Raising Rent

21 Replies

Hello everyone,

I need some advice. I have a rental with amazing tenants but it's time to raise the rent a little. We were thinking about $20-30. My question is how to convey this to the tenants without alienating them? Any advice is greatly appreciated.

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"Are you extending?" yes?

"i need to come and sign the lease agreement". during the meeting, tell them you are increasing the rent by $25 or $50 due to taxes, to catch up to market, etc.

there u go!

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Show them comparaples hopefully a bit higher than what the new rent would be offering the same or fewer amenities

Originally posted by @Account Closed :

@George P. That is a good thought but if the tenant says to show me the tax increase and the landlord cannot, then the trust is out of the window.

 when you go to buy something and the price of the product has increased, do you ask them to show you proof that labor cost has increased?

you can just tell them "market demand, catching up to other rentals in the area"

we have two across each other. same houses. one is newly rented for $1,375. the other was $1,100 for a long time. we increased it to $1,150 and said, "these people across the street are paying $275 more". no questions asked.

John Anderson @George P. Thanks for the input. Taxes have gone up substantially (almost 1500) and rent on the unit is under value by at least $50. I am just apprehensive because they are such good tenants.

it's like ripping off a bandage. just get to it already.

Hi @Marc Bresseau ,

Dear Tenant (use real name here).

First I want to take the time to thank you for being our tenant for this past year. During our maintenance inspections I could not help but notice how well you took care of our property. Your promptness to rent due dates have also been greatly appreciated. (insert more feel good things maybe a personal touch "the way you handled the noisy neighbors was superb")

As I am sure you are aware from the news, property taxes have increased substantially in this area. In order for us to maintain a quality rental unit and handle the increased costs, we are forced to have a rental increase. Beginning January 1st, the monthly rental rate will increase to (current rate +$50). However in the interest in maintaining quality tenants like you, we would like to offer you a lease for an additional year locking the monthly rate in at: (current rent + $30).

I have enclosed a copy of the new lease. If you would like to take advantage of this, please sign and return to us on or before December 10th

Thank you very much and we look forward to your continued tenancy through the coming year.

@Marc Bresseau ,

Rental increases are a part of the way things work, like cost of living increases, insurance rates increasing, taxes increasing. I realize @Account Closed believes you should never raise rents, however in reality failing to raise them properly will cause you to not be able to maintain the property properly. It will cause your cash low to decrease, less money in capital improvements etc etc. 

Your tenant will then be living in an apartment that continues to slowly decline, then they do decide to leave and you are now paying through the nose on deferred maintenance in an attempt to attract a good quality tenant..... Which of course you can't afford to do so now you take a lesser quality tenant and of course you don't charge as much and the whole thing spirals.

Tenants understand there are increases in rent yearly.

Good Luck!

You can also tell them that your costs for maintenance and capex increase every year, and unfortunately it's part of the business that you have to pass on those costs or you wouldn't be able to provide housing at all. 

When I talk to my tenants about renewing, I just tell them that rent next year will be $xxx.  I usually increase it by $25 every two years.  None of my tenants have ever squawked.  I don't provide any justification.  I take good care of my property and my tenants appreciate it and want to stay.  No problems.  Remember that by moving, not only will they be going someplace new that will likely have a higher rent if you are keeping it a bit under market, but they will have the expense and hassle of moving too.  If they are happy, they will stay through a minimal rent increase like $25.

I'd just do it if I were you.  If they put in their notice, you can ask them why they are leaving.  If they say because of the rent increase, then you can decide to reduce the rent if you want.

I have added a line item to the lease letting them know up front rent will increase...  I never raise the full 10% but it gives me a the right to. I try to stay around 3%.

  1. RENT INCREASE. Rent is subject to change after the Initial Lease terms expires or after one (1) year.Rent is subject to increase up to 10% of the current Rent on a yearly basis subject to Landlord’s discretion.Landlord will give a proper thirty (30) day notice to Tenant of when rent will increase.When rent increases the Security Deposit will increase accordingly.

My standard letter:

  1. Whenever the prospect of raising rent comes up, I take a good hard look at it, to make sure it’s necessary. In that light, I have decided it is necessary to raise the rent.Because you are such a valued tenant, I am not raising it to full market value. In order to keep pace with those expenses the cost of renting your home will increase as well. My hope is that you will understand that the house is still fairly priced and that you will continue to stay for many years to come. This rent increase will be locked into place of a minimum of one (1) year. Per your Lease Agreement Item 28, this serves as your thirty (30) day notice of changes to your Lease terms.

I give an increase to every tenant every year. Sometimes it is small, sometimes more significant. My letter is generic, non-personal, fill in the blank. It's business, not personal. 

