Raising rent is inevitable. If you lease your property long enough, you’ll see an increase in property values, which results in increased taxes. Or you may notice an improvement in your neighborhood that prompts the market rent in your subdivision to jump. Sometimes, inflation simply demands a higher rent.
Whatever the case, you’ll eventually need to raise the rate on your rental. So how do you know when it’s time? Follow these steps to do it right.
How to Raise Rent for Your Investment Properties
1. Review Market Activity
The first step is to pull market activity for your area. If you’re charging below average, it’s time to bump up your price.
What’s the difference between your rate and the average? If it’s minimal (and you have a good tenant), you’ll probably want to skip the increase for now. However, if there’s a significant gap in the average vs. what you’re charging, consider making the jump.
Decide if the increase is worth the trouble of finding a new tenant. The tenant may accept the increased rate, but they also may decide to move. Ask yourself, “Is the proposed increase worth losing this tenant?”
Related: The Art of Keeping Your Best Tenants Happy
2. Review the Tenant’s History
When you raise rent, you’re potentially losing a tenant if they don’t want to pay the increase. Know their history before you deal with the rent. What repairs have there been? Has the tenant breached the lease or violated any HOA regulations?
A tenant’s rental history often determines the approach you take. Also, it may help you see how valuable that tenant is to your property.
3. Contact Your Tenant
Now it’s time to talk to the tenant and explain the rent increase. People get mad if you just tell them the bottom line. You’ll have much happier tenants if you take the time to show them the reason behind your decision.
Explain the factors that contributed to your decision. Have your taxes increased due to rising property values? Are neighborhood rates much higher? You can even send them the comparable listings of rental properties in the neighborhood. If they see that each house leased in the past year has rented for $100+ over their rent, they’ll likely understand your rationale and think twice before moving out.
Related: What Should You Do When a Tenant Skips Out On Rent?
In these conversations, communicate that it isn’t a personal decision but rather one based on the market. Showing respect to the tenant by offering an explanation makes a world of difference in their perception of the change.
What Are the Downsides to Raising Rent?
The only real disadvantage to raising the rent is the potential for having to find a new tenant. So if you think it may be time to bump up the price of your property, consider it carefully. Crunch the numbers to make sure it’s worth the effort and tell your tenant why you’re increasing the price. Then stay tuned to the market for the next increase.
Looking for help raising rent or handing tenant communication? Send us a message!