Beating Inflation - How to Raise the Rent
Renters Warehouse Blog
Rent increases are normal and common. But the thought of increasing the rent is something that can strike fear and dread into a landlord’s heart. After all, if you have a good tenant in place, paying the rent on time, you don’t want to do anything to disrupt that. You won’t want to rock the boat, or jeopardize your current situation, and that includes raising the rent, right?
But raising the rent is important if you’d like to keep costs down and generate a profit at the end of the day. It’s also vital if you’re hoping to beat inflation. Consider for a minute that inflation in the U.S. is at 7.5%: a 40-year high. For landlords, that means that it’s a good idea to consider increasing your rent if you haven’t done so recently.
The most important thing to keep in mind is that while rent increases are vital, raising the rent should always be done tactfully. Not everyone can handle a dramatic increase, and not every location should see one as well. Raising the rent without first doing some research and having a solid plan can backfire as it could end up costing you a tenant, and vacancies can be costly as well.
Fortunately though, rent increases don’t need to be complicated. With a little bit of research and preparation you can effectively raise your rent: and keep your tenants happy at the same time.
Consider Writing Rent Increases Into Your Lease
If you’re currently in between tenants, you might consider adding a clause in your lease that stipulates when the rent will increase, and by how much. This is a good way to slowly raise the rent in a predictable fashion, and since your tenants will be aware of it when they sign the lease, it should help them to anticipate and plan for rent increases better as well. It’ll help to make those dreaded increases much easier, and since it’s consistent, it will keep you from having to make large increases all at once.
Determine Why the Increase
You’ll also want to determine why, exactly, you are raising the rent. This will help you pinpoint how much you should raise it and how frequently you should do so. If necessary, it could also help you to explain the increase to your tenants. It’s a good idea to take a look at your reoccurring expenses to see if there are any increases there that could indicate that it’s time to raise the rent. Here are some areas where you should keep an eye on rising costs:
- Property taxes
- Utility costs
- Maintenance costs
- Insurance premiums
Note: With inflation at an all-time high, this means rising costs across the board, so it’s perfectly reasonable to inform your tenants that you are raising the rent due to inflation and rising costs.
Check Local and State Law
Next, look into local landlord-tenant law. In most cases, you’re required to give your tenants a certain amount of notice before increasing the rent. Depending on your state and the type of lease that your tenants are on, this could vary from 30 days, to 60 days, to 90 days. Be sure to check to see what the laws in your state are.
You’ll also want to pay attention to any rent control measures that are in place in your area. Some cities have rent control or stabilization measures in place which may prohibit rent increases or put a cap on how much rent can be increased. Be sure to check out the local laws to ensure that you can raise the rent and to see if there are any limits on how much you can charge.
Did you know that some states are more investor-friendly than others? Consider reading: Which States Are the Most Investor-Friendly, to find a friendlier place to invest!
Research Other Properties in the Local Area
Another thing to consider is the local area where your rental is located. Just because you’d like to raise the rent and can raise the rent, doesn’t always mean that you should. Be sure to do some research on available rental housing in the local area and determine what the average rent is for properties that are similar to yours. It’s never a wise idea to raise the rent above the market rate. You should also consider the vacancy rate in your area. If other properties are lingering on the market for a while, it might not be the best time to increase your rent.
Avoid Drastic Hikes
It’s also a good idea to avoid sudden, drastic hikes in rent. A sudden spike in rent could push the price outside of a tenant’s budget. Many tenants cannot afford a drastic jump in rent, which means they could end up vacating, and then you’d have to go through the trouble of finding someone else. If you are going to do a drastic rent increase, it is best to wait until you have a vacancy and then raise the rate in between tenants instead of suddenly hiking the rent on an existing tenant. How much should you raise the rent? Generally, it’s a good idea to raise the rent by 2-4% every year.
Give Tenants Ample Notice
By law, you are required to give your tenants a notice of a rent increase. Depending on the state, the required amount of time is anywhere from 30 – 90 days’ notice before the lease expires. It is always important to keep your tenants in mind when it comes to raising the rent, especially if you have a good, long-term tenant who pays rent on time. If you want to keep your good tenants, then make sure you treat them fairly. You could consider calling them and letting them know on the phone if this is a form of communication that you often use, or you could send out an email or written notice. If you do decide to communicate the news of an increase verbally, just make sure you send them written notice as well. Make sure you give them ample time to prepare for these changes. Giving them plenty of notice will also help you, should they decide not to renew their lease, giving you enough time to prepare for their move and start searching for new tenants.
