It’s inevitable that at some point, you’re going to have to raise the monthly rent on your rental property. Determining how much you raise your monthly rates and informing your tenants of the increase will need to be done delicately. It will also take some due diligence on your part.
When to Raise the Rent
Timing is everything. First and foremost, as a landlord, you are legally allowed to increase your asking price for rent in between leases, but you must provide proper, legal notice to tenants before a new rental rate takes effect.
You cannot legally increase rent in the middle of a lease term. However, there is an exception to this rule if your contract with the tenant specifically states that you can do so. Your contract must also state when and how much it could increase explicitly.
There are many legitimate reasons for landlords to raise the rent, including:
- To defray tax increases
- To increase their profits
- To match market rates
- To pay for property improvements
- To gain a bigger profit
Remember: You cannot legally change the rent in the middle of a lease unless it’s stated within your contract that you can do so.
How Much is Enough?
It’s not easy to decide how much of an increase in rent is justified. Landlords must strike a balance between finding and keeping good tenants, wanting the highest payments possible, and maintaining a price point that’s attractive to tenants.
Consider the state of the current economy. In a competitive rental market, renters have a wide variety of properties that they can choose from, so the price you set must attract as many renters as possible to your property.
You will also need to consider how much people are paying for rent at nearby properties in order to keep the rent appropriate for qualified residents. You don’t ever want to require far more or far less than comparable rental properties in the area or you could have trouble attracting a high-quality tenant.
Be aware that certain municipalities have rent stabilization or rent control laws that will limit your ability to increase rent prices above a specified amount. These are in place to prevent common local citizens from getting priced out of the market.
How to Inform Tenants You’re Raising the Rent
When you’re looking to raise the rent, your goal should be to inform tenants about the rent increase without having them leave.
Give Ample Notice in Writing
You are required by law to give tenants advanced notice of a rent increase in writing a certain number of days prior to the increase taking effect. That number of days will depend on the location of the rental, so make sure to check the relevant laws that are in place in your area.
Explain the Reason(s) for the Increase
Many misunderstandings occur because of a lack of effective communication. Don’t make the mistake of omitting the justification for the increase from your letter. A lack of understanding can create animosity and resentment, things you don’t want to have to deal with as a landlord.
Include Personal Feedback for the Tenant
Phrases like “You’ve been great tenants” and “I’d like you to stay” go a long way to cushion the blow of the news. Don’t go overboard or embellish, but be honest and sincere.
When tenants realize that you really have no choice, they tend to be more understanding and agreeable.
Consider Asking Tenants How Much to Raise the Rent
Although having good tenants who pay too little rent could cost you money, nothing is more costly than bad tenants. If you’ve had the same tenants in a property for a long time and you’d like to continue the arrangement, consider inviting their input into what would be reasonable for the increase.
You might be surprised at the answers. In your letter, be honest, give worthy feedback, explain the reasons why, and finish with, “Because you’ve been really good tenants, I’d like your help in determining what would be fair rent.”
While the need to raise the rent can lead to some tough conversations, it is something that every landlord should be prepared to address with their tenants.