Rent while Keeping Tenants
- Perform a Fair Market Rent Analysis: Before you decide to increase rent, understand what similar properties in your area are charging. This gives you a realistic idea of what your tenants might expect. By conducting this research you will have a better idea of what rent you should be charging.
- Check Lease Terms and Conditions: Your lease agreement may specify when and how rent can be increased. Ensure any rent increase adheres to these terms. It is important to note that your lease may have specifications on when you can increase the rent and by how much so make sure you are reviewing the lease beforehand.
- Get Familiar with All Applicable Laws: Every jurisdiction has laws regarding rent increases. Familiarize yourself with these regulations to ensure you’re acting within legal boundaries. Different states and even cities within the same state can have different laws regarding rental increases so be sure to do your due diligence before presenting the increase.
- Explain to the Tenant Why You Are Increasing the Rent: Transparency fosters trust. Explain to your tenants why you need to increase the rent, whether it’s due to increased property costs or improvements made to the property. This will let the tenant know you actually have a reason for increasing the rent rather than just trying to get more money. By providing some explanation, you can ease their tension and worry.
- Send the Rent Increase Letter Before Raising the Rent: Formal communication about the rent increase is crucial. Send a rent increase letter well before the new rent takes effect. Sending a letter or official email from your business account, you can ensure that the tenant knows it is a legitimate matter that must be taken seriously. Use facts such as dates of lease, when the increase starts and quote their options and instructions by referencing the lease.
- Consider Offering an Incentive to Renew at a Higher Rent: Incentives such as minor property upgrades or additional services can make a rent increase more palatable to tenants. Sometimes offering small things in return for a rental increase can make the tenant more open to the increase allowing for a quicker acceptance time. Some ideas we have offered are mulch for the front yard and a few plants for the season!
- Make Strategic Upgrades Before Raising the Rent: Improvements like new appliances or landscaping can justify a rent increase, improving tenant satisfaction and property value. By replacing that old microwave or refrigerator or even installing a few bushes or trees, you can increase tenant satisfaction while raising the rent.
How to Write a Rent Increase Letter
A rent increase letter must be clear, polite, and legal. Include the amount of increase, when it will begin. Having a ready-made template can simplify the process of communicating rent increases. A good template should be customizable to your needs and easy to understand. You should be able to use the same letter for all of your properties by just changing out a few things here and there including the address, the current rent, the increase and when it will take effect.
Sometimes the Most Lucrative Rent Increases Come With Turning Over The Tenant
I used to be so worried about losing a tenant, but after so many years into being a property manager I don’t worry about it at all! I give amazing service to my tenants and I also ensure that any issues they have are communicated and fixed immediately. So when you give great service you can expect that your relationship should be great with your tenants. Great relationships dont change the fact that sometimes circumstances change for tenants. Maybe they add a family member and your space is too small, or maybe they get an awesome raise and are looking to upgrade to a house with a pool, celebrate with them! Allow tenants to leave this place they called their home satisfied. Most importantly start formulating your plan to advertise and get that house rented out at market value. Having turned over many tenants over the years I have not one time experienced a decrease in rental income! I am not saying that to brag, I am saying that because typically the market can hold large jumps in rental amounts you would charge after a tenant has been in place for a year or two, don’t be afraid to take advantage of the situation and get the rent corrected when a tenant leaves.
ADPI Pro Tips
- Always remember to be professional, empathetic, and fair in your approach.
- Start by performing a fair market rent analysis to ensure you are in the right ballpark when thinking of increasing the rent.
- Send a letter or email stating your intentions to increase the rent providing an official means of communication.
- Offering perks or additional services along with the rental increase can put the tenant at ease and allow for a quicker decision and processing
