Rent Increase: Why You SHOULD Raise Rates on Your Tenants Sooner Than Later


I live on an unusual street, where half of the properties are small rentals and the other half are larger, owner-occupied properties. One of my neighbors just received notice of a rent increase of $500 a month when his lease renews later this year.

And no, we don’t live in Silicon Valley.

Of course, my neighbor wasn’t happy to receive this news and is now looking for a new place to live. The problem is, I don’t think he’ll find it. See, he’s been living here for seven years — paying the same rent the entire time.

Rent Increase Overdue

Seven years ago, he was paying market rent. The $500 increase will bring him up to just below market. I bet his landlord could get another $100-$200 out of the property if he really tried. Of course, he’d have to fix the place up. He’s put exactly nothing into it for the past seven years — and you can tell.

But a sudden, large rent increase like this isn’t going to win that landlord any popularity contests. He most likely didn’t increase the rent after the first year because that was 2010, and the market was extremely soft. Ditto 2011. In 2012, our market started to perk up, but perhaps the landlord was dealing with a vacancy at another property. I’m not sure why he didn’t raise it then.

In 2013, our town and numerous surrounding towns experienced a massive flood that killed 8 people and caused more than $2 billion in damages, including all but wiping out the town directly upriver from us. Vacancy rates dropped to zero almost overnight, and rents soared. That whole supply-and-demand thing in action.


Rent Increase REALLY Overdue

Yes, the landlord would have had to honor any lease in place at that time, but my neighbor’s renewal in 2014 should have come with an increase.

Related: New Seattle Law Lays Out Tenant Selection Rules: Here’s How It Affects Landlords

So now, two years later, my neighbor is faced with a massive rent hike. He’s not happy, and I’m almost positive this has left such a bad taste in his mouth that he won’t be renewing his lease.

No Rent Increase with Multi-Year Leases

This also highlights the negative reasons to sign multi-year leases. I routinely see questions from new landlords who feel they have hit the jackpot when a prospective tenant wants to sign a 2 or 5-year lease. You can hear their relief that they won’t have to fill a vacancy for that many years.

Let’s ignore the fact that the tenant is most likely offering an extended lease for less-than-awesome reasons. You, the landlord, are now locked into that rate for the life of the lease — no matter what your local market does or how much rents increase in that timeframe. And since you can’t predict what the rental market will do, even if you negotiate a rent increase for the subsequent years, you could be under-negotiating and leaving money on the table.

Basically, the multi-year lease doesn’t give you many benefits, but there are a whole boatload of downsides.

Rent Increase Done Right

Let’s play pretend. Pretend you have a vacancy where the current market rent is $1,000 a month. Your tenant screening finds you a well-qualified tenant who can easily afford the monthly payments, so you sign them up.

During the sign-up process, you tell them that you keep your properties in excellent shape, so should they discover anything in need of repair, they should notify you. This is an excellent time to share with them what constitutes a call-anytime-emergency — water leaking, furnace inoperable during winter, fire, etc. — and what does not constitute an emergency — light bulb burned out, microwave not working, doorbell inoperable, etc.

You also inform the tenant that you keep your property rents in line with the market and rents may or may not increase at the beginning of the next lease term, depending on the market rate in the area.

The first year goes well. You contact them 30-60-90 days before the end of the lease term (in compliance with your state’s landlord-tenant laws) to see if they want to stay another year. Your local market rents have increased $100 a month. Here’s where the tricky part comes in.


How Much Do You Increase Rents?

You’ve already set the stage by mentioning to them at the beginning of their first lease term that rents may increase. A $100 increase will give you an additional $1,200 during their second year, but if they choose to leave your property, how long will it take you to turn it around? One lost month of rent will all but eat up that rent increase. Is it worth the gamble?

Related: What’s More Costly: Rental Vacancies or Filling Rentals With Subpar Tenants?

What if you split this year’s increase with them? Or only increase it $75 instead? Most tenants who were considering staying won’t leave over $50 — especially if you have properly screened them and they are financially able to afford the payments in the first place.

Colleen F. shared this letter in the forums a while back. She sends this out in accordance to her state’s timeline for notice:

“Thank you for being a tenant here at 123 Main St., Anytown, USA. Our goal is always to provide a nice place to live, at a fair price. Whenever the prospect of raising rent comes up at any property, we take a good hard look at it to make sure it’s necessary.

In that light, we have decided it is necessary to raise the rent on your unit, effective Apr 1, 2014 to $900.00 from $850.00 This is to partly to offset the increasing cost of property taxes, insurance, high heating oil, maintenance costs and upgrades since our purchase of the building in 2010.

