Landlording & Rental Properties

The Right Way to Raise Your Tenants’ Rent (Plus: Sample Rent Increase Notice)

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Regularly raising the rent keep your properties in line with market rate. But you can't just issue a rent increase willy-nilly—the first step is finding out if it's even possible. When a tenant is in a lease, the rent is fixed for the term of that lease and cannot be raised until after the lease is over. This is why rent raises are most common upon the renewing of one's lease.

However, month-to-month rental agreements typically allow you to raise the rent at any point, as long as you give enough notice. Usually, that means 30 days—but sometimes 60 days' notice is required. Check your local landlord-tenant laws.

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Purchasing your first rental property is just the beginning of your real estate journey, because being a good landlord is almost as important as making good deals. BiggerPockets’ free guide How to Become a Landlord: Managing Rental Properties for Real Estate Investors will teach you everything—from setting rent to handling evictions.

Also, if you are in an area with rent control, where the government controls rental prices, check carefully with your local laws. There is a good chance you won't be able to raise the rent at all.

(Despite this, there are pros and cons to rent control. Investors shouldn’t always shy away from these properties!)

RELATED: How Much to Charge for Rent: A Landlord’s Guide

Is It Time to Raise My Rent?

There’s an easy way to know when it’s time to increase rents: Look at the local rental market.

Compare your property to what is available at the time you are considering the rent increase. Other properties offering fewer amenities at a higher price are a good indicator you’re under market—and you should raise your rent.

Remember, most tenants expect incremental rent increases when the lease is renewed. And if you raise rents right, the change won’t be a surprise.

How Much Notice Should I Give?

The answer to this question depends on where you live. Some states or municipalities require giving at least 30 days’ notice—but others insist on 60 or even more. Pay attention to local laws and get the appropriate legal advice before sending out rent increase letters.

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How to Increase Rent… The Right Way

Let’s play pretend and say you have a vacancy with a current market rent of $1,000. Your screening finds you a well-qualified new tenant who can easily afford the monthly payments, so you sign them up.

When onboarding your tenant, tell them that you keep your property rents in line with the market. Because of this, rents may or may not increase for the next lease term, depending on the market rate. This gives them a heads-up about what to expect, ensuring no surprises.

Related: 6 Tips for Raising the Rent Painlessly (Without Losing a Single Tenant!)

The first year goes well. You contact them 30, 60, or 90 days before the end of the lease term, depending on local laws, to see if they want to stay another year. Your local market rents have increased $100 a month. Here’s where the tricky part comes in.

How Much Can You Increase Rent?

You’ve already set the stage by mentioning that rents may increase. A $100 increase will give you an additional $1,200 during their second year—but if they choose to leave, or you’re forced into eviction, how long will it take you to turn it around? One lost month of rent will all but eat up that rent increase.

Is it worth the gamble?

Related: What’s More Costly: Rental Vacancies or Filling Rentals With Subpar Tenants?

What if you split this year’s increase with them? Or only increase it $75 instead? Most tenants who were considering staying won’t leave over a new rent that’s only $50 more—especially if you properly screened them and they are financially able to afford the payments in the first place.

When Raising Rents, Take a Cue From Marketers

Here’s another option for raising your rents—stolen from smart marketers. Don’t tell them what the new rental price is going to be. Instead, give them three price options to choose from.

Think about it. Almost every big business offers three price tiers:

  • Small, medium, large
  • Basic, premium, platinum
  • Bronze, silver, gold
  • Regular, premium, plus

By offering three choices, individuals tend to compare the choices given, rather than comparing the price to other businesses.

A coffee at Starbucks may be ridiculously priced, but by giving the customer options—the “Tall” for $3.25, the “Grande” for $3.75, or the “Venti” for $4.25—people rarely even consider the $0.99 cup of coffee they can get at the local diner across the street. Instead, they choose from the options they have been given. Of course, there are other reasons a person pays $4 for a drink, but the pricing tiers help to take attention off the price and give people the power to choose what price they want to pay.

Related: What Does a Property Manager Do? Here’s the Job Description

Of course, you’re not asking your renters to choose between small, medium, and large. Instead, we recommend offering them lease length options with different rent amounts: two-year, year-long, six-month, or month-to-month. You should charge the most for month-to-month leases, because they are the riskiest.

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Sample Notice of Rent Increase

The marketer's tactic may not be for everyone. For instance, if you don't want to encourage renters to switch to month-to-month or six-month leases, you may only offer a flat-rate increase. There's no wrong choice—choose whatever option works for you. (We do recommend sending any letter via certified mail to ensure your tenants have received it.)

