One of the easiest ways to become more profitable with your rental properties is to learn how to raise rent on a tenant.
Raising the rent requires a blend of good business skills, marketing research, public relations with tenants and legal requirements, making it a key part of anyone’s real estate investment business.
Whether you are a new landlord wondering how much to charge or an experienced one who hasn’t raised the rent in a few years, the process of raising the rent is one that seems easy on the surface but can result in a loss of money or tenants if not done properly.
If you are thinking about setting or raising rent for your rental property, this guide should help you get started. Please note that the information in this guide is intended for landlords whose rental properties are not in a rent-controlled area, as the rules and regulations are much different in those locations.
How to Raise Rent on a Tenant
Determining what the new rent amount should be is one of the more frustrating tasks you’ll face as a landlord. Charge too much and you may have a hard time attracting or keeping good tenants. Charge too little and you won’t be making the kind of profit you ought to be.
Comparing your rental property to others in your area is a good place to start, but shouldn’t be the sole factor in how much rent to charge. After all, your rental property is one-of-a-kind and should be evaluated as how much a tenant is willing to pay for your unique place, which may have some significant benefits or disadvantages over the competition.
You can use a tool such as Zillow and set the filters to show you only rental prices:
This will give you an idea of what prices landlords are asking for in your area right now.
This is how Zillow creates their zestimate which is an estimate of what your property would rent for.
Just enter your address into Zillow and you will see the highlighted area below for your Rent Zestimate.
When looking for comparable rental properties, use these tips to get the most accurate idea of rents in your area:
- Get at least 5 other rental amounts as close to your rental property as possible, preferably on the same block.
- Look at rentals that most closely match your rental property’s features, such as the same number of bedrooms, bathrooms, parking, square footage, and so forth.
- Use rentals that are approximately the same age as your rental property, within just a few years.
- Find comparisons for rental properties that best match the structure and style of your property, such as a multi-unit property, duplex or single family home.
- Compare rental properties that have the same visual appeal as yours, such as similar landscaping, outdoor amenities like a pool or swing set, and so forth.
These are important factors that online services can’t take into consideration.
Online tools won’t know if your bathroom is newly remodeled or from the 60s.
Establishing Rent for a Vacant Property
When you have a vacant property and you want to increase the rent from what it has been, and you’ve done the research to get a best estimate, it’s time to put it into practice. Start advertising your rental property with the new rate in all your local listings (newspaper, online, rental publications, etc.) and carefully observe what happens to ensure that the new rent is appropriate.
- If you are getting few to no calls from interested applicants, it may be that you’ve estimated too high and people are not finding that your advertised price is equal to the description of the property. Fight the urge to drop the advertised rent too soon, and focus on ways to adjust your descriptions to paint a clearer picture of the rental property so that interested parties will more closely match the rent rate with the property and give you a call. You may want to review and even expand your advertising mediums as well to reach more people.
- If you get a lot of calls and appointments to see the property, but visitors are turning away after viewing it, you may have a problem with the property itself. In other words, the price matches the description of the property, but the actual property doesn’t equal the rental rate. It may be time to do some improvements at that time, because you’ve determined that people are at least willing to look at a unit at that rate.
- If you are getting flooded with phone calls and have several applicants at once vying for the property, that may seem like good news but you have to wonder if you’ve set the rent a little too low for the market rate. Consider a rent increase after the new lease is up.
Avoid the urge to drop the rent drastically if you don’t get a qualified applicant within a week or so. It takes time and you can afford to let your advertising do its work for a while to attract those qualified tenants who are willing to pay the market rate for a property like yours. Remember, you always want applicants and tenants to feel like the rental property is worth more than the rent you are charging.
If you’ve put maximum effort into your research, making your property the best it can be and done your best in advertising it, yet you still don’t get the responses you hope for, then it is time to carefully lower the advertised rental rate.
Raising the Rent With Existing Tenants
When you and your current tenant sat down to sign the lease agreement, it clearly specified the amount of rent due each month, plus the term of the lease agreement. When you want to raise the rent amount, the lease is the first place to start. You cannot raise the rent until the end of the lease period, so if your tenant signed a 1-year lease, you can’t implement a raise until that has expired.
