With the real estate market at all time highs, it’s not just the cost of a property that’s up, but also the rents. Average rents across the US have risen 13% overall, with specific markets rising at an even faster pace.
In this environment, landlords have two important considerations. First, your operation costs are also probably rising. And second, how wide is the gap between the rent your tenants pay and market rent. Both are valid reasons to raise rents and worth the risk of turnover and the loss of a good tenant.
There are ways to manage the process of raising rents that is fair to tenants and may even encourage them to stay.
The 6 steps to raise rent the right way
1.) Remember you run a business.
When discussing raising rents with tenants, always approach the topic from the perspective of “my business”. “I” am not raising the rent, but it’s necessary for “my business”.
You run a business and as costs go up, so must the rent. You want to make it clear that it’s not personal, not against them or wanting to force them out.
2.) Give the tenant enough notice.
Know your specific state laws, but most states require landlords to give tenants 60-days’ notice of rent increases before the renewal period. Make sure you give your tenants enough time to make plans, staying or leaving, and enough time to give you notice of their intentions.
3.) Be firm.
Do your research beforehand and decide on a fair number to bring your unit up to market rent. At that point, you have good standing to tell your tenants why you are raising rents to that price & reaffirm that you want them to stay.
It seems reasonable and at that point tenants can decide what they want to do. Also make it clear that this is not an open discussion or something that is negotiable.
4.) Explain with examples.
If you have tenants you want to stay despite the rent increase, I highly recommend this. When notifying a tenant of a rent increase, point out what the rent prices are for other similar properties in the area.
We assume tenants know what other properties are going for, but this isn’t the case necessarily. They may not realize how high prices have gone up. Considering the cost of moving and the higher rents in other properties, the tenant may just decide to stay, even if they are unhappy with the increase.
I typically call them on the phone or meet in person for this discussion. Then I will send them a letter just to confirm the rent increase that we spoke about. I usually will keep the rent around $100 less than the market to show good will and incentivize the tenant to stay. Keeping a good tenant and avoiding turnover is worth the $100 a month less in rent – especially if you are raising rents quite a bit.
5.) Give them something they want.
It is easier to raise rents if your property is well maintained, has no deferred maintenance, and if you respond quickly to requests. A happy tenant is more likely to stay longer, even if it will cost them more. Sometimes there are items a tenant asks for that you have not provided such as an outdoor storage unit, fence, etc. You may consider installing the desired item as a new addition to the raised rent.
Three months ago, we were raising rent $300 on one of our single-family rentals. The long-term tenants had wanted a fence for their dog since moving in. When we discussed the increase in rent, we informed the tenants we would be installing the new fence. They were happy to pay more for a house they liked with a fence they wanted. For us, while the fence is money we have to spend upfront, it will just increase the house value, avoid turnover, and help keep great tenants. That’s a win-win situation.
6.) Send a letter – use a template.
Receiving a letter in the mail feels very formal, official, and professional. I always send my tenants a renewal letter every year, with or without a rent increase. It leaves a paper trail and reaffirms what you may have told them through text or over the phone. Tenants will take a letter in the mail very seriously. Here’s a template that I use as a starting point.
Rent Increase Letter Template
Rent Increase Renewal Letter
Dear (names of all tenants on the lease),
Your existing lease with an original start date of ___________ will expire on __________. Effective __________ (date) the monthly rent will increase from $ __________ to $ __________ per month.
Payment for the new monthly rent will be due on _________ (date) and on the first day of the month thereafter.
Please reply by __________ (date) if you agree to this rent increase, and we will arrange a time to sign the lease renewal. If you do not agree with this rent increase, you are required to vacate the property by __________ (date).
Landlord Name ________________________________________
Landlord Signature _____________________________________
Phone Number ________________________________________
There are several factors to consider before raising rents; current market prices, quality of tenant and the cost of a turnover. While no tenant will be happy about paying more in rent, when presented in a respectful manner, most tenants will understand the raise. If they feel appreciated and an explanation for the increase is given, that goes a long way in keeping a good tenant in place while bringing your business the maximum income possible.
There is always the chance that a tenant will leave, at that point it is important you have the right criteria in place to choose new tenants. My next newsletter will cover the top 5 thing to look for in a new tenant. Thanks for reading! – Mary Nickless
Mary | Get Money Smarter (@thepennydrop3) | Twitter — twitter.com
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