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

by | BiggerPockets.com

Like most pieces of the property management puzzle, raising the rent is part art, part science.

There’s a human element to it—that’s where the “art” comes into play. Fortunately, even that can be systematized.

Far too many landlords hesitate and fear raising the rent. But it’s a part of the business, as raising prices is a part of any business. Inflation waters down the value of your rents each year, all while expenses ranging from taxes to insurance to repairs continue to rise and cost landlords more money.

Here are six (and a half) tricks to avoid falling behind other rents in the neighborhood—and earn your best possible returns on your rentals.

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

1. Raise the rent incrementally every year.

If there’s no other piece of advice you follow in this article, follow this one.

Where so many landlords run afoul of rent hikes is that they wait. They let the rent fall far behind market level, and then try to raise the rent to normal market pricing all at once. But by that point, it’s such a large leap that it jars the renter’s budget, and they end up either leaving or resenting the landlord thereafter.

Instead, raise the rent by 2-4% every single year like clockwork. It will keep the rent competitive at market levels, and it’s a manageable increase for your renters.

Perhaps most important of all, it sets expectations among your renters. They’ll come to accept annual rent hikes as a fact of life, like paying taxes or politician sex scandals.

Bonus “half tip”: Schedule your lease terms to end in April or May, regardless of when the renters first move in. When the day finally comes when your renters non-renew and move out, it will be much easier to find replacement renters in late spring/early summer than other times of year!

rental-property-pros

2.  Never raise the rent by more than 8%.

Raising the rent by 2-4% won’t scare off your renters. At 5-7%, they may start considering whether to move. Above an 8% rent hike, many tenants will move on principle, if not because you’ve busted their budget.

Again, don’t put yourself in a position where you’re $200 below market rents! It’s not fair to you, and it’s not fair to your renters when you raise the rent by so much at once.

Raise the rent incrementally every year to avoid this position.

Related: The Ultimate Guide on Raising Rent

3. Consider offering another option.

If you do raise the rent significantly, consider offering your renters an alternative to avoid the hefty hike: locking in a longer lease.

Imagine the following scenario: The rent is $1,500, and you’re raising it to $1,590. Your tenants aren’t happy.

But you offer a way out, you’ll lock in the rent at $1,550 for them if they sign a two- (or three!) year lease renewal.

Why would you make such a sacrifice? Because turnovers are where landlords lose the most money, and the most time in labor and headaches. The longer you can keep each tenant, the lower your turnover rate, and the higher your average returns.

4. Remember that better relations with your renters = higher renewal rates.

Maintaining warm relationships with your renters is easier than you think.

First, follow the best practices we outlined in this article about boosting your renter retention rate.

Here’s a quick and easy one: Whenever you call your renters about anything, spend 60 seconds warming them up first by asking about their personal lives. Keep a brief file on each tenant—their children’s names and ages, their interests, their jobs, and what was going on in their lives the last time you talked to them.

These files take only 30 seconds to keep updated each time you speak with your renters. It takes attention, not hard work.

Example: “Hi Betty, how are you doing? The last time we talked, little Bobbie was in the playoffs in his little league. How’d he and the team end up doing?” or “I know you’d been worried about that merger at work. How’d that go?”

You get the idea.

It’s amazing how big of an impression these small gestures make on your renters. They shift the context from an adversarial “money-grubbing landlord” relationship to a collaborative human relationship.

When you deliver the bad news that the rent is going up, they’ll take it much better knowing it comes from someone who bothers to ask about their lives and their children, rather than a faceless, soul-less check-casher.

5. Implement dual communication: phone and written notice.

By law, you must send written notice of rent increases. It must also be delivered within a certain timetable, usually 30, 60, or 90 days before the lease expires.

But that shouldn’t be the only form of notice. No one likes receiving bad news by letter; it’s impersonal and bureaucratic.

Related: Why Landlords Can’t Afford Not to Raise the Rent

Call your renters to deliver the news the same day you mail the written notice. Be friendly, professional, and polite but firm.

