With the cost of living on a steady incline and the demand for rental housing being pushed to an all-time high, it is inevitable that landlords will need to increase rents to keep up with market trends. This is great news for owners as increased rents equals more income and can mean an increase in property value. There are factors to take into consideration when increasing rent on a tenant. If done correctly, you will limit high turnover and keep vacancy rates low.
Before increasing rents, evaluate your local laws to ensure that raising rent is an option. Some areas with rent control may not allow such an option. Other areas may only allow a specific percentage increase. It is important to establish that you are compliant with all federal Fair Housing laws as well. This means not raising rent in any discriminatory manner. If you’re unsure of your local and state laws here is a great resource.
Inspect the leases in your portfolio. Since you cannot raise rent on a tenant who is currently in a lease, look for leases that are going to expire so that rent can be raised after the expiration. Having a report with lease every expiration is the foundation of successfully increasing rates. Having too many leases expire in any given month can hinder your ability to raise rents without taking a vacancy loss.
If you are unsure of current market rates for your area, start by shopping the competition. Talk to local property managers in your area and find out how strong the market is. Call a couple properties and ask for a quick market survey to research what similar units are renting for.
Once you have completed market research, observed your lease terms, and confirmed compliance with federal and local laws the next step is to inform the tenant. The most professional way to start is to send a written renewal notice within 30-90 days (depending on what your state requires). Using a form letter that is already prepared can save you time and keep things organized.
This is a terrific opportunity to communicate with your tenant about any maintenance needs that the tenant may have forgotten to inform you about. You can offer incentives to the resident to resign a lease by offering a basic carpeting cleaning or small upgrades to the unit. Not every resident is going to be happy about an increase in their rent. Making it more palatable to tenants by including a benefit to the tenant will encourage them to resign a lease.
Small raises with each lease renewal is a much easier process than a substantial increase all at once. This is the best practice to soften the process for the residents and ensure you keep vacancies low.
The process of raising rent can be overwhelming to some property managers. Finding a balance between raising rents and keeping both owner and tenant happy is the best way to ensure that everyone is happy. Knowing the best practices for this and staying organized ensure that you are successful.