Posted: September 23, 2021
No tenant likes having their rent go up. However, as a landlord, there are ways to handle a rent increase that make it much less likely to lose good tenants to a potentially costly turnover.
Even if a tenant has already decided to move out, you might not know it when you choose to initiate a rent increase. Consequently, a goal with every rent increase should be to retain good tenants, although some turnover is inevitable in practice.
Generally, there are a few main times when a rent increase can be performed. Usually, this is when a tenant’s lease is expired or up for renewal. Since one of the primary mistakes people make is waiting too long to raise the rent, it is good to get in the habit of adjusting your rent annually to reflect market rates. (Note that this assumes your property operates under a lease that lasts 12-months or less.) Additionally, make sure to pay attention to local laws regarding rent increases, as these vary by state or city and can affect how you carry out your rent increase.
One of the first steps in raising the rent is to do market research. You want to look at the going rates for comparable properties (both in terms of location and quality) so that you remain competitive with market rates. Commonly, rent increases will average between 3-5% a year, but be sure that you do not raise your rent above market rates.
Once you’ve determined the amount of the rent increase, your next step is to approach your tenant. In most places, you will be legally required by law to notify your tenant in writing. Local laws may determine how far in advance you must notify your tenant—but a good rule of thumb (where laws do not require an extended period) is to inform your tenant in writing 90 days before their lease is up for renewal. This timeframe will allow them time to plan for the rent increase in their budget.
That said, it is a good practice to call and notify your tenant in person before sending the letter. Calling and talking to your tenant makes the rent increase less impersonal and shows that you are available to address any of their questions or concerns. Make sure to be prepared to justify your rent increase. If you’ve made any improvements to the property in the last year, you can point to that. Otherwise, you can talk about rising costs or expenses that make the rent increase necessary.
If a tenant does decide to move out over a rent increase, all is not lost. Your next step is to find a new tenant by marketing your property at its new rate and performing tenant screening on applicants. While a goal with rent increases should be to retain tenants, rental turnover does happen. Tenant screening services like Starpoint Screening can help when you’re faced with this situation by making the process of conducting credit and background checks for tenants easy. Starpoint provides fast online tenant screening, thus speeding up the turnover process and reducing costs or loss of income you might incur with a property sitting idle.
Initiating a rent increase can be stressful, but it doesn’t have to result in higher turnover. With care and consideration, rent increases can help you receive more money for expenses or improvements without losing tenants.