Sample Rent Increase Notice With Options

Dear John Tenant,

Thank you for your tenancy at 123 Main St, Apt 1! We’ve really appreciated having you here this past year and look forward to continuing our relationship with you. It is a privilege to be able to work with you, and we thank you for your business.

According to our records, it appears that your lease term is coming up at the end of next month and, as such, we need to discuss your future plans to make sure we are all on the same page. Due to naturally increasing expenses for the owner, it is necessary to gradually increase rent over time. Therefore, a slight monthly bump in your monthly rental rate will take place soon. However, we would like your input on where to go from here.

Please choose from one of the following options for your future at your home. Simply circle the option below you would like to choose and send the form back to us. We will prepare a new lease with the proper information and mail it to you within seven days.

Sign a new one-year lease at $1,050 per month, which will begin on September 1, 2020, and end on August 30, 2021. This is an increase of $50 per month.

Sign a new six-month lease at $1,075 per month, which will begin on September 1, 2020, and end on February 28, 2021. This is an increase of $75 per month.

Sign a new month-to-month lease at $1,100 per month, which will begin on September 1, 2020. This is an increase of $100 per month.

Although we hope you’ll stay with us forever, if you do not plan on renewing your lease, please let us know immediately. Our state law requires tenants to give 30 days’ written notice to vacate before the end of their lease. Therefore, please return this form and let us know your plans by August 1, 2020 so we can make that work for everyone.

Once again, thank you for your residency here at 123 Main St, Apt 1. We look forward to many more years of working with you.

Sincerely,

Management

Sample Rent Increase Notice Without Options

Colleen F. shared this letter in the BiggerPocket Forums a while back. She sends this out in accordance to her state’s timeline for rent increase notices:

Dear John Tenant,

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Thank you for being a tenant here at 123 Main St, Apt 1. Our goal is always to provide a nice place to live, at a fair price. Whenever the prospect of raising rent comes up at any property, we take a good hard look at it to make sure it’s necessary.

In that light, we have decided it is necessary to raise the monthly rent on your unit, effective September 1, 2020, to $1,050 from $1,000. This is partly to offset the increasing cost of property taxes, insurance, high heating expenses, maintenance costs, and upgrades since our purchase of the building in 2010.

Even after this increase, we believe we are still at or below the average market rent for a unit of this type. Rather than pay an increase, you may choose other housing. Should you intend to vacate at the termination of your lease, the original lease agreement states that you have to provide 30 days’ written notice of your intent to move. If you choose, signing this form checking off that you will not renew and returning the form to us 30 days in advance of your expected renewal will be considered your written notice.

Sincerely,

Management

Of course, some tenants may still call and complain about the rent increase, or they may even decide to move, but most likely they will simply chalk it up to one of the realities of renting.

This article contains an excerpt from Brandon Turner’s The Book on Managing Rental Properties.

How do you raise the rent on your current tenants?

Share your experiences with rent increases below.

