The residential rental market in the U.S is booming. According to research, rental prices are soaring by between 10 and 15 percent in many markets. However, even with the increments in prices, you cannot raise the rent on already occupied properties without laying a strategy.
No tenant wants to hear about a rent increase. Some may opt to move than pay an extra dollar for rent. Therefore, as a landlord, you have to implement the raise strategically to avoid losing tenants.
How should you go about the process? What strategies and steps should you use to raise rental prices and retain your valued tenants? Keep reading to find out!
1. Analyze the Prevailing Market Rates
Before effecting any rent increase, analyze the prevailing rental rates in the market. How are other properties like yours priced? Is your price lower or higher than the average pricing in your area?
If you try to increase the rent above the current prices, tenants will balk, fail to renew their lease agreements and leave you with empty apartments. This will reduce your rental income and defeat the purpose of increasing the rent in the first place.
Do your homework. Know what other landlords in your neighborhood, town, and city are charging. This way, your current tenants won’t feel ripped off or want to move.
2. Check Legal Limits in Your Area
Are there any rent controls in your area? If you don’t know, it’s time to find out. Don’t raise rental prices before finding out the legal limits.
Some locations have stringent regulations which prevent landlords from raising the rent. Others have legal limits landlords should adhere to. Rental prices should be within these limits; otherwise, you risk a run-in with the authorities.
Tenants can also sue for increased rental prices, and the last thing you need is to fight legal battles. Check the rent control laws in your area and have them in mind when calculating the increase rate.
3. Choose a Reasonable Rate
After studying the market and understanding local regulation, it’s time to set a reasonable rate. Don’t start with a very high price as this can chase away tenants.
It is advisable to raise the rent by a maximum of 5% every year. Don’t go above this rate. In fact, you can start between 2% and 4% per year until you reach the desired price.
For example, say you currently charge $1,200 for rent. You find out the local rental prices are $1,300. Instead of raising it by $100 at once, increase by $50 this year and another $50 next year.
Alternatively, if you aren’t sure of the rates, talk to other landlords in your area and ask about the most reasonable rent increment rates. This way, you stay within limits and avoid losing tenants to more favorably priced rental units.
4. Draft the Rent Increase Letter Wisely
The rent increase letter is the formal notice you send to your tenants informing them of the changes in rental prices. The way you draft this letter determines how your tenants will receive it. Therefore, do it wisely.
Take time to write the letter and inform your tenants of the changes. Also, let them know the factors which necessitated the rent increase. These could include the following:
- An increase in rental prices in the local real estate market
- A rise in property management fees
- An increase in the cost of living expenses
- A rise in mortgage interest rates on the rental property
- An increase in property taxes and utility costs
When your tenants know why you’re raising the rental prices, they understand you’re not just after increasing your income. You appeal to their emotions and get them to agree to the new rates without raising questions.
Be formal but friendly in the letter. Provide as many details as possible and urge your tenants to reach out to you with questions regarding the increase.
5. Justify the Increase
Despite explaining the reasons why there’s a need to increase rent, tenants may still feel like you need to justify the new rate. You can do this by taking simple measures to make them feel like you’re adding tangible value to the property.
A few examples include the following:
- Carry out repairs on old or worn fixtures in the rental units. Upgrade old fixtures with new ones.
- If you haven’t recently painted the property, do it. Repainting improves the aesthetic appeal of the interior and exterior spaces.
- Revamp the landscape on your property. Tend to the plants and set up new landscaping features to increase the curb appeal of the property.
Remodeling, repairing, and upgrading the property may cost you much in the short term. However, tenants recognize your effort in improving their quality of life. As a result, they are more receptive to rental price changes.
6. Give Plenty of Notice to Tenants
The worst mistake you can do is to give a short rent increase notice to your tenants. If they are unable to raise the extra money within the period, some may opt to move out.
Retain your current tenants by giving them plenty of notice. A few months is enough for them to adjust and make arrangements to pay something extra above the usual rental charges.
Note that the law has set guidelines on how much notice landlords should give tenants before raising the rent prices. For example, in California, landlords should issue a 30-days’ advance notice for a month-to-month rental agreement.
You can give a notice of up to 90 days or more and allow your tenants adequate time to prepare for the changes. Review the specific laws in your state regarding the minimum notice period.
7. Provide Reasonable Options
Do you want to raise the rent without losing your tenants? Provide them with reasonable options. Don’t ask them to pay up or move out.
Instead, provide other reasonable options which will benefit the tenants and also earn you more rental income. For example, you can offer your clients a multi-year lease agreement with a lower rental rate.
Instead of raising the rent by 5%, you can offer them a 3% or 4% increase. Multi-year lease agreements earn you long-term tenants. This reduces the hassle of finding new tenants every few months and stabilizes your rental income.
8. Pass the Bad News via Call
Raising rent is bad news for your tenants. Even though you are legally required to send a written notice, there’s a need to give your tenants the heads up through a phone call.
Call your tenants a few weeks before sending the written notice. Let them know there may be changes in the prevailing rental rates. Assure them you are aware of how bad the news is, but there isn’t another option.
You don’t have to disclose the new rates via the call. Let your tenants know you’ll provide the full details in the written letter. Also, encourage them to approach you with any queries concerning the matter.
Making a friendly call eliminates the surprise element and increases the chances of your tenants becoming more receptive to the bad news.
9. Work on Establishing Good Relations with Your Tenants
Do you often talk to your tenants? Do you have a good relationship with them? Would they feel bad about leaving your property over a slight rent increase?
Long before sending the legal notice, work on building a good relationship with your tenants. Be a good landlord if you aren’t already. Build rapport with your customers.
Tenants are more likely to overlook the slight raise when they feel valued and wanted. Work on this relationship even after raising the rent, and you’ll earn yourself loyal, long-term tenants.
10. Ask Tenants About Unmet Needs
After increasing the rent, focus on meeting the needs of your tenants. Visit or call them and ask about any changes or improvements they’d like on the property.
It could be an upgrade of some household fixtures or improvement of the existing security systems. Don’t be afraid to splurge on improvements that will increase the value of the property and earn you more tenants.
11. Focus on Filling Unoccupied Units
Do you have unoccupied units on your property? Now is the time to find tenants for them. After effecting a rent increase, there may be at least one or a few tenants who will choose to move out.
Finding occupants for vacant units offsets the deficiency. As a result, your rental income remains stable amidst the tenant turnover crisis.
Market your property on digital media and local print media. Use high-quality, professional photos, and if possible, hire a pro for the task. Show off the landscaping and furnish the interior with new fixtures.
Ensure your units look and smell good for showings. Show genuine interest to prospective tenants by doing the following:
- Ask questions and shoot the breeze with them
- Be friendly during the showings
- Don’t oversell the rental units
Finally, as you sell, remember to screen prospective tenants to filter the bad ones. Check for evictions, criminal record, and credit rating.
Implement a Rent Increase Without Losing Tenants
Are you ready to effect a rent increase on your properties? Follow these tips to ensure a smooth raise without losing your valued, loyal tenants.