The process of raising rent may seem straightforward enough on the surface. However, there is an art to doing it such that you won’t end up alienating tenants. As a landlord, you need to know how to tactfully and effectively raise rents.
You may decide to raise rent for your properties for a number of reasons. These may include increasing your profits, paying for additional property maintenance and improvements, or matching market rates.
If you want to know how to raise the rent on a tenant, here’s a guide we’ve put together to help you.
Logical Reasons for Raising the Rent
You may be justified in your rent increase if one or more of the following is true.
Changes in the neighborhood
Property values change on a regular basis. As a landlord, you are well within your rights to raise the rent to accommodate these changes.
Maintenance or improvements
For older properties, you may require more repairs and maintenance work than usual — which, of course, translates to more expenditures on your part.
Cost of living/insurance premiums/inflation
Changes in cost of living, inflation and insurance premiums are usually good reasons to increase rent. In fact, most rental agreements make provisions for such changes. Typically, the changes amount to around 3%.
Sometimes, raising the rent is simply a matter of good business sense. It’s reasonable to raise rental rates if you know that comparable properties to yours rent at a higher rate.
Other valid reasons to increase rent include:
- Rising homeowner association dues
- Rising utility costs
- Keeping up with interest rates on mortgage payments
When increasing the rent, you don’t need to explain your finances to your tenants. But you do need to hand them a written notice informing them about the rent increase and when it’ll take effect.
Reasons Not to Raise Rent
There are a couple of instances where you won’t be justified in raising rent.
In almost all states, it’s illegal for a landlord to retaliate against a tenant for exercising their legal rights. Retaliatory actions include, but are not limited to:
- Giving a tenant notice of termination alleging mismanagement of common facilities, after the tenant has used the same to organize other tenants to oppose a planned rent increase;
- Refusal on the landlord’s part to renegotiate a lease following a tenant’s complaint to the Department of Health and Human Services (HHS);
- Giving a notice of termination on dubious grounds, following a legitimate decision by your tenant to withhold rent.
It’s worth noting that judges are more likely to view a large rent increase as an onerous move to drive away a tenant.
All tenants are protected by the Federal Fair Housing Act. The Act prohibits landlords from discriminating against tenants based on their gender, national origin, race, disability, religion or familial status. Some states also include sexual orientation, age and similar traits in their anti-discrimination laws.
For example, it’s considered discriminatory if you implement a rent increase after finding out that your tenant is a member of the LGBT community, or after becoming aware that your tenant has a baby.
How to Raise Rent Effectively and Tactfully
Understand the law
In general, you’re allowed to do whatever you want with your property. However, that doesn’t mean you can raise rent beyond the amount stipulated by your local laws.
Keep in mind that you cannot alter the terms of a fixed-term lease agreement. You’ll have to wait until the end of the fixed-term agreement (usually six months to one year) to raise the rent, unless the rental agreement specifies otherwise.
For a month-to-month tenancy, you are required to serve a notice (typically 30 days) of your intent to raise rent. The notice needs to be in writing.
Send the notice to increase rent 60 days before the end of the lease
It’s important to know your tenant’s intentions in advance. For example, if it’s clear that your tenant isn’t going to renew their lease, you can use the remaining lease period to start marketing your property.
Make sure to write a rent increase letter looks professional. To do that, you should:
- Relay the information as concisely as possible, so you’ll leave no room for negotiation or argument.
- Include documents reiterating the terms of the lease agreement.
Automatically include a small rent increase at each lease renewal period
Typically, most tenants are fine with small rent increases, especially when it’s almost time to renew their lease. Raising the rent by 3-5% per year, for example, should be okay.
However, you may want to reconsider rent increases for good tenants who are willing to sign up for another year. You can always make up for it once they eventually move out.
Ask tenants about desired upgrades, and consider them
Doing this can be tricky. Tenants may wise up to the fact that you’re using upgrades as a pretext to raise rent. To do it right, ask the tenants what upgrades to the property would benefit them the most.
For example, you can charge an additional $75 worth of rent from upgrades that’ll probably cost you $1,500. The upgrades will pay for themselves in about two years, and you will continue reaping the additional benefits.
Never raise the rent to more than 10%
No matter your relationship with your tenants, and no matter how much they like their unit, a rent raise of more than 10% is sure to make them balk. Even if your rent is well below the market value, it’s better not to hike your rent so drastically. Instead, increase rent gradually.
Pave the way with good relations
Try to get to know your tenants as well as you can. Not only will this keep you on good terms with them, but it’ll also make them more receptive to rent increases. If tenants see you as a human being, and not just someone to whom they write a check, they’re more likely to be understanding when you bump up their rent a bit.
Sign a new tenancy agreement
Usually, you can only increase rent by the end of a tenant’s lease term. You do this by including the provisions on rent increases in the new lease agreement.
How to Calculate an Accurate and Fair Rent Increase
Generally, you have the legal right to set whatever price you want for a property. However, you have to take into account several factors before hiking your rent.
In some cities, rent stabilization or rent control laws limit how much you can raise the rent. This prevents average city-dwellers from getting priced out of the rental market.
The rent price should also be in sync with comparable rental properties within the neighborhood. You can find several resources online like Rentometer.com to help you compare rent prices on the basis of location, unit size and other relevant factors.
What Happens If The Tenant Doesn’t Accept The Increase?
Assuming the tenant refuses to accept the rent increase, you can serve them a Notice of Possession Order Form. As the name suggests, it helps you get your property back into your possession. You can also try to negotiate a mutually beneficial price with your tenant, should s/he refuse to accept the first rent increase.
Things to Consider
Be respectful and tactful
Bear in mind that your tenant has every right to refuse the rent raise. Therefore, do your best to be supportive and understanding towards them.
Value good tenants
Let’s face it: Finding good tenants is extremely difficult. If your tenants pay rent on time, don’t inflict significant damage on the property, and don’t disrupt their neighbors in any way, you may want to consider keeping the rates as they are.
Also, if tenants think your rate increase is unreasonable, they have every right to dispute it. In that case, feel free to discuss the circumstances surrounding the increase.
Give good reasons for the increase
Your tenants are more likely to understand the rent increase if they know where you’re coming from. For example, you can tell them about the local electric company’s recent rate hikes, or that the part of the property that the tenant happens to be renting needs renovation.
Raising rent is a delicate balancing act. Remember that tenants aren’t usually happy about rate increases. But if you hike up your rent in the way we suggest here, you won’t encounter too many issues in the future.