How to Raise the Rent on Your Tenants as Painlessly as Possible

by | BiggerPockets.com

First, you need to find out if you even can raise the rent. 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. If you are in a month-to-month agreement with your tenant, you can likely raise the rent on the tenant as long as proper notice has been given. (Usually 30 days’, but sometimes 60 days’ notice is required. Check with your landlord-tenant laws as to the required notice to change the terms of a month-to-month agreement.) 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.

Related: 6 Steps to Check a Prospective Tenant’s Past Rental History

When raising the rent, try this trick often used by marketers: Don’t tell them what the new rental price is going to be, but 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 $4.00 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. Additionally, that Venti drink priced at $4.25 doesn’t cost Starbucks much more to make than the Tall drink at $3.25, so the higher tiered product just produces more income for the company, as some people will always choose the “premium” option, and others will always choose the “regular” option. This way, Starbucks can make a profit on everyone, while still allowing the customer a choice. And you can do the same with rent raises.

Related: 14 Clever Ways to Maximize Revenue From Your Rental Property

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The Lease Renewal Decision Form

To raise the rent, simply send a Lease Renewal Decision form such as the following.

Of course, some tenants may still call and complain about the rent being raised, or they may even decide to move, but most likely they will simply chalk it up to one of the realities of renting. Over the past decade of raising the rent on approximately 100 or more tenants, we’ve only ever had one tenant call to complain (a grumpy old man in his 80s), so we compromised and agreed to give him six more months before raising his rent. See? We’re not all bad guys!

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

How do you go about raising rent? 

Let me know your experiences with a comment!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

30 Comments

  1. David Stone

    Genius! Love the option form. We have used 3 options for motivated sellers, never thought of using the same on tenants. We had a tenant call not complaining about the rent increase – she wanted security/stability in a lease when we had her auto-renew m2m… the “tall” option would have saved us all stress. Thanks for the info!

  2. Nathan G.

    I’m using a similar form. My policy is to only increase rent every second year or during a turnover. I try to give tenants 90 days notice so they have time to budget for it or look for a new home.

    If they sign for a shorter term, I increase the rent. It’s usually a 10% increase for 6 months or 20% increase for month-to-month. This helps offset the risk of a turnover in the middle of winter when it’s more difficult to find a new tenant.

  3. If we have always offered only month-to-month leases to our tenants (MN is a VERY tenant-friendly state, and this is the best way for us to ensure we can part ways with a tenant who doesn’t work out, and it’s worked really well for us for 7 years), how would you frame this conversation to make it look like there’s a choice?

  4. Andrew Acuna

    I like this a lot! What about if I’m in an area where I would maybe like an increase, but all the ones around me will likely stay the same. I am on site, unlike all the other 4plexs in my area, but other than that I’m not too sure it would go over well. Thoughts?

  5. Dianne Stober

    I like this! We have people who’ve requested a very long lease (3-4 years–they have kids in school and want to stay put). We’ve built in rent increases in the lease tied to the CPI. If the CPI increases, we use that x rent to come up with the increase; if CPI doesn’t increase, their rent remains the same. It’s pretty easy to explain and makes it straightforward.

  6. Palmira Angelova

    Great article and idea Brandon!

    What would your advice be if we were to apply this to a rent-control situation, where the maximum amount you can raise the rent year over year is based on the change in the CPI for the previous year. Would we have to stay within those rent control restraints even if we’re offering a different timeline? That doesn’t give a lot of reasonable options for changing prices between the tiers.

    Seems to me like in this case the best thing to do is just raise the rent & have a good relationship with your tenants overall.

    I welcome others’ thoughts and advice on this situation!

    • Chad Hale

      In San Jose (likely other rent control areas too) a tenant can not sign away the rent control ordinances that apply to them.

      So best to give good legal regular (yearly) rent increases that will minimize tenant turn over while staying near market rates. As governments decide more and more how personal property should be run they are limiting the freedoms and ability for landlords to be kind and make accommodations. Property owners now “need” to keep up with market rates if they want to maximize their investments.

      So yes, regular rent increases and good tenant / landlord relationships are key.

