Are you a landlord who is thinking about raising the price of your rental properties, but you’re worried about losing tenants and staying competitive in today’s market? Are you struggling to keep up with the costs of your rental property, but still concerned that your tenants will be upset with you?
Many landlords face this issue, and that’s why we have created this comprehensive guide to help you navigate the process of raising your rent prices.
Before you decide whether or not to raise your rent, it’s important to do some research on the current market trends to determine the average price of a rental property in your area.
If you raise rent too much, you could risk losing high-quality tenants who want to leave and find a place that is more affordable. Ultimately, a rent increase that hasn’t been properly thought out can increase your vacancy and turnover rates, which will cost you in the end.
We recommend talking to other property managers and landlords who manage similar kinds of rental homes in your area to gain a better understanding of the going rate of rent in the area.
Don’t be afraid to ask real estate agents and check online listings of other rental properties near yours. All of these things will help you determine whether raising your rent is a good idea and how much you can realistically increase.
If you do all of the above research and decide that it is best if you raise rent for your property, here is a guide to help you navigate the process.
Reasons for Rent Increase
To make sure that owning a rental property continues to generate a profit for you, you will need to stay up to date on expenses and maintain consistent revenue. Raising the price of your rent may be the way to do just that.
If raising your rent is something that you end up deciding to do, then it is important to consider your expenses in the following areas:
- Property taxes.
- Utility costs.
- HOA fees.
- Insurance costs.
- Property management fees.
- Expenses from the cost of living.
- Maintenance and repairs on your property.
When deciding on your new rental rate, consider these expenses to ensure that you are still generating income for yourself with your rental property.
How Much Can Rent Increase?
Research shows that it currently appears to be a landlord’s market, which allows landlords to raise the price of rent as the market and competition for rental housing grows.
However, markets tend to drastically vary between neighborhoods, even within the same city. It is important to stay familiar with the neighborhood’s current average rent prices when you are considering raising the cost of your rental property.
If you raise the cost too much, then you could be faced with a larger tenant turnover and more vacancy costs. This could end up financially hurting you in the long run.
The goal of any landlord should be to remain competitive with rent prices in their market, as this will result in as little tenant turnover as possible. Generally, a good rule of thumb is to implement a three to five percent rent increase each year to keep up with the market, depending on the neighborhood.
If you decide on a rental price increase, here are some things to consider:
- The housing laws in your state or city: Some states have rent control laws or local limits that you must follow to avoid getting into legal trouble. It is important to familiarize yourself with these regulations before deciding to raise your rent.
- The cost of the competition in your area: If you notice that rentals similar to your property are beginning to raise their prices, that is typically a good indicator that you can afford to raise your own rent prices as well.
- Think about your cash flow: When deciding how to price your rental unit, make sure that you are charging enough rent to cover all of the expenses associated with the rental home while also being able to make a profit for yourself.
How Often Can a Landlord Raise the Rent?
In many states, the law or your lease agreement will determine both when to raise your rent and how to communicate this to your tenants.
Research your local state laws and check the terms of your lease to find out how much notice you are required to provide your tenants. In New York, for example, 30 days’ notice is the minimum requirement for landlords.
It is a good idea to inform your tenant in writing at least 90 days before the end of their lease that there will be a rent increase if they wish to renew. This will give your tenant time to decide how the new price will fit into their budget or to find new housing.
Giving your tenants ample notice before raising the rent will also give your tenants the opportunity to consider their plans moving forward. A good way to reduce your tenant turnover rate is to give your current tenants an incentive to renew the lease early.
For example, towards the end of their lease, you could offer your current tenant a three percent rent increase instead of five percent if they renew their lease early. Make sure to let them know that rent will be increasing by five percent if they wait until the last minute to decide they want to renew the lease.
Not only will your tenant be more likely to renew the lease early, but they will be less likely to be upset with you about the reasonable rent increase since they still feel they are getting a better deal on rent by confirming their plans to renew early.
If they do not plan to stay at the property after the lease ends, giving 90 days notice will most likely still result in your tenant letting you know earlier, meaning that you can get a head start on marketing the property to new tenants.
How to Explain Rent Increase to Tenants
Ensuring that you are providing clear and professional communication when you tell your tenants about rent increases will reduce the chance of conflict between you and your tenant.
Providing this information in writing is the best way to notify your tenant of an increase in rent, and this method may even be required by your local or state law.
There are many benefits to providing information like this in writing, but the main one is that you can have legal documentation that the tenant was indeed notified of the change.
When you send your tenants the written notice for a rent increase, be sure to do the following:
- Clearly outline all of the necessary information for your tenants, making sure that you leave no room for confusion or misinterpretation. Include the new rent price and the exact date that it will go into effect.
- Provide a reference for what each tenant is currently paying in rent and how long they have been paying that amount.
- Provide the information as concisely as you can to minimize arguments or negotiations with the tenants.
If you wish, you can also use this rent increase notification to remind tenants of your rent payment policies and any late fees that you may have, even if this is already clearly stated in the lease agreement.
Make sure you are always adhering to the lease and local laws when it comes to your written communication with tenants and any requirements that may be relevant.
Increase Rent, Decrease Complaints
The happier your tenants are with the living conditions of your rental property, the less likely they are to have complaints about your decision to raise the price of the rent.
In most cases, they will have received an adjustment to their wages to account for the current cost of living, and they will most likely understand that your expenses have also gone up. Inflation contributes to the increase of rent.
If that is not the case and you are faced with complaints, here are some ways that you can respond to your tenants’ concerns.
“Tell Me Why the Rent Is Increasing”
Calmly and professionally explain to your tenant that your own management expenses are increasing, as is the overall cost of living in your area. Cite relevant examples such as maintenance, utility, and insurance costs, as well as property taxes and any other costs associated with your rental properties.
Bring to their attention any new upgrades you have added to the property in the last year, or any possible improvements that you plan to add in the next year. A property inspection is a great way to determine what improvements need to be made.
This will help the tenant understand that the increase in rent is happening for a legitimate reason, and will ultimately add to the quality of living in the rental property.
“The Rent Is Increasing Too Much”
If your tenant brings this concern to you, it can be an opportunity to teach them about the current market rate. Explain that you have researched the range of rent prices in the neighborhood and that the new price of rent reflects the current market.
If your new rent price is below or close to the average cost of rent in similar properties in the area, then your tenants will still feel like they are saving money by living on your rental property and they will be less likely to get upset with you for raising the price of rent.
Raising Rent: The Bottom Line
At the end of the day, no matter what you do, no tenant will ever be happy about paying more for rent. However, if you make sure that your rent increase is conducted in an intentional and fair manner, it’s less likely your tenants will get upset with you or leave the property to find something more affordable.
By providing adequate notice for your tenants on the increased rent and building it into your next lease, your tenants will be able to know what to expect, and plan and budget accordingly.
Overall, if you follow the above steps when raising the cost of rent at your property, we are confident that your tenants will find the increase more palatable and less frustrating.