"Dear ______, 

Due to the increased cost of taxes, insurance and other costs beyond our control, your new rent will be $___ beginning __\__\__.  

Should you be relocating in the near future please remember a __ day written notice is required.  

Also, in conjunction with our annual review we may be contacting you to do a property inspection.  If you are aware of maintenance issues that need addressing please let us know so we can care for them promptly. 

Thank you for your understanding in these matters."

Don't get caught up in the emotion. Nobody "likes" an increase but I seldom have anyone fuss over it and almost never have anyone leave over it. If your increase is reasonable they will likely stay, and if not you'll get a pay raise when you go to full market value on your new tenant. 

First, I would only give a cursory explanation, unless they ask for more detail. Then, briefly give a truthful explanation.

In the unlikely event they give notice, you can't back down, you need to let them leave.

There are tons of threads on this topic.  I personally take the stance of always raising the rent every year.  Most of the time it's very small.  However when you have 18 units, just $10/month all around is $180/month extra.  You may even ask yourself if it's worth doing it to a "good tenant".  However, I always ensure it's backed by the market.  If your rent is already over market and you raise it, you might lose the tenant.  But if the tenant starts looking and they can't find anything for less that's the same quality, they aren't going anywhere.  Moving is a painful and/or expensive process and no one is going to do it unless they feel they can save a decent amount of money each month.  An increase in the neighborhood of 3-5% (as long as your keeping pace with the market) is just something as an investor, you should do.

The other side is if they are pissed over a small increase and moved out, they already weren't happy and were probably thinking of moving out anyway and would have done so over something else very soon anyway.

And yes, there will be times when raising the rent causes a tenant to move, but in my history, with all the times I've raised rent, I can't recall a time a tenant has moved out because of it.  It's the law of averages.

The only thing I will say here that contradicts what I said above is whether or not you have a lot of units or not.  If this is your only unit, you may want to consider not raising it (unless you know you are below market, then I'd do it).  In my case, if someone moves out, it doesn't have much of an effect on what's flowing in, but if it was my only unit and the tenant never complained and paid on time and had been there a while, I say keep the solid cash flow coming in.

I increased rent in my (only) rental by 20% in less than a year.  They weren't paying market rate and I explained that.  They complained and said they couldn't.  

Later I found out they buy wet dog food, get all sorts of government subsidies, get free food from the local pantries; they smoke, they drink, it goes on.

Your renters may think they are entitled to more if you raise rent.  More of what, they aren't sure, they just think you owe them something more.  

As long as you've done your homework and know that the rates in the area have risen and by how much... your tenants will likely do the same due diligence, you should be fine.... 

So what I do, before raising rates, is look for comps in the area, set my new rate which usually is slightly under the top rates.  And even though I've raised rents by $100 or more, my tenants haven't balked at it or up and left.  I think what really helps is that I can point out that the area rates have risen and they are still getting a better deal (i.e. I still don't charge top dollar for the area) so they really don't have a good motivation to move.  So I tell them what the market rate I found was, I might be raising only to a fraction of what their neighbors rents are being raised to, so they know they are still getting a deal - we tell them that we're not raising to full market rate since we value them as a tenant and invite them to check out the same sources, zillow or craigslist so that they can see that they are still getting a good deal on a great home that they are comfortable in.  

All that being said, i understand where you are coming from, and I hate the process of raising rates as well - but this is a business!  I hope that helped - Good luck to you!

My advice to you is don’t mention the rent increase until you have communicated it in writing. So, send to your tenant a letter. It should be well organized and must explain why an increase is necessary.

You can begin your letter with gratitude. Tell the tenants that you are glad to have them as residents and you appreciate how friendly and financially and responsible they are. Thank them for paying the rent on time every month and for keeping property in good conditions. 

Thanks again everyone the tenant agreed to the increase without any issues. Should I also increase the deposits by these amounts or keep as is?

Not sure if you can raise the deposits with a rent increase, the initial deposit collected should have been sufficient regardless of rent increases.

Awesome they accepted!  My strategy for raising rents is to determine market rent.  If I'm currently renting the unit at $660 and market rent in the area should be $720 I might ask for an increase in rent somewhere around the middle... ~$695.  If they accept, great, I just earned +$420 a year and kept a great tenant.  If they vacate, that's OK also.  I list the property for $720 (market rent) and earn +$720 a year with a new tenant.

As far as my letters, I usually explain vaguely that due to rising expenses we have to raise rents to ensure we are providing the most quality conditions and service.  I also let them know that the rent increase is (in the example above) $25/month less than current market rent in the area.  I think this helps steer them away from immediately looking for a new place.  If they know they are still getting a deal, they likely won't even begin looking elsewhere.  

Good luck with your future rent increases :)

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