After investing a minute or two in the small talk we discussed earlier, present the news like this: “Betty, I wanted to reach out and give you the courtesy of a phone call before sending off the renewal form. This year, the rent is going up by $40. You’ve obviously been a great tenant, and we’d love to have you stay on. You should be receiving the renewal form over the next few days, and we’ll email you an electronic version as well since that’s easier for most people to check off, e-sign, and reply back with.”

If they push back against the rent hike, just respond with, “I understand, Betty. But rents go up alongside our expenses; it’s just a part of life. We’d love for you stick around, and we may be willing to negotiate a lower rent increase if you’re willing to sign a longer-term lease. But if you decide to move on, we understand, and we’ll work together for a smooth move-out process.”

See? Nothing to be afraid of.

tenant-screening-tips

6. Poll about property upgrades—and sometimes make them.

Want your tenants to keep renewing year after year?

Another way to build trust and human connection—and to improve the value of your property—is to ask them what upgrades they’d like to see. Then, implement them sometimes (but not always).

Once or twice a year, when you talk to your renters, tell them, “Hey, Betty. I wanted to check in and see what kind of changes you’d love to see around the property. I can’t promise anything, but we value you as a renter and want to do what we can to keep you with us for the long haul.”

The ideas and suggestions you get will run the gamut, of course. Some will be outlandish, while others will be great ideas. Look for ideas that are affordable to implement but that will improve the value and marketability of the property long-term.

In other words, look for improvements that will justify higher rents for future tenancies, not just help you keep this one renter happy.

For example, many smart home upgrades are inexpensive to implement, but fun and exciting for tenants, and in some markets, they justify significantly higher rents.

No one likes hearing that their bills are going up, but renters won’t think twice about it if they can see tangible improvements around the property—especially improvements based on their own ideas!

Be a Friendly-But-Firm Professional

In all your communications with tenants, be professional, friendly, and firm.

Never argue. You do not negotiate with terrorists.

Build a human relationship with your tenants. Set expectations by raising the rent every year. It’s not just taxes and death that are inevitable, but also that your rents will rise every year!

But not by much. You’re not looking to bust your renter’s budget. You’re simply keeping pace with market rents in your neighborhood (and your ever-rising expenses).

If raising the rents is uncomfortable for you at first, write out a script similar to the examples outlined above.

You are not your tenants’ adversary. You are a service provider, they are a customer, and you want to work with them in a friendly and professional way, while still enforcing the rules and defending your boundaries.

We’re republishing this article to help out our newer readers.

What have your experiences been in raising rents?

Share your stories!

About Author

Brian Davis

Brian is a landlord and long-time rental industry expert, who offers a range of free landlord resources through his company, SparkRental. Grab a state-specific lease agreement or take our free mini-course on buying 2-4 unit rental properties while you’re at it.

Message me if you’d like me to write for you about real estate or personal finance!

42 Comments

  1. Christopher Smith

    I would agree with this basic strategy. I generally shoot for 3% per year, and only vary that if local market comps have moved pretty dramatically in one direction or the other (which is uncommon). To my knowledge, I have not experienced any tenant losses by raising rents using this sound methodical approach.

    I have also heard the refrain that you should never raise the rent on a great tenant, and I totally disagree with it. If I have a great tenant I might discount the rent by $100 per month from the local market comps (e.g., on a $2,500 per month rental), but its even more important at that point that I raise that rent number by at least 3% in each and every subsequent year. In other words, the discount is maintained, but the rent continues to rise.

    Not too raise the rent annually puts you in the dilemma (which you note above) of losing out on several annual rent increases (which compound the error over time), plus it puts you in the very unenviable position down the road of having to do one massive rent increase in a belated attempt to catch up (which always makes you look like a total jerk). Alternatively, you can continue to mark time again losing rent each and every year until a tenant turnover event occurs (which could be many years), and then raise the rent, but presumably that is what you were wanting to avoid in the first place.

  2. karen rittenhouse

    Hi Brian:
    Our contracts spell out that we WILL raise rents by 10 percent annually. Interestingly, no one balks when signing the initial agreement.

    At renewal time, we send a letter stating, “As stated in your rental agreement, it is time for your annual 10 percent rent increase. However, because you have paid your rent on time every month, we will be raising your rent by only 3 percent.”

