As a landlord, you set your rent prices at specific amounts based on factors like property value, maintenance costs, your own income needs, and the average costs to rent similar properties nearby. However, just because you’ve set the perfect rent price once doesn’t mean it should stay at that amount forever. Landlords and property managers need to raise the rent on a regular basis so their property will remain profitable. Just as wage amounts and living costs fluctuate due to inflation or the value of goods, the cost of rent fluctuates for the same reasons. This is true for new tenants as well as existing tenants who plan to re-sign a lease at the same property.
When Is the Right Time to Send a Rent Increase Letter?
Though your tenants are likely aware that periodic rent increases are a normal part of long-term leases, rent increase letters can still be a source of stress for them and their own financial planning.
Keeping your tenants as happy as possible is one of the best ways to encourage long-term tenancy. Satisfied, long-term tenants are the best kind of tenants, so it’s important to send a rent increase letter as far in advance as possible. This means giving them several months of notice, if not more.
Even if you are technically following the legal requirements of notifying tenants of a rent increase, your tenant could still feel mistreated if you don’t give as much notice as you can, especially if you typically have a very communicative relationship.
If tenants are unhappy with a last-minute rent increase letter, they could decide to move at the end of their lease even after communicating their intent to stay, or they could hurt your property’s reputation with negative reviews on online platforms.
The Binder Method
As with any aspect of your position as a landlord, you should try to be as prepared as possible for rent increases (in addition to being forthcoming with your tenants). You can do this by using what many landlords and property managers refer to as the binder method.
This strategy is straightforward. Start by keeping a detailed record of your property’s history, including how much you paid for it, renovations and updates you have made, and fluctuations in value for your property and similar properties in surrounding neighborhoods.
When it’s time to negotiate a rent increase, present this information to your long-term tenants. Explain that a small increase in their rent is much more affordable than a costly and inconvenient move to a new home that might still be more expensive.
If you feel comfortable, you can even allow your tenant to state the increase they think is fair. You can approve or deny it accordingly.
Reasons to Raise the Rent
Whether you work with your tenants directly to agree on a rent increase or decide a fair amount yourself and present it in a notice, it’s important to provide your tenants with detailed information about why rent must increase. There are many online resources for sample rent increase letters that make it easy to be clear and concise with your reasons.
Property tax issues are often represented on the ballot in local elections. If your city has recently voted to increase property taxes, you’ll need to increase your rent to reflect your new expenses as a property owner.
Increases in Living Costs
When the cost of living increases in a city or neighborhood it affects everyone, whether they’re a renter or a property owner. If your own cost of living has increased, you’ll need to incrementally raise the rent prices to continue to earn an appropriate income.
Improvements to the Property
When you make improvements to your property, you increase its value and improve the overall experience of your tenants. Therefore, you’re at liberty to increase what your tenants are paying in rent to reflect the improvements and to cover any heightened maintenance costs you’re now responsible for.
Upgrades to the Neighborhood
When neighborhoods become more desirable, the rent is expected to rise. If your property’s neighborhood has increased in value, you can incrementally increase your rent prices even if you haven’t made any particular changes to your own property.