How To Raise Rent On A Tenant The Right Way

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Regularly raising the rent keeps your properties in line with market rates. But you can’t just issue a rent increase haphazardly. The first step is finding out if it’s even possible to raise the rent on a tenant. When a tenant is in a lease, the rent is fixed for the term of that lease and cannot be raised until after the lease is over. This is why rent raises are most common upon the renewal of one’s lease.

Purchasing your first rental property is just the beginning of your real estate journey because being a good landlord is almost as important as making good deals.

Now, let’s talk about how to raise the rent on a tenant and not lose them.

How to Raise Rent

1. Check your local laws regarding rent regulations

Month-to-month rental agreements typically allow you to raise the rent at any point, as long as you give enough notice. Usually, that means 30 days, but sometimes a 60-day notice is required. Check your local landlord-tenant laws.

If you are in an area with rent control, where the government controls rental prices, check carefully with your local laws. There is a good chance you won’t be able to raise the rent at all.

Despite this, there are pros and cons to rent control. Investors shouldn’t always shy away from these properties!

2. Make rent increases an aspect of your lease

When onboarding your tenant, tell them that you keep your property rents in line with the market. Because of this, rents may or may not increase for the next lease term, depending on the market rate. This gives them a heads-up about what to expect, ensuring no surprises.

Most tenants expect reasonable rent increases when they renew their leases. The word ‘reasonable’ is key here, however, which brings us to the next point.

3. Determine how much you can raise rent

You’ve already set the stage by mentioning that rents may increase. A $100 increase will give you an additional $1,200 during their second year – but if they choose to leave, or you’re forced into eviction, how long will it take you to turn it around? One lost month of rent will all but eat up that rent increase.

Is it worth the gamble?

What if you split this year’s increase with them? Or only increase it to $75 instead? Most tenants who were considering staying won’t leave over a new rent that’s only $50 more, especially if you properly screened them and they are financially capable of affording the payments in the first place.

Keeping rent increases conservative typically pays off in the long run as it ensures your property doesn’t stand empty, losing your rental income.

4. Keep on top of repairs and maintenance

Be honest with repairs and maintenance before trying to raise the rent on your tenant. If you’ve kept on top of repairs, resolving all issues promptly, and especially if you’ve made major upgrades to the property while the tenant has been living there, you’re well within your rights to increase the rent. But if you’ve been neglecting the property, especially if the tenant has made requests for repairs or renovations, you might not have a case for increasing the rent. 

Often, though, the lease renewal point is a good time to make a fresh start with your tenant. If you make all the repairs they’ve been asking for, perhaps throwing in an appliance upgrade, they could still agree to a reasonable rent increase.

5. Notify your tenants

How much notice to give will depend on where you live. Some states or municipalities require giving at least 30 days’ notice but others insist on 60 or even more. Pay attention to local laws and get the appropriate legal advice before sending out rent increase letters.

6. Set fair market rates

You shouldn’t haggle with tenants about the rent increase if it’s set to a fair amount. You will need to do some local market research before you decide on what’s fair. Compare your property to what is available at the time you are considering the rent increase. Other properties offering fewer amenities at a higher price are a good indicator you’re under market, and you should raise your rent.

Most landlords end up raising the rent by between 3 and 5%. Beware of setting a massive hike, though. If your tenant currently pays you $1,600 a month and you decide to raise the rent to $2,000, they’ll almost certainly leave.

FAQs: How to Raise Rent on a Tenant

Is it legal for a landlord to raise the rent on a tenant?

Typically, yes, but different states and even cities have different laws on how often a landlord can raise the rent. In most cases, it is only possible to raise the rent during the lease renewal period, unless the tenant is on a month-by-month tenancy.

When can a landlord not raise the rent on a tenant?

Some properties are rent-controlled, which means you won’t be able to raise the rent on them. There also are laws that prevent landlords from raising rents on a tenant as retaliation or in an attempt to make them move out. 

Finally, a landlord cannot raise rent without giving due notice.

How much can a landlord raise the rent on tenants?

