No one likes the idea of rising costs; whether it is at the grocery store, gas station, or the rent. Most people work hard to maintain a budget and do not appreciate having to pay more.
As a landlord, you understand both sides. You know all too well the cost of doing business in real estate and also sympathize with having to tell your tenants that the rent is going up.
So, can you raise rent and not lose good tenants? Yes, you can if you follow a few simple steps.
Know the Market Value
Before you consider any increase, know where you stand for the property area. A little research can provide the information you need to make sure you are charging a fair price.
If it turns out the rent is quite lower than the average, do not increase the full amount all at once. You will need to work in smaller increments until you reach your desired rate.
One rate hike should be no more than 5%, with 2-3% a good place to start. Anything more than 5% will cause people to seriously consider moving.
Do not attempt to increase the rent to exceed the market rate. Your tenants will figure this out and will start to abandon ship.
Even if you are able to re-rent the property at a higher rate, the cost of turnover and the risk of reliable new tenants are rarely worth the gamble.
In addition, know the laws regarding rent control and Section 8 housing in your area. If your property falls under those guidelines, you must abide by those rules.
Raise Rent Every Year
It may seem like a good idea to skip the increase from time to time, but that is not actually the case.
People like consistency and even if the increase is only $10-$15 a month, it sets the groundwork. You will not find yourself in a position of having to explain a rate increase after two years without one if it is something the tenants have come to expect.
You are required to give a rent increase notice. The time frame should be spelled out in the lease and is typically 30-60 days. You should give at least 60 days notice if not more. Depending on their budget, they may need a couple of months to work out their finances.
It is best to send the notification by certified mail. This method provides a receipt so there is no room for misunderstanding. Keep the tone professional and state clearly what the new rent is and when it starts.
If you have developed a good relationship with your tenant, you can also tell them in person. A wise landlord does work to establish good contact with each of their tenants. This makes delivering unpleasant news a little more bearable.
If you have difficulty finding good tenants, here is some helpful information.
You cannot put yourself in the position of debating the decision with your tenant. If they are unwilling or unable to pay the increased rent, they have the option to give their notice and move out.
If they have been long term, reliable tenants, there is one other option you can choose to take.
If your tenant expresses difficulty in meeting the increase or you simply don't want to lose them, you can offer to keep the rent at the current rate if they sign an extended lease rental agreement.
The stability of their payment and not having to go through the cost of turnover makes this a win-win for both parties.
The decision to raise rent should come with consideration both for your business and with adequate notice to your tenants. It is a fact of life and handling it with tact and fairness will eliminate unnecessary loss of tenants.
If you have more questions or need additional information on rental property management, contact us.