A Landlord’s Guide to Raising Rents (And When to Do it)

By: , Contributor

Published on: Dec 19, 2019

Raising rents is a stressful but necessary part of a landlord’s job. Not sure how to go about it with your current tenant? Here's how to do it successfully.

If you're a landlord, there will most definitely come a time when you need (or at least want) to raise your rents. But doing so can come with some challenges.

What if you raise them too much and drive your tenant out? Six months of vacancies -- or a new, much more terrible tenant -- aren't worth an extra $25 per month.

What if the hike makes the tenant mad, pushing them to damage your property in the process? What if you just hate awkward, money-related confrontations?

These are all valid concerns. Fortunately, as long as you plan your rent hike ahead, have plenty of resources to back it up, and are clear and direct with your tenants early on, you can avoid most of the hurdles you fear.

When should you raise your rents?

There are many reasons you might want to raise your rents as a landlord. Improving home values and local renter demand are the most common. As these go up, rents rise in step, and tenants need to pay more to keep their prime-location properties.

You may also want to raise rents when:

  • Your insurance premiums or taxes go up
  • You have more HOA or community fees
  • Local costs of living have risen
  • You're dealing with higher utility costs on the property
  • Your property management fees are up
  • You've updated or renovated the property

At the end of the day, though, you don't really need a reason to increase your rent. If you feel your property is worth a higher monthly fee, you're free to see if the market will support it. Just be careful; vacancies can cost you.

How to raise your rents

Now, onto the hard stuff.

Raising your rents can certainly be stressful, but it's a necessary part of the job -- at least if you want to safeguard those returns.

Here's how the process should go:

1. First, know your lease (and your local regulations).

Study your tenant's lease carefully. When is the lease up? When are they supposed to let you know if they're renewing? If you're planning on raising the rent, you should try to give them at least 60 days' notice ahead of this date, both for your sake and theirs. (It gives them extra time to budget and you plenty of time to find a new tenant if they're not happy with the increase.)

With the growing rent control movement, you should also check in on your local regulations. If there are rent control policies in place, do your research and know what rent hikes are allowed in your area.

2. Study up on the market.

Pull local rent comps and see what other properties are going for in the area. If you haven't done it in a while, you might be surprised at what you'll find. Just remember: if your rent is significantly lower than other comparable homes, you might not be able to ask for those other, higher rents in full just yet. You're likely better off splitting the difference.

For example, if your tenant's rent is currently $2,000 per month and the going average is now $2,250, consider charging $2,150 instead. It brings you an extra $150 per month, while also ensuring you avoid an expensive vacancy or potentially bad new tenant.

3. Send plenty of notice.

Once you've determined how much you're going to raise rents, then let your client know -- multiple ways. Send a certified letter, call them, email them, or text them, whatever you prefer, but do it using two different, documented methods.

In your notice, be precise about the hike, and include the comps that justify it. Show them it's a business decision, is nothing personal, and should be expected given the property and its location.

4. Check back in.

If you don't hear back right away, don't wait too long before checking in. You want plenty of heads up in case you need to find a new tenant. You also want to get the ball rolling on any negotiations if they're going to try and haggle you down a bit.

A quick tip: If you think your tenant is definitely the type to negotiate, then go ahead and build some cushion into that rent increase. Once they negotiate, drop the price down to your intended ask, and it's a win for both of you.

A better way forward

Want to avoid the whole rent-raising struggle in the first place? Simply build automatic rent increases into your renewals every year.

Raise rents by $25 or $50 a month like clockwork, and tenants will come to expect the jump annually. There will be no surprises, no confrontations and, most importantly, more cash in your pockets. And isn't that the whole point of real estate investing?

Become A Mogul Today

Real estate is one of the most reliable and powerful ways to grow your wealth - but deciding where to start can be paralyzing.

That's why we launched Mogul, a breakthrough service designed to help you take advantage of this critical asset class. Mogul members receive investing alerts, tax optimization strategies, and access to exclusive events and webinars. Past alerts have included investments with projected IRRs (internal rates of return) of 16.1%, 19.4%, even 23.9%.

Join the waitlist for Mogul here and receive a complimentary 40-page guide on a NEW way to build wealth. Join waitlist now.

FREE - Guide To Real Estate Investing

The Motley Fool has a disclosure policy.