Tips for Raising Your Tenants' Rent
Posted on Wednesday March 17, 2021 at 01:26PM in General
Tips for Raising Your Tenants' Rent
Raising the rent on your property can be tricky. First-time landlords might be nervous about upsetting their good tenants already living in the property. Even experienced landlords could be worried about upsetting a close relationship they have with a tenant, or worried if it has been a while since rent was last increased. While it might be difficult, it is important to tell your tenant you are increasing rent, although you don’t need to justify it to them. There are many valid reasons for raising your tenants’ rent including increasing taxes, insurance premiums, maintenance fees, cost-of-living, and homeowner association dues. We have provided some tips for how to easily increase your tenants rent.
- Send a rent increase letter
- Include small rent increaes every lease renewal If you are worried about tenants moving out because of a large rent increase, consider increasing it by less than $50 each renewal time. A good general rule is to increase rent by 3%-5% each year. If you are in a position where you are trying to convince a great tenant to renew their lease, you could consider waiving the rent increase so they will continue to live in your property. An excellent tenant is more important than a rent increase.
- Do your research and know the law Before deciding to increase rent, do some research on what the fair market value is for rent in your area. Even though you own the property, you can’t simply raise the rent to whatever value you would like if it is rent controlled. It is important to know if there’s a statute that limits how much you can increase rent.
- Remember you run a business It is important to remember that you are running a business. Even if you are close or friendly with your tenants, if you are losing money it is time to adjust rent to help your business succeed.
When sending your tenants a rent increase letter, it is important to give them plenty of time to decide if they would like to stay or end the lease (and give you 30 days’ notice). 60 days before the lease ends is the right amount of time to send out your rent increase letters.
In your letter, you can thank your tenant for being such a good tenant and describe why such as always paying rent on time or keeping the property in great shape. Next, tell your tenant that you are increasing the rent and if you would like you can provide an explanation. Then state what the new rent will be and the date when it becomes effective (the day after their lease ends). If you and your tenant have a fixed-term lease, then you could include a new lease and ask that the tenant read it, sign it, and send it back to you. If you have a month-to-month lease with your tenant, then they won’t need to sign a renewal (because it automatically renews each month).
You can choose to send your rent increase letter via email or mail. If you choose mail, consider sending it through certified mail. Certified Mail is a service by USPS that allows the person sending the mail to receive confirmation that the mail was received. This creates a dated paper trail for your reference, and allows you to know that your tenant has received the notice.
It is important to track when your lease ends. If you use Rental Property Management Software like Schedule My Rent, you can enter a lease end date. You can easily see when a lease ends on your dashboard and you are automatically sent reminder emails about upcoming lease end dates.
You could also consider including a rent increase clause in your lease. If you are upfront with your tenant that you will increase the rent, then there will likely not be negative feedback. This clause could simply state that there will be a small increase (3%-5%) in rent every year. When your tenants sign the lease, they will be prepared for the rent increase.
If your tenant signed a lease, you are also unable to increase your tenants’ rent until the lease is over. The only exception is if you stated in the lease that you can increase rent during the lease period. But this negates the “fixed” lease idea and often does not hold up in court.
If your tenants are on month-to-month leases, you need to give them enough notice (varies depending on your state, but typically 30 days’ notice). This notice needs to be via email or a letter and not a verbal agreement which usually won’t work in court if it is argued.
You are not able to raise rent because you made necessary repairs and want to punish your tenant for complaining about the problems. You are also not able to raise rent in a discriminatory way because of a person’s religion, sexual orientation, or race.
In many states, there are situations that prevent you from raising rent for a certain period of time. These situations include if your tenant has been involved in a tenant’s organization, filed an official complaint with a government authority, or exercised a legal right. It is important to know the laws of your state, because many courts will assume retaliation if you increase a tenant’s rent after a negative action is taken by the tenant. The typical period before you can increase rent is 60 to 180 days, but differs by state.
You should be firm with your tenants once you have done your research and decided on a fair rent increase. It is not a great idea to negotiate with your tenants or ask their opinion on what a fair increase would be. It is important to ensure that your rent is in the market value, because if it is way over market value then tenants will see that as unfair and probably leave.
In order to raise the rent a fair amount and keep your tenants, you can look at actual rent prices in similar rentals in your area. Looking at actual rent data provides you with an actual amount and is better than looking at listing price data which is just a projected amount.
We hope these tips help make increasing your tenants’ rent a smooth, and worry free process. Rent increase can be tricky, but it is essential to maintaining your business and competing with other rentals on the market. If you follow these tips and professionally give your tenants their rent increase notice, you will wonder why you were ever nervous about the process.