The typical rate of annual rent increase across the US is 2%. Depending on where you live, an increase of between 3 and 5% is usually possible. Note that in some areas, you will have to pay your tenant’s relocation costs if you raise the rent above a certain rate. 

How much notice for rent increase do landlords need to give tenants?

The typical notice period is 30 days before the current lease expires. However, different areas have different requirements, so you should always seek legal advice before giving your tenant a rent increase notice.

What is the average rent increase per year?

According to the Bureau of Labor Statistics, “In the first half of 2022, the average percentage change in rent was 12.2 percent for new tenants and 3.5 percent for same tenants”.

Notice Of Rent Increase Templates

As a landlord, you have several options for how to frame the rent increase to your tenant. You may opt for what’s known as the marketer’s approach, where you give your tenant several rent increase options depending on how long they want to stay.  

The marketer’s tactic may not be for everyone, however. For instance, if you don’t want to encourage renters to switch to month-to-month or six-month leases, you may only offer a flat-rate increase. There’s no wrong choice – go with whatever option works for you. (We do recommend sending any letter via certified mail to ensure your tenants have received it.)

Rent increase notice with options

Dear John Tenant,

Thank you for your tenancy at 123 Main St, Apt 1! We’ve really appreciated having you here this past year and look forward to continuing our relationship with you. It is a privilege to be able to work with you, and we thank you for your business.

According to our records, it appears that your lease term is coming up at the end of next month and, as such, we need to discuss your future plans to make sure we are all on the same page. Due to naturally increasing expenses for the owner, it is necessary to gradually increase rent over time. Therefore, a slight monthly bump in your monthly rental rate will take place soon. However, we would like your input on where to go from here.

Please choose from one of the following options for your future at your home. Simply circle the option below you would like to choose and send the form back to us. We will prepare a new lease with the proper information and mail it to you within seven days.

Sign a new one-year lease at $1,050 per month, which will begin on September 1, 2022, and end on August 30, 2023. This is an increase of $50 per month.

Sign a new six-month lease at $1,075 per month, which will begin on September 1, 2022, and end on February 28, 2023. This is an increase of $75 per month.

Sign a new month-to-month lease at $1,100 per month, which will begin on September 1, 2022. This is an increase of $100 per month.

Although we hope you’ll stay with us forever, if you do not plan on renewing your lease, please let us know immediately. Our state law requires tenants to give 30 days’ written notice to vacate before the end of their lease. Therefore, please return this form and let us know your plans by August 1, 2020 so we can make that work for everyone.

Once again, thank you for your residency here at 123 Main St, Apt 1. We look forward to many more years of working with you.

Sincerely,

Management

Rent increase notice without options

Colleen F. shared this letter in the BiggerPocket Forums. She sends this out in accordance with her state’s timeline for rent increase notices:

Dear John Tenant,

Thank you for being a tenant here at 123 Main St, Apt 1. Our goal is always to provide a nice place to live, at a fair price. Whenever the prospect of raising rent comes up at any property, we take a good hard look at it to make sure it’s necessary.

In that light, we have decided it is necessary to raise the monthly rent on your unit, effective September 1, 2022, to $1,050 from $1,000. This is partly to offset the increasing cost of property taxes, insurance, high heating expenses, maintenance costs, and upgrades since our purchase of the building in 2010.

Even after this increase, we believe we are still at or below the average market rent for a unit of this type. Rather than pay an increase, you may choose other housing. Should you intend to vacate at the termination of your lease, the original lease agreement states that you have to provide 30 days’ written notice of your intent to move. If you choose, signing this form checking off that you will not renew and returning the form to us 30 days in advance of your expected renewal will be considered your written notice.

Sincerely,

Management

Conclusion

Of course, some tenants may still call and complain about the rent increase, or they may even decide to move, but most likely, they will simply chalk it up to one of the realities of renting.

Raising the rent on a tenant can be a difficult but necessary step for landlords. By following the steps outlined above, you can ensure that the process is conducted smoothly and that your tenant’s rights are respected.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.