It is no secret that rents are now at all-time highs. Demand for rental housing has pushed rents up higher and higher over the last few years, and short of a huge building boom or crash, there is no end in sight. This is good news for us landlords, as higher rents equal more income and an increased property value. If you are a landlord who has not raised the rents on your rental properties in a while, perhaps now is the time you should. At the very least, you should consider it, as the current set of market conditions may never again be so favorable.
Raising the rent sounds like something that would, and perhaps should, be very easy to do. But, as with everything in life, there are pros and cons to raising rents, and there are good and bad ways to go about it. Some ways will be more effective than others. Some will cause you less pain and grief.
So if you are considering raising your rents, here are some steps to follow to make it as easy as possible on both you and your tenants.
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Assess Your Market
First, you must carefully consider if you can raise your rents in your market. All markets are local, and while rents in some communities may be skyrocketing, in others they may be barely climbing or even on the decline. The only way to consider this is with a bit of market research. You simply have to see what other landlords in your market are charging for comparable properties. Most of you are probably doing this all of the time anyway, but if you are not, check rental ads and online sources like Rentometer. Talk with other landlords in your area. If you find that your rents are lower that almost everything else or under market, then you can move to raise rents.
Finding that your rents are under market does not mean that you can instantly raise them. Remember that lease you signed with your tenant? (I really hope you are using a written lease!) That lease is a contract, and per the terms of that contract, you cannot alter any of the terms, including rent, for the specified term of the lease. That means you cannot raise the rent in the middle of a lease term. You have to wait until the lease expires or is up for renewal. If there are six months left on a year lease, you can begin planning for that increase in six months. Of course, both you and your tenant could both agree to a higher rent, but the chances of that happening are likely quite slim.
Understand Local Laws
Now that you have determined that you can raise rents and when you can do it per your lease terms, what’s next? You next need to know and understand your local laws. Laws regarding the landlord/tenant relationship vary considerably across the country. What might be legal in one city might not be legal in an adjoining one. When it comes to rent increases, the law will generally address a few specific areas.
- How much notice the tenant must receive before a planned rent increase. In most cases, it will be one month, but some jurisdictions may require as much as 90 days.
- How the rent increase notice must be delivered. Can you just call or text your tenant, or will you need to send a certified letter?
- How much you can increase the rent. Some jurisdictions with rent control may not allow you to increase the rent at all. Others may only allow a certain percentage. Know your laws and stay compliant.
So, you have finally done some market research, examined your lease terms, and ensured compliance with local laws. What else should you consider? You also should carefully consider how much expense and turmoil you want in your landlording business — because no rent increase will likely occur without it.
Is Increasing Rent Worth It?
Some tenants will, of course, accept the increased rent, but others will decide to move. How many will move really depends on how much you increase the rent, but any tenant turnover will increase your expenses. You will lose income while the property sits vacant, and you will likely be spending money to find new tenants and get the property in rent ready condition. Will these expenses negate your rent increase? Only you can determine that, and only you can determine how much hassle and turnover you are willing to deal with. Sometimes it is better to let sleeping dogs lie or just gently move them, so to speak.
4 Tips for a Smooth Rent Raise
If you do decide to increase your rents, here are some final thoughts on how to go about doing it.
- Give your tenant as much notice as you possibly can. Thirty days, in my opinion, is the bare minimum, with 60 days being much more desirable. More notice gives the tenant more time to make a decision and possibly gives you more time to find a replacement tenant if your current one decides to move.
- Send notices of rent increases in writing, and then make them a part of your lease.
- Try to only increase rents as units turnover. This way, you do not upset your existing tenants nor do you rock your business boat too much.
- Improve the property a bit if you increase rents. It does not have to be much — a bit of paint here or there, some landscaping, installing ceiling fans or even a new appliance or two. A few improvements along with increased rents may help your tenants feel like they are getting a bit more value for the increased costs, thus softening any blow.
Landlords: What has been your experience in raising rent? How have you mitigated vacancies during the process?
Let’s talk in the comments section below!