Your rental property is a powerful income tool which is why its rent should keep pace with the market.
While there are many factors at play any time you are thinking about raising the rent for your tenants,
you must carefully stay within landlord-tenant laws. If you are not fully versed in your state’s housing
laws, be certain you contact a lawyer to discuss your situation fully. Beyond legalities, there are also
occupancy pressures surrounding your decision. If you are considering a rent increase for one or more of
your investment properties here are some basic questions to answer first.
Has the Current Lease Expired?
A key consideration to help you decide if it’s the right time to raise your tenant’s rent is your lease
agreement. You cannot change the amount of rent your tenant pays you each month whenever you
want. It must be after the contract you’ve entered with them expires.
Have You Given Your Tenant Notice?
Most states require at least 30-days’ notice to be given before rent can be increased. It is also wise to
give notice in writing with some type of proof, either an email with a return receipt or a piece of mail
with a signature guarantee. That way, if any disagreement arises you are able to produce a paper trail.
What is an Appropriate Amount of Rent?
While the amount of rent increase is really up to you, the landlord, there are consequences to your
actions. When increasing rent, you run the risk of losing tenants and experiencing a vacancy. There
are some key questions to ask yourself before you proceed.
- Is this a quality tenant?
- If your current tenant pays their rent on time, keeps the space clean, and does not cause you any headaches – they may be worth keeping. Raising their rent could cause them to look for housing elsewhere. You could lose them as tenants and open yourself up to vacancy risk.
- How long would it take me to fill this rental property if it was vacated?
- Is the market hot or cold? If a rental market has a high rate of turnover, you could fill the space immediately and have zero regrets about raising the rent. However, if the market is slow, you could be paying a mortgage for many months while you try and fill the vacancy.
- Do I have a solid grasp of the current market conditions?
- Doing a deep dive into your local rental property market will pay off immensely when deciding on an appropriate level of rent. Call other rental properties advertising available units to find out how much they are asking. Also, keep an eye out for any incentives such as the first month’s rent included or any paid amenities. These types of incentives will put you at a disadvantage unless you are prepared to meet or exceed such offers.
Once you’ve realistically answered these questions, keep in mind that most tenants have reasonable
rent increase expectations. They know their rent will not remain the same forever. As a landlord, you do
not have to justify your rent increase to them but there is an argument to be made that variable
expenses, like property taxes and utilities, are always increasing and therefore rent must increase too.
Be fair and communicate changes effectively to not only achieve fair market rent but also maintain your
tenants over the long term.