Even after this increase, we believe we are still at or below the average market rent for a unit of this type. Rather than pay an increase, you may choose other housing. Should you intend to vacate at the termination of your lease, the original lease agreement states that you have to provide 30 days written notice of your intent to move. If you choose, signing this form checking off that you will not renew and returning the form to us 30 days in advance of your expected renewal will be considered your written notice.”

Colleen’s letter is direct and covers the main points necessary. Here is the increase, the date it is effective, a reminder that you need to give XX days notice if you intend to vacate per the terms of your lease, and a very easy way to do so.

Don’t Leave Money on the Table

Your tenants expect incremental rent increases when the lease is renewed. Compare your property to what is available at the time you are considering the rent increase. Other properties offering less amenities at a higher price is a good indicator you’re under market — and you should raise your rent!

How do you raise the rent on your current tenants?

Share your experiences with rent increases below.

About Author

Mindy Jensen

Mindy has flipped numerous homes in the past 10 years, one at a time and doing much of the work with her husband. She lives in Longmont, CO, and is always looking for an ugly duckling to turn into a swan.


  1. Patsy Waldron

    What if the multi-year lease were to include an annual increase (say, 5% or 8%, whatever seems to reflect the average annual increase in the area)? It seems that would solve the problem of rents falling below market rates, but also allow the advantages of locking in a long-term tenant. Is that possible/legal? I know a retirement community that has leases that specify an annual 5% increase, which seems a good way to inform people up-front of what they can expect.

    • Bryan Otteson

      You can do that, but a multi-year lease locks the landlord into that tenant for multiple years. If a tenant wants to break lease, they’re going to break lease. The penalty is (usually) the same no matter what. Most states do something like they pay you during the vacancy after they leave, you have to try and fill it. So a longer lease only has impact on the landlord. I like 1 year leases because banks like them, tenant’s know them, and if life changes for the tenant it isn’t too long to ride out till the end (usually).

  2. OK. First of all, I NEVER give out multi-year leases. I don’t even give out one-year leases unless circumstances ( e.g. Section 8 ) force it. Everybody is month-to-month. Why?

    First of all, a lease deprives me of the 30-day-notice-to-vacate tool. What if, in spite of my best efforts, I rent to somebody evil? Say, a drug dealer? Nice to be able to say “sorry, it didn’t work out, you have to go”, instead of taking him to court and proving he’s a drug dealer.

    Advantages to me of a lease? Not much. If they break the lease, you’re pretty much screwed, because they are – for the most part – judgement proof.

    Now – rent increases. I revisit rent once a year. If the market warrants, I do a small increase. I own a building in Hayward, CA near Silicon Valley. Hayward has rent control, and the market rents have far outstripped my ability to do rent increases ( which are limited to 5% a year ). It’s OK, the building makes money even with existing rents, and I get to hit them with a 5% increase every year for the next decade. We generally don’t do more than 5% anyway because….

    We used to be renters ourselves. I still remember getting a rent increase from $300/month to $360.00 – 20 percent! We immediately started looking for a house. We had been saving for that for a couple years anyway, but that rent increase really lit a fire under us.

    I always give a 60 day notice. That way, they have time to get used to the idea. At the beginning, the increase is two months away, and they set the notice aside & forget about it.

  3. Christopher Smith

    I tend to agree with your philosophy on rent increases, although many do not. I try to build in (at least as a minimum) a 3% increase each year no matter what occurs. It of course will be more if rents are rising significantly faster than that in the given locality. If I don’t do this, then I am first likely not keeping up with my own increasing costs (which are probably in the range of 2% to 3% each year), plus second you have to deal with the cliff effect you describe above and hit the longer term tenant with a massive one time increase which never goes over well. This cliff effect increase can be huge if you are in an area with rapidly increasing rental rates as my properties are in.

    Of course you will hear those that say you will risk losing a long term tenant if you follow this approach, and there is always a chance one will leave (for any number of reasons). However, a couple of points on that. Tenants in my properties (a little more upper end than most landlords) can’t easily pull up stakes and move at whim. The have some pretty significant costs to consider themselves. Plus if your rate increases are generally sensitive to local market rental rates (which they should be just as a matter of practicality), then the Tenant really won’t gain much if they do move. Finally, if a tenant dramatically balks at lets say at a reasonably modest 3% increase, then perhaps they are not that great of a tenant to begin with so the loss while a short term cost may be the better long term outcome.