    Or something to that effect, depending upon the tenant. If we want the tenant out, their rent goes up by 10 percent!

    This gives us tons of flexibility and the tenant realizes they got a special deal. This makes the increase painless.

    Thanks for your post.

      • karen rittenhouse

        Christopher: average varies all over the country, but our rents match those of any area we’re in.

        And, as I said, tenants don’t even question it at original sign-up. Perhaps a year seems far away; perhaps they think they won’t be there longer than a year; perhaps they don’t think about it at all!

        But I’ve had a couple hundred rentals over the years and it’s not an issue. If someone protests, you could always cross it out and lower the number.

        Rule in real estate holds true here as well: never think for the other guy.

        Thanks for asking!

    • Cindy Larsen

      Karen,

      What a great strategy! I will do this on all my rentals from now on 🙂

      Would you be willing to share the language you use in your contracts?
      I have bought a few duplexes recently with existing renters, and am
      expecting high turnover as I raise rents to market, so I will be writing
      quite a few new leases in the next few months. Sparkrental, Brians company,
      has great leases, which I have already made my own modifications to
      for my first turnover this year. I’d love to incorporate your idea as well.

      Thanks,
      Cindy

  3. Lots of good ideas, here is one more. I send a copy of the Zillow rent estimate when I raise rents. My increases are always below the estimate. I am letting them know that I value their tenancy enough to charge less than the Zillow value but making them aware of my knowledge of the market as well. Many of my tenant’s are getting $100 increases this year, (7-9%), however the Tacoma market is one of the strongest in the country. I never raise rents more than once in 12 months. Some property managers are raising rents every 6 months and adding new fees as well. When units come available they go to the top of the market.

    • Anna M.

      This is another one I like, sending them a copy of the Zillow rent estimate along with the rent raise letter. Do you know how Zillow compares with rentometer? I have always opted for rentometer but it locks me out after a while wanting me to subscribe, ugggghhhh! 🙁

        • Cindy Larsen

          Katie,

          Did you know that the HUD fair market rents are set at the 40th percentile of all rents in an area? This means that 40% of rentals are less than the HUD number, and 60% are HIGHER than the HUD number. The HUD fair market rents are intended for section 8 renters, as the maximum rent section 8 housing authorities wil contribute their share if the rent to.

          Since I am targeting more upscale renters for my more upscale units, I am looking for renters who can afford rents in the 50th to 80th percentiles.

          Unless your target renters are section 8, you are possibly not charging enough for your units, depending on how nicely you have updated them.

        • Katie Rogers

          Not according to HUD’s own explanation of how it determines fair market rents. It is true that of you look at HUD’s FMR for an entire county or an entire MSA, the nature of medians and averages means that some FMRs will be above HUD’s values and some below. However, you can drill deeper and get “Small Area FMRs” which are determined at zip code level.

          Also, considering that 50% of tenants are actually “rent-burdened,” that is, paying more than 30% of their salary to rent, and a substantial number of them are paying more than 50% of their income to rent. If fair market rent is defined as the rent tenants are paying, then the definition is flawed.

          Years ago, the guy who wrote the book on landholding, William Nickerson, explained that when you are evaluating rentals, you need to look at the salary of typical tenants in the area and expect to charge one-fourth to one-third of that typical salary, If the property cannot cash-flow under those circumstances, you should probably pass. Since publication https://www.amazon.com/Turned-into-Million-Estate-Spare/dp/1607966743, landlords have turned Nickerson’s guidance on its head by deciding a rent and requiring that tenants earn three time more than the rent. Just because people are paying it does not make it fair market, especially in a low vacancy community.

  4. Edward C.

    Great article. Agree on the ~8% as a decent benchmark at which point an increase could cause turnover. It just so happens that 8% equates to about a month of rent for a given tenant.

    So assuming a tenant would have to pay a listing broker’s commission, paying an 8% increase in rent is economically equivalent to paying a broker when moving into a new place (am purposefully ignoring switching costs).

