When should you raise the rent? Ideally, making the change after a tenant turnover is best — you simply rent the unit out to a new tenant at a higher rate. If you have the same tenants in place, though, you might end up having to increase the rent during his/her occupancy. Approaching an increase in the right way is the key to charging more without turning off your tenants.
Provide Reasons for the Increase
Having firm reasons for the rent increase will help you convey the need for it to your tenants. If rents have risen all around your property, but you are still charging less, an increase is a sensible business decision. You also may be faced with needing to raise costs due to issues beyond your control — from increases in the cost of living in your area to rising property taxes and costs. Letting your tenant know that the increase is based on facts and business, not on a personal whim can help him/her understand your reasoning without damaging your relationship.
Choose the Timing Wisely
Several things matter when it comes to timing an increase: the legal rules in your state and the provisions in your lease require you to enact an increase in a specific fashion. The way in which you communicate the change and your reasoning will impact how your tenant feels about this action as well.
Read your lease carefully to determine what you’ve agreed to in terms of rent increases and follow the outlined rules explicitly to avoid legal troubles. In some states, you must give renters a reasonable amount of notice before raising the rent; 30 days’ notice is required in the state of Texas, for example.
Communication matters for other reasons as well. When big companies like Netflix raise rates, they let customers know well in advance; you may not be running a household brand, but following this strategy can save you plenty of headaches. By providing a fair amount of notice, you give tenants the chance to adjust their monthly budget and anticipate the coming change. Simply sending a note the day before rent is due won’t suffice; provide some advanced notice so tenants can truly prepare.
Communication is about more than letting tenants know an increase is coming. Most tenants will fear additional increases or worry that you’ll hike the rent up again soon. Reassuring your tenants when you state your reasons for the rent increase can help reduce the anxiety they may be feeling. Most people understand an occasional annual increase, but would object to increases every few months.
In a world where foreclosures are still making headlines, your tenants may even fear that you are in danger of losing the property — and leaving them with no place to live. Clear communication can help here, too; and prevent tenants from fleeing your property for a more stable solution.
Offer Another Incentive
The tenants in your home or property chose it for a reason, and a small rise in rent is still much less costly than moving. Offering some other incentive can help ease the pain of the change. If there are changes you were planning on making anyway, from having a landscaper enhance the exterior to power washing or adding a new mailbox — do them sooner, rather than later. Any of these tweaks can add appeal and value to your property and is something you’d likely do anyway. Offering something new can help cut the pain of a higher rent payment for most tenants.
Planning ahead so that rent increases can naturally happen as tenants turn over is the easiest way to increase all of your rental income over time, but the right approach can help you avoid alienating your existing tenants. A businesslike approach to a rent increase, combined with true, tangible reasons and clear communication allows you to charge more without scaring away your renters or causing undue strain on your relationship.
Jeff Cronrod is currently a board member of American Apartment Owners Association and has more then 40 years of experience being a landlord. He developed, managed and rehabbed more than 4,000 rental units in the US.