  7. Susan Maneck

    I once rented an apartment from a complex that used that form. They also had a deal that if you stayed with them for three years they would give you $1000 in down payment money for a house. The first year I lived there the rent was $750. The second year there was no raise in rent. The third year I was presented with this form which said the rent would now be $800 for a year lease and even more for six months, and more still if I went month-to-month. Furthermore the Mississippi legislature had just passed a law allowing complex owners to charge tenants for the water even though they had no separate meters. The landlord informed us we would have to pay that as well. That made the increase more than the promised $1000 down payment I was hoping to get for staying there one more month.
    I immediately went looking for a house. Got a 4bdrm 2ba house for 72K. That came out to a mortgage payment of about $650. I still had to pay the water, but at least now I had my own meter.
    I lived in it for 8 years then turned it into a rental property for which I get $950 a month. They pay the water.

  8. Ann Miller

    We did this with our renters and it was very successful. We had some go with a 1 year lease other with 6 months and yet another took the month to month. We find this approach to be a great way to offer them some options than just a one year or nothing lease.

  9. Howard Sklar on

    I’ve been playing catch-up with Denver, Co. rents for 3 years now. When the market is this strong, little need be done. The resident can look elsewhere and find the “sad reality” on their own. All my leases renewals are 6 months now as nearly all my existing tenants are below current makret.
    Home run Strategy: Keep your long term tenants slightly below market, but always give some kind of nominal increase every renewal…then they are “trained” to expect it. this limits the turnover. On units that turn over, go for maximum market rent. This both maximizes revenue and (in limiting turnover) reduces expenses; maximizing your NOI from both directions!!

  10. Nathan G.

    One thing to consider: include a clause at the end that clearly states: If you fail to respond by (date) we will assume you’ve elected to continue on a month-to-month basis and will charge you accordingly.

    This may not stand up in court because you can’t necessarily prove the tenant even received the notice. I recommend calling them right before or right after sending the option letter so they can’t pretend they didn’t know.

  11. Supposedly, the rationale for a lease is to protect the tenant from sudden rent increases. Tenants should not have to pay more to be at risk for a sudden rent increase. This letter is just another example of a landlord seeing everything from the landlord’s point of view and the inability to see the situation from the tenant’s point of view. It has the stink of just more landlord games. Put everyone on a month-to-month. Good tenants will stay with good landlords for a long time, and the tenants are not trapped by a lease. Landlords can get rid of a bad tenant more easily.

    We see throughout society that redistribution tends to go only in one direction—up. Wages have been stagnant, and the top 1% has captured the vast majority of economic gains due to increased productivity. the workers who created that productivity got nothing. Tenants see this sort of letter as another example of spurious redistribution.

    Maximizing revenue is not always a worthy motive. It needs to be balanced with the common good.

    • Cornelius Charles

      Why do you think they are being “trapped” by a lease? What happened to personal accountability? If they are signing a lease, they should know exactly what they are getting into. Plus, no one is forcing them to sign anything. If they are not happy with the terms, they are free to look for housing elsewhere. I’m not sure how giving someone multiple options is playing “landlord games.”

      • They are trapped by the lease for two reasons. One is a lot of bad landlords like the lease because the tenant is not free to leave. They are trapped until the end of the lease. Second, no one knows the future. Things happen. Sometimes good things like a job promotion and transfer. Sometimes bad things like being laid off. Maybe the tenant wants to buy a house but can’t afford both a mortgage and the rent because of the lease. People should be free. A lot of landlords spout libertarianism and free choice, but are happy to shut down tenant choice. They justify to themselves that the tenant is choosing to shut down their own choice by signing a lease. Sometimes breaking the lease costs so much that the landlord practically forces the tenant to skip out, and then rails against the tenant’s lack of personal accountability.

        A lot of landlords say, “They are free to look for housing elsewhere.” I am so glad your community has a high enough vacancy rate that tenants really have free choice. In my town, the vacancy rate is so low that tenants are forced to sign leases just to put a roof over their children’s heads. In my town, again because of the lack of competition caused by the low vacancy rate, many landlords neglect maintenance, and will not renew the lease of any tenant that “complains.” So tenants are stuck in leases for poorly maintained units with irresponsible landlords.

