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!