    Finally from my past experience with my property managers, I have almost always set higher rental rates than they recommended to me and I have never failed to get them, not once, nor have any of my tenants ever moved because of my rental rates (at least if they are being honest for there decision to move communicated to my property managers). Of course rental rates have to be reasonable, but the market will ensure that. So just remember one thing; there is just as much risk in leaving rental rates unchanged when they should be increased, (and they should raised at least annually absent extraordinary events), as there is in raising rates to reasonable levels every year.

  4. Im a newbie using a property management company, and my concern about raising rents is that not only do I risk the lost rent from tenant turnover but also the leasing fees charged by the PM company which is basically another months rent. So from my point of view if i raise the rent $50 and it causes a vacancy, it could potentially take a few years just to break even on the raise. Any suggestions about this situation?

  5. Jerry Agbon

    Great article, very objective advise with practical application. While I’m in complete agreement with you, I see this as being more applicable to a market tenant, however when dealing with section 8 tenants, one might have to play a different hand. I’ve noticed that while some section 8 allows for annual lease renewal, which provides room for reasonable lease increment, some of the section 8 program don’t allow for lease renewal. Instead the annual lease agreement converts to tenant at will. In this case, does it mean that once the tenant becomes tenant at will, the landlord is now free to give rent increase notice to the section 8 concern, at any time of the year?

  6. Peter Crisp

    Being up in Canada, most provinces have rent control caps – and some are very tight. Ontario this year is 2.0% and 2017 is 1.5%. The latter is likely below inflation. In other words, we have to raise rents or else this is a permanent income loss (unless they move out) and I look for savings in the areas of energy costs and other areas if I can. It also means renting at market when the opportunities come up.

    Exactly as above, we communicate to all our tenants that rents are increasing because of increasing taxes and other expenses. And the tenants see that good maintenance is done and they want that to continue. I also make it clear that, if rent controls apply, we have no choice but to raise rates and why. If you do that, then tenants don’t usually mind. In fact, I have a place I’ve been turning around in New Brunswick, Canada, where the tenants said they’d be happy to see rents go up, if it meant helping to fix the place up. Don’t see that often – but we are fixing the place and we are raising rents modestly (and there are no rent controls in the province).

    I’m going to add a political comment. Too many tenants rights groups, at least in Canada, seem to have no understanding about the negative effects of too-tight rent controls and as responsible owners, we need to fight this. For example, if Ontario persists in this course, I will probably either sell or invest in other provinces or States because I want to have well maintained properties at a fair profit margin, and I see no shame in that. Some tenant groups here want to go back to permanent rent controls on the unit, which would make things worse. There are better ways to making housing affordable, and we need a dialogue to work together on this issue.

    • Mindy Jensen

      Hi Thomas.

      If the tenants have a valid lease, you cannot raise the rent until the lease ends. In accordance with the landlord tenant laws of the state the property is in, give notice that you will raise the rent to $X, and the date the increase is effective. (I really like Colleen’s note above.)

      If they are month to month, give them proper notice and increase the rent. ‘Way below market’ could be why the previous owner sold the property. How much work would have to be done to re-rent the units?

    • Margaret Weyandt

      @Thomas Ebenhoch

      I have purchased several properties with existing tenants and below market rents. These tenants did not have a written lease with the prior owner.

      My solution was to give tenants a letter to introduce ourselves and explain how we do business and what we expect – including rent. I also inform them how much we typically get for their size unit. For example: a 2 bedroom rents for 500 and market is 650. I would let them know that I am giving them a 2 month lease (I always use written leases) with their current terms. Then explain that the next lease will be a year long lease at a higher rate ie: 550. I explain that we will continue to raise the rent with each lease until market rents are reached.

      The two month lease gives them time to find somewhere else, and for us to evaluate them as tenants. Then the rent raise isn’t a huge amount to cause a hardship but it also gives me enough to cover my costs more easily. This may not be what most people do but I figure if I find a place where there are decent tenants I don’t want to start over by slamming them with a huge increase but at the same time I need an increase as well.

      In addition, I also make sure that there is some cash flow before purchasing the property at the current rates. That way, I know I am not losing anything even in the first two months.

  7. Mark Spidell

    I have found that by having supporting reasons for raising the rent is helpful. Property taxes, insurance and HOA dues are pretty easy and transparent.

    Market adjustments are more qualitative, but tools such as zillow and rentometer can help support your argument although not perfect tools. Present the market in a light that shows the tenant that they are still getting a good or at least fair deal compared to what is currently available.

    Having leases end during the spring and summer also help. I will often sign tenants to odd lease terms like 14 to 16 months so that the lease ends during a more favorable time. By doing this, you can either find a new tenant more easily or your current tenant will be looking at a more competitive market to compare your higher rent amount against.

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