Mindy Jensen has been buying and selling homes for more than 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real est...
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    Peter Crisp Engineer from Surrey, BC
    Replied almost 4 years ago
    Being up in Canada, most provinces have rent control caps – and some are very tight. Ontario this year is 2.0% and 2017 is 1.5%. The latter is likely below inflation. In other words, we have to raise rents or else this is a permanent income loss (unless they move out) and I look for savings in the areas of energy costs and other areas if I can. It also means renting at market when the opportunities come up. Exactly as above, we communicate to all our tenants that rents are increasing because of increasing taxes and other expenses. And the tenants see that good maintenance is done and they want that to continue. I also make it clear that, if rent controls apply, we have no choice but to raise rates and why. If you do that, then tenants don’t usually mind. In fact, I have a place I’ve been turning around in New Brunswick, Canada, where the tenants said they’d be happy to see rents go up, if it meant helping to fix the place up. Don’t see that often – but we are fixing the place and we are raising rents modestly (and there are no rent controls in the province). I’m going to add a political comment. Too many tenants rights groups, at least in Canada, seem to have no understanding about the negative effects of too-tight rent controls and as responsible owners, we need to fight this. For example, if Ontario persists in this course, I will probably either sell or invest in other provinces or States because I want to have well maintained properties at a fair profit margin, and I see no shame in that. Some tenant groups here want to go back to permanent rent controls on the unit, which would make things worse. There are better ways to making housing affordable, and we need a dialogue to work together on this issue.
    Jeff Deleon
    Replied almost 4 years ago
    Interesting article, I do check the market for rental rates to make sure I am not leaving money on the table. I have never considered a multi-year lease, I can only imagine the headache that could potentially cause.
    Timothy Friars
    Replied almost 4 years ago
    Unless rental rates tank for some reason. In that case you’re getting more out of the place than you otherwise could.
    Thomas Ebenhoch from Troy, New York
    Replied almost 4 years ago
    Any advice on raising rents on a newly purchased property with the current rents way below market rate?
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied almost 4 years ago
    Hi Thomas. If the tenants have a valid lease, you cannot raise the rent until the lease ends. In accordance with the landlord tenant laws of the state the property is in, give notice that you will raise the rent to $X, and the date the increase is effective. (I really like Colleen’s note above.) If they are month to month, give them proper notice and increase the rent. ‘Way below market’ could be why the previous owner sold the property. How much work would have to be done to re-rent the units?
    Margaret Weyandt Investor from Williamsburg, Pennsylvania
    Replied almost 4 years ago
    @Thomas Ebenhoch Thomas, I have purchased several properties with existing tenants and below market rents. These tenants did not have a written lease with the prior owner. My solution was to give tenants a letter to introduce ourselves and explain how we do business and what we expect – including rent. I also inform them how much we typically get for their size unit. For example: a 2 bedroom rents for 500 and market is 650. I would let them know that I am giving them a 2 month lease (I always use written leases) with their current terms. Then explain that the next lease will be a year long lease at a higher rate ie: 550. I explain that we will continue to raise the rent with each lease until market rents are reached. The two month lease gives them time to find somewhere else, and for us to evaluate them as tenants. Then the rent raise isn’t a huge amount to cause a hardship but it also gives me enough to cover my costs more easily. This may not be what most people do but I figure if I find a place where there are decent tenants I don’t want to start over by slamming them with a huge increase but at the same time I need an increase as well. In addition, I also make sure that there is some cash flow before purchasing the property at the current rates. That way, I know I am not losing anything even in the first two months.
    Mark Spidell from Glenwood Springs, Colorado
    Replied almost 4 years ago
    I have found that by having supporting reasons for raising the rent is helpful. Property taxes, insurance and HOA dues are pretty easy and transparent. Market adjustments are more qualitative, but tools such as zillow and rentometer can help support your argument although not perfect tools. Present the market in a light that shows the tenant that they are still getting a good or at least fair deal compared to what is currently available. Having leases end during the spring and summer also help. I will often sign tenants to odd lease terms like 14 to 16 months so that the lease ends during a more favorable time. By doing this, you can either find a new tenant more easily or your current tenant will be looking at a more competitive market to compare your higher rent amount against.
    Marcus Robert Investor from Worcester, Massachusetts
    Replied 7 months ago
    Leases over 1 year are subject to the statute of frauds
    Cal Predom Investor from Northeastern NC
    Replied 7 months ago
    I have made the mistake of not raising the rent to market rate. Small increases are better than waiting and then increasing the rent a large amount. I have been trying to improve reviewing the rents in my rent locations. I setup a calendar reminder to check on the rent amounts in my market. I try to review the local rent amounts 3 months before my leases end.
    James Hines
    Replied 4 months ago
    The author and every person who replied seem like pieces of sh*t more worried about fattening their bank account than worrying about their fellow man.
    Laura Mercer
    Replied about 1 month ago
    Wow, James, I think you may want to be redirected to the Smaller Pockets website.
    Frank Sanford from Los Angeles, California
    Replied about 1 month ago
    Brilliant Laura. Hilarious.
    Tim Ellis
    Replied about 1 month ago
    James Hines, I guess you can look at it this way... As costs associated with owning property go up over time a poorly managed property that doesn't raise rents to keep up will find it difficult to maintain the property in the long run. Properties that fall into disarray or even worse get foreclosed because the business was poorly run are bad for tenants.
    Maggie Smith from Sarasota, Florida
    Replied 27 days ago
    Mindy, this comes to me at the perfect time, and gives me the courage to raise the rent after a successful 2 year lease. I am mulling over your two very handy sample letters. Thank you for a thoughtful treatment of an every-present subject. No one likes to raise rents, but without it, one can certainly have a problem property on one's hands- not why we bought into this landlord position in the first place. As for James- Makes me laugh out loud! James, I do suggest you put your money where your mouth is- Go buy at least one property, and give it to a tenant- any tenant- for below market rent. If you don't have the money now, go make the money, save your after-tax dollars for your retirement, and when you have enough saved up, put it all into a property. Get as close as you can to giving away the space to a deserving stranger, perhaps with a large family, even some pets! Do that for a few years, and.... Don't forget to let us know how that works for you, my friend!