When it comes to writing a notice there are a few things you should include.
- Explain why you are raising the rent. While it isn’t required by law, it is nice to give your tenants a reason for the increase and will help them better understand your reasons for doing so. You could mention inflation, or give them examples of specific price increases that you’ve faced over the year that will help them to better understand the changes.
- Be sure to affirm to them that you hope they continue to stay and rent with you.
- Let them know that you are available to discuss the change, answer any questions or address any concerns they might have. Be open to their concerns and don’t dismiss them, but be careful not to make any promises verbally. Always put everything is in writing.
See: Landlord-tenant laws by state.
Keep Your Tenants in Mind
While your returns are important, if you know that your tenant is going through difficult times, you could consider holding off on the rent increase for a month or two to give them a chance to work things out before you spring the news on them. For example, if you know that your tenant has just lost their job or is struggling to keep up, you might want to consider holding off on the increase for a couple of months if you can, especially if they are good tenants that have just landed on tough times.
Looking for ways to help create a positive relationship with your tenants? Consider reading: The Basics of Creating and Maintaining a Positive Landlord-Tenant Relationship.
Keep Current With Maintenance and Repairs
It’s a good idea to try to keep current with maintenance and repairs. If you are letting your rental property slide and putting off maintenance, your tenants might take the rent increase as their signal that it’s time to find another place to live. Keeping current with maintenance and being timely with repairs is important to tenants. If you are working to keep the property in good, livable condition, there’s a good chance that your tenant will be less upset by a modest increase.
Consider Having Your Leases to End in the Spring
Some landlords set their leases to end in the spring, regardless of when the tenant moves in. The reason for this is simple. If at the end of the lease you decide to raise the rent, and the tenant vacates the property, it’ll be easier to find a new occupant. This move can help you to reduce the amount of downtime that your rental has in between tenants.
Consider Hiring a Property Manager
Being a landlord can be a tough job, and raising the rent is not always the easiest thing. Between familiarizing yourself with the rules and restrictions in your city and state and brushing up on your knowledge of the local market, there’s a lot to keep in mind. If you’re struggling with your rental then you might consider hiring a property manager who can help you navigate the ins and outs of rental management. They should be able to help you operate in a way that’s in compliance with relevant landlord-tenant laws and help you pinpoint a reasonable rental price as well. A good property manager will also handle the lease process and the paperwork involved with the rental increase and will be able to take the guesswork out of raising the rent.
Important Considerations When Raising the Rent
Timing is everything when it comes to increasing the rent, so try to find a way to provide your tenants with adequate notice when doing so. As we touched on, incremental increases that are built into the lease itself are one of the best ways to prevent surprises, but giving adequate notice and increasing the rent in small, manageable amounts can work as well.
You’ll also want to check to see if there are any laws that prohibit you from raising the rent and find out how much notice needs to be given in your state and for the type of lease that your tenants have.
If you plan to adjust the rent upon renewal of a lease, you might consider giving your tenants 90 days’ notice before their lease is up to give them extra time, just in case they need it. And like we mentioned, try to keep the rent increases fairly frequent (annually in most cases) and low. In most cases, 2-4% each year is a good amount to aim for, but this will vary depending on your market.
You could also use this time to consider giving your tenants an alternative to a rent increase. For instance, you could offer a lower increase if they sign a longer lease or if they renew early. Not only will this help to encourage longer tenancies, but it will also help your tenants to feel more appreciated as well.
It’s also important to weigh up the pros and cons of a rent increase with the potential for vacancies.Consider whether raising the rent is likely to cost you a tenant and leave you with a vacancy for a prolonged period of time as opposed to leaving the rent alone and keeping a tenant.
Finally, make sure you check to see what the market rate is for rentals like yours in the area and avoid going any higher.
Rent increases are never fun, but they’re important nonetheless and extremely common, so don’t feel bad about raising the rent. By working to make the increases easier for tenants to handle and ensuring that you’re increasing the rent in an incremental way that’s manageable, you’ll be able to reduce your chances of tenants leaving. Finally, remember to keep things positive with your tenants. If you’re on great terms with them, treat them well, and keep the lines of communication open, then they’ll be much more inclined to continue renting with you –even if you do end up raising the rent.
What about you? Are you struggling to keep tenants in your rentals? See: How to be an Incredible Landlord: Tips for Success.
Finally, if you’d like to outsource your property management –including tenant sourcing and screening, lease enforcement, and rent increases, reach out today for your FREE rental price analysis. See what you could be getting for your property and how easy it is to get started.
Back to Posts