Property management consists of one part art and one part science. This is especially true when it comes time to raise rent prices. As a landlord, it is imperative that you understand that there is a human element that must come into play when dealing with the sensitive issue of money. Raising rent is often backed by hesitation and fear, on the side of the landlord. However, this is a critical component to ensuring the success of your business. In this guide, you will learn how to raise the rent in a tactful manner so that you are able to retain your tenants.
Why Must Rent Increase?
In short, rent prices must increase because of the fact that expenses associated with your property continuously increase. At the same time, inflation is reducing the value of the money you receive from your tenants.
You must be able to keep pace with the inflation that is occurring and the increased expenses that you incur as a landlord. You must understand, though, that there is an art to ensuring that you strike the proper balance between making sure you make a profit and keeping tenants in the property.
Expenses That You Have No Control In
To validate raising rent to your tenants, it is imperative they understand that there are expenses that must be paid. Expenses that you have no control over. These expenses include the following:
- The Taxes of the Property
- Fees Associated with a Homeowner’s Association
- Mortgage Payments
- Insurance for Landlords
- Fees Associated with Property Management Services
Expenses That May Be Somewhat Controlled
There are expenses that you may control – somewhat – as a landlord. These include the following:
- Lawn Care
- Pest Control
- Gutter Cleaning and Maintenance Services
- Appliance Repairs
- Plumbing Maintenance and Service
- Tree Removal
How Much Should Rent Be Increased Each Year?
To stick to the average rental rate increases, you should raise your rent no more than 3% to 5% each year. It is important to understand that most tenants expect a slight increase on the amount that they pay on their rent when it is time to renew their contract; however, if you increase it too much, it is likely that the tenant will elect to move.
If you stick to a 3% to 5% rent increase rate, that is ideal.
For example, if you charge $1,000 a month and increase 3%, it would end up being $1,030 a month. If you increased by 5%, it would be $1,050. This is much better than say, a 20% increase which would result in the tenant paying an additional $200 a month.
How to Raise Rent Tactfully
Now that we have covered the basics, let’s get into how you can raise the rent tactfully. First, it is important to know that if your increase is fair, the property is properly maintained, and the tenant is treated very well, that tenant is less likely to complain about the increase.
To ensure that you are taking the proper steps, we have outlined the measures that should be taken below to assist you:
1. Perform an Analysis to Determine if the Increase is Fair
First, you should compare rent among properties that are similar to yours and in the same area. There are online rental calculators that you may use to make this step easier.
You simply enter the address of your rental property and you will receive information about average rent rates and potential returns. This is a no-fail method of establishing that your rent increase is fair.
2. Refer to the Landlord-Tenant Laws of Your State
Each state has their own landlord-tenant laws. If you want to raise the rent, you must read these laws to determine when this is possible. For example, in many states, rent can only be increased at the end of the term of the contract. In other states, it may be increased before the end of the lease term if the lease agreement states this information.
If you have a rental agreement that runs month to month, you may have to provide either a 30-day or 60-day notice before increasing rent. Remember, follow the laws and guidelines of your state carefully to ensure that you protect yourself and business when electing to increase rent rates.
3. Adjust Your Rental Contract
You should ensure that your rental contract clearly provides information on rental increases. If it does not, you should make adjustments as soon as possible so that when the contract is up, you can replace it with the new contract.
This contract should state how often the rent may be raised, the amount of notice that you will provide prior to the increase, and limitations associated with the amount. Remember to stay within the legal limits as outlined by the landlord-tenant laws in your state.
4. Have a Discussion with Your Tenant
Now, on to the challenging part – having a discussion with your tenant. Yes, it will be challenging. No, it will not be the news the individual wants to hear; however, it is a part of the business and must be done.
Do not call the tenant. Do not email the tenant. When it is possible, sit down with the tenant – face to face.
Your business may be a business, but your tenants are people who should be respected and treated appropriately. Communication combined with empathy is the way to go in order to share the news in the most tactful way possible.
5. Give Ample Notice
Once you decide to raise the rent on your property, you should provide written notice. In most instances, a minimum of 30 days is required. In some areas, this may be 60 days or 90 days.
To be the most tactful, you should consider offering a 90-day notice. This will allow your tenant more time to budget for the additional expense.
These days, even a small increase in living expenses may prove to be quite challenging. It is important that you keep this in mind when deciding to issue notice for the rent increase.
6. Offer an Incentive
Hearing that rent is increasing is never easy for a tenant. In fact, it may prove to be just the thing that makes your tenant decide to look for another place to live.
A vacancy is very costly.
To retain your tenant, try to offer an incentive to keep them. For example, if you tenant has 90 days until their lease is up, perhaps offer them a 2% discount to renew early. Not only does that keep your tenant happy, but it will keep your property full. You may also offer other incentives, such as carpet cleaning services, a gift card, and other items.
7. Update the Property
Prior to increasing the rent on your property, you should perform any updates that are necessary. Perhaps the property needs painted, or an appliance needs replaced.
Perform any update- within reason. This will help in increasing the overall value of the property and may justify the raising of the rent. Even something as simple as updating the landscaping or steam cleaning carpeting can go a long way with your tenants.
8. Offer an Alternative
If your tenants simply cannot afford the increase in rent, you may be able to offer an alternative. Just be certain that the alternative benefits you, too.
One of the best is locking them into a rental contract for three additional years at the rate that they are currently paying. Not only will that avoid placing an undue burden on your tenants, it will guarantee you that income for the next three years.
If it comes down to potentially losing a tenant or offering an alternative, always offer an alternative!
9. Develop Solid Relations
If you have a good relationship with your tenant, you will have a higher retention and renewal rate. When you speak with those that rent your property, ensure that you spend some time discussing their personal lives.
Place relevant information about each tenant in a file and keep up on it. Then, when you talk to your tenants, bring up relevant information you have gathered in the past. This will mean a lot to your tenants. When it comes time to raise the rent, you will find that the individuals are more willing to go along with it.
10. Hire a Property Management Company
If you find that you have problems raising the rent, turn your business over to a professional property management company. Having someone else handle the work is always easier than doing the work yourself.
We here at Pioneer Property Management have many different packages that include services that are sure to benefit your rental business. In addition to tenant screening and selection, rent collection, and similar administrative tasks, we will oversee maintenance, repairs, and more! If you would like to take the hassle out of being a landlord, we encourage you to contact one of our property management specialists now by call us.