As a landlord, raising rent is an inevitable part of the business. However, substantial rent increases can lead to tenant turnover if not handled carefully. Follow these tips to successfully implement a rent increase without losing your best tenants.
Know the Legal Limitations
Before considering a rent increase, research the laws in your state and municipality. Many places limit how much landlords can raise rent each year. For example, in New York City, the Rent Guidelines Board allows increases of 1.5% for 1-year leases and 2.5% for 2-year leases. Other areas like California limit rent increases to 10% within a 12-month period. Staying within the legal limits avoids disputes.
Check Your Lease Terms
Review your tenant’s lease to see if it includes provisions about rent increases, which may override local laws. For example, the lease may specify that the landlord can increase rent by a certain percentage each year. If the lease does not mention rent increases, follow applicable landlord-tenant laws.
Determine Market Rate
Do some research to find the current average rental rates for similar units in your area. Online rental marketplaces like Zillow make this easy. If your rent is below market, you likely have room to increase it. Comparing to similar units also helps you determine a reasonable amount.
Rental income needs to cover your expenses. If your costs have increased significantly due to higher property taxes, insurance, maintenance, etc., a rent increase may be necessary to maintain your profit margin. Add up your expenses and compare them to past years to help justify the amount of the increase.
Notify Tenants in Writing
Once you have settled on an increase amount, notify tenants in writing within the legally required time frame (typically 30-90 days). The notice should include:
- The new rental amount
- The date the increase takes effect
- Reasons for the increase
Provide this notice even if the increase is spelled out in the lease to avoid misunderstandings. Tenants may negotiate if they think you are raising rent arbitrarily, so explain the reasons.
Consider a Phase-In
To soften the impact, consider phasing in the increase over 2-3 years for long-term tenants. For example, you may increase the rent 5% this year and another 3% next year rather than 8% all at once. This gradual approach helps absorb the extra costs.
Some landlords offer perks like free utilities for a few months or gift cards to offset the rent increase. Even small concessions can go far in preserving tenant goodwill and retaining renters long-term. Before losing a tenant, see if incentives will allow you both to meet in the middle.
If you have invested in upgrades to the property like new appliances, flooring, landscaping, or amenities, highlight these in your notice as justification for raising the rent. Tenants will appreciate the improvements and understand why more rent is needed to recover those costs.
Be Flexible with Good Tenants
Try your best to work with tenants who have always paid on time and treated the property well. Offer them a smaller increase or phase it in over time. Losing great tenants will cost you more in the long run than a flexible policy on rent increases.
Raising rent does not need to be an adversarial process. By following landlord-tenant laws, communicating clearly, and showing willingness to compromise, you can maintain positive relationships with tenants even through rent increases. Over time, this leads to greater retention and profitable long-term rentals.