        I hated leases as a tenant. Therefore, by the Golden Rule, as a landlord, I offer only month-to-month (MTM) Good landlords using MTM never have to worry about longevity. Tenants with good landlords do not have to worry about landlords abusing the MTM to raise rents willy-nilly. If you cannot see how off-putting a letter like this is, then you understand why I said landlords lack the ability to see things from other than the landlord’s point of view.

        A lot of people (not necessarily you) are hypocritical about the “free market.” When they are buyers, they want a free market. When they are sellers, not so much. The history of commerce is all about sellers looking for ways to make the market less free.

        • Nathan G.

          Katie, you misunderstand the meaning of personal freedom and free markets. The renter has freedom to shop around and find a rental that meets their needs. They are free to negotiate an agreement with the Landlord. Once they sign that agreement, they are bound to it BY CHOICE and not because the Landlord is enslaving them. You act as though private Landlords are creating the market and forcing people into contracts when nothing could be farther from the truth.

          Renters are not guaranteed markets will stay low and affordable. They are not guaranteed their job will not transfer or fire them. They are not guaranteed the ability to transition from leasing to purchasing without encumbrance. Most of the things you mention (job transfer, market rates, availability, etc.) are determined by forces outside of anyone’s control or even our ability to predict.

          True freedom means all parties are free. The Landlord saves up to purchase a property and offer it for rent at a rate determined by the market. The renter is free to rent the property or look for something else. If the market is too expensive or the inventory is too low, the renter is free to look in another market.

          What you’re asking for is a guarantee that Tenants always get what they want while Landlords take all the risk. You want “reasonable” rental rates despite demand. You want Tenants to have freedom to break leases they voluntarily entered into just because “things happen”? What about the freedom of Landlords to terminate the lease when their nephew needs a place to live? What about the Landlord’s freedom to raise the rent in the middle of a lease because they need more money for medical bills? Or the right to sell the house out from under a tenant because their wife left them and they need to split the assets? No, your worldview only cares about when “things happen” to the renter.

          It’s not the Landlord’s fault demand is high and prices are driven higher. They took the risk of investing in real estate and are reaping the rewards of the current market, but they also take the hit if the market crashes. Do you think individuals should have “freedom” to erase credit card debt because their life has changed? Should they be able to walk away from a mortgage without penalty simply because their job transferred them?

          Freedom ensures we have the ability to make choices; it does not guarantee the results will always be in our favor.

        • You missed my point about that freedom only exists in communities with a healthy vacancy rate. People NEED a place to live. The rental market is not like Amazon. All parties are not free. If the market is too expensive or the inventory too low, the tenant is NOT necessarily free to look in another market. Are you suggesting they quit their job? That is just foolhardy.

          The rest of your comment is ridiculous. Nothing you wrote is an argument against a month-to-month agreement. In fact, some of what you wrote argues why an MTM is better for the landlord. I do not want tenants to have the ability to freely break leases. I say the MTM is best for both parties and allows both parties maximum freedom. The whole point of the letter is to have the tenant pay more for the freedom of an MTM. The letter basically says that in consideration for giving up freedom, the rent will be a little cheaper. Most landlords who insist on leases do so precisely because it traps the tenant.

          Good landlords and good tenants do not need leases. Tenants on a MTM will stay with a good landlord for years and years,so longevity is not an issue. Bad landlords and bad tenants love leases. Bad landlords love to trap tenants in neglected properties (interesting you completely overlooked this main point). Bad tenants love to make eviction difficult. Landlords find it is often easier to not renew a lease than to evict during the lease.

  12. James Bolden

    Nice article, very useful as I am attempting to increase rent at 1 property. I realized I am roughly $200 below market. What if property manager not following a best practice concept like described to raise rent? Any experience or suggestions about speaking directly with tenant about rent increase eventhough property manager is in place?

    • Nathan G.

      James, there’s no need for an owner to contact tenants directly. I recommend you work through your Property Manager. Contacting tenants directly undermines the authority of the manager you’ve hired and it opens you up to communication problems in the future because many tenants will start playing you and the manager off each other. If they don’t like mom’s answer, they go ask dad.

      I’m also curious why your property manager isn’t keeping you at market rate, or at least close to it. A good manager will institute increases without even asking you because they understand the market and what your home is worth. If they wait until you decide to raise rent, it’s time to decide on a new property manager.

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