Check your state law about how much time is required to notify a tenant before a rent increase. Most states set up between 30 and 60 days, but to stay compliant, you should find out specifically for your situation. Some states also regulate the percentage that landlords can raise the rent after an expired lease, so get familiar with the laws in your state on this before doing anything.
If the lease expiration is approaching, there are certain steps you must follow.
- Make sure your rental increase notice is taking place in plenty of time and in compliance with your state laws.
- Put the information in an official written notice to the tenant that includes the new rental amount and the date it becomes effective. This can be a signed and dated letter, or you can download a form from online.
- Keep a copy of the notice for your records.
- Send the official notice of rent increase to the tenant via certified mail, or else hand deliver it to the tenant at the rental property.
- As a courtesy, send the tenant a follow-up email, letter or phone message reminding them of the new rent right before it is due.
Be prepared for the tenant to get a little upset at the rent being raised and probably contact you to negotiate. Of course, remain professional and explain that you need to keep up with the current rental market rates and that you hope they will stay. Your tenant may choose not to renew the lease agreement and start looking for another place. Keep the lines of communication open so that you both end the lease term in ways that benefit each of you.
If your tenant is choosing to renew the lease agreement with the new rent for another year, make sure the new rental amount is reflected in the new lease.
If the tenant is on a month-to-month agreement, where there is no written lease or the expired year lease has gone into a month-to-month tenancy, you can raise the rent at any time after giving a 30-day notice. Follow the same procedure and always keep track of notices, email or text conversations and so forth for your records.
Red Flags in Raising the Rent
Landlords are not allowed to raise the rent if it is done as a result of discrimination or retaliation. If you are planning to raise the rent, make sure that you are doing it for the right reasons and can document those reasons in case of a future conflict with your tenant. Even the appearance of raising the rent as a result of discrimination or retaliation can land you in court, even if you didn’t mean it that way or never even considered the possibility.
Raising the rent as a result of discrimination may happen if something has changed or you recently discover something in regards to the tenant’s gender, race, national origin, religion, disability or familial status. Some states and municipalities also include age, sexual orientation and other protections in this. It can look like discrimination if you send a notice for a hefty rent raise shortly after being made aware of something or there is evidence of some change about the tenant or tenant’s family.
An example might be if a tenant has a baby and the landlord implements a rental raise shortly thereafter. Another example might be that a landlord discovers a tenant is gay and raises the rent drastically in order to force the tenant to move. To stay within the law, make sure that your rent increases are moderate and are not connected to any sort of discrimination or desire to force the tenant out on your part.
Raising the rent as retaliation can take place when a landlord tries to force a tenant out for exercising their rights, such as asking for repairs or performing certain actions as a tenant. An example of this might be if a tenant reports building code violations in the rental property to the local regulating agencies, who then take action. Another example is if a tenant forms a tenant rights group within a multi-unit community to better enact change with the management.
Many courts automatically assume any rent increase within six months of such action is retaliatory. Make sure that if your tenant has done anything like this that you don’t raise the rent shortly after or do so in order to get revenge or make them leave.
Do It Right and Reap the Benefits
When you take all these factors into consideration, you’ll be in the best position possible to be setting a fair market value for your rental property if it is vacant, and keep up with the market rates if your rental property is occupied. There are very few cases where it is ok to raise the rent drastically. Setting a good initial rental rate that reflects what your rental property is worth to tenants will mean more moderate increases year after year that will attract qualified tenants and won’t scare away existing tenants.
It’s your right to make money on your real estate investment, and setting the right price and keeping up with the market without going overboard is the best way to do that.
What are some tips, tricks, and strategies you use in raising the rent at your rental properties? Please share this article and let us know in the comments below?
Can a landlord raise rent after lease expires?
This is a common question renters ask when the notice comes that the rent is going up.
The answer is that yes a landlord has the right to raise the rent AFTER the lease expires. The landlord does not have the right to raise rent during a lease as that would be a violation of the contract.
There is a certain situation where a landlord cannot raise the rent. If it is a rent controlled area or a property part of the Housing Choice Voucher program (Section 8) there may be caps on how much a landlord can charge for rent.