    From a purely financial perspective, I’d imagine 8-10% really is the upper bound of what you could pass through in a given year. And given the compounding effect of percentage increases, I’d be surprised if a tenant would stay through multiple years of 8-10% increases.

    I am also personally in the boat of 3-5% annual increases (depending on the tenant). Enough to stay in line with / outpace inflation, but not so much that the alternative of moving to a new place is an economically neutral decision.

    • Katie Rogers

      In my experience, most tenants do not use brokers to find their rental. Again, the typical tenant’s wages are not even keeping up with inflation. It is a horrible attitude that counsels raising the rents as much as possible, but not so much that tenants will rebel and leave. Landlords are using the inelasticity of the need for housing to keep tenants “willingly” signing leases. It is a kind of emotional duress, especially if the tenants have children.

  5. Anna M.

    This could not have come at a better time. I have been struggling with this issue but I know that I am definitely below market rents, yet have been going back and forth on what I need to do. Thank you Brian for this article. It illustrates in a very easy to follow way on how to go about raising rents and I will certainly be applying your suggestions. I am going to be following you on snaplandlord.com as well as sparkrental.com as I feel that there is a lot I could learn from you. Thanks again.

  6. Katie Rogers

    8%? Are you kidding? People who are typical tenants have not been getting any wage increases, never mind 8%. Haven’t you heard all the political arguments AGAINST raising even minimum wage? But you’ll give them a little break if they’ll (willingly, ha, keep telling yourself that) agree to let you trap them into a long-term lease. Good landlords do not need to trap tenants. Nobody really likes to move. They will stay for years on a month-to-month with a good landlord. And it does not require crass emotional manipulation to maintain a good relationship with tenants. In America, tenants are becoming more and more cost-burdened—defined as paying more than 30% of your income for rent. 50% of tenants are cost-burdened, and 30% of them are paying more than 50% of their income for rent.

    When times are hard, it is amazing how the more-well-off expect the less-well-off to tighten their already too tight belts.

  7. matthew mccall

    Unfortunately the only time i raise rents is on a bad tenant. If I have a tenant that pays on the first religiously i wont raise it. My last great tenant was going to leave so I told her I would lower the rent 15 bucks to sign a long lease. Great idea bc shes been there 3 years. Other tenants without rent increases have been there 6 years. I love it. I dont have time to do a turnove for lots of money and stressr and i bought these properties mainly for long term appreciation. I know many will disagree but for me it works great with less turnovers.

  8. The idea of giving a longer term lease at a lower rate is counter intuitive. It seems like the longer you lock it in for the more they should pay, because each year the rent will have gone up. In any event that’s one “trick” I am not going to use.

    • Cindy Larsen

      It is counterintuitive, but the idea is that turnovers are expensive: you get no rent while you clean, paint, upgrade, market the rental, interview tenants, have open houses, whatever your process is. Meanwhile, in addition to no rent coming in, you have all your normal expenses for that unit, plus additional costs, including paying the utilities in the rental while it is vacant, because you need electricity, water, etc to be able to turn and show the unit.

      So, short term, locking in a tenant at a small percentage less than todays market rent, for a year or two makes sense, because you are no going to experience turnover costs during that period of time. As a long term strategy, you end up with rents way below market.

      I believe the best strategy is to start with market rent, and set the tenants expectation that rents will increase when market rents increase, because your costs also increase. I screen my tenants very carefully, then offer them up to 1 year lease (expiring April 30) with the expectation that there will be a rent increase every year. This minimizes turnover costs without lower than market rents, and if a tenant leaves, it is at a time when lots of tenants are looking for rentals. I also use turnover time to do improvements that either improve durability or justify higher rents (hopefully both).

  9. Wenecio Godfrey

    I’m in a situation where we inherited a tenant with the property. Market rents are about $400 under market and we have put a good bit of money into the parts of the house that needed repair and updating. The tenant is one of those that you keep stories about to tell your grandchildren later on or rant to your fellow associate RE investors about. We’re afraid that he might damage the home once we give the new rental amount. I’m simply thinking about having the property management company tell him that we are not renewing the lease when it expires in a few months at all, as we plan on putting the house on the open market, which is still a viable option… wish us luck.

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