How to raise rent?

Question

Hi, I have been renting a house in Sugar Land Texas for almost a year. Since taxes have gone up, my mortgage has gone up as well. How do I go about increasing rent so that my renter does not get angry and move out?

I am very new in real estate I want to dive deep and go full-time in real estate any advice for a beginner is appreciated.

Zachary Ware · Answer

I would advise you to do it slowly. I minor increase each year is a lot easier to stomach than a 20% increase though it does depend on your circumstances. If your taxes go up by $2400 in a year and you need to increase your rent by $200 make sure comps are in the same range, and be prepared to find a new tenant.

Bill B. · Answer

The answer is somewhere between you should double or triple the rent and you should lower the rent. Your costs have nothing to do with what market rents are. Imagine you own a home outright or you have a 10% interest loan at 90% LTV. The cost difference could be $3,000/mo. But the rent will be the same.

It sounds like you’re either guessing what rent should be or basing it on your costs, neither is very accurate. Please reach out to a local property manager and find out…

How much they would charge for rent.

How fast they think it would rent

How much they would charge. You might find out they would charge enough that even after their fees you’d collect more rent. All with the benefit of doing less work.

Michael Smythe · Answer

@Ghizal Miri

We’ve found the best way to raise rent is:

• Determine market rent
• Share the proof with the tenant
• Tell the tenant, given your rent is $x and market rent is $y, what do you think if a fair increase?
• Often, they may volunteer a higher amount than you were hoping for.
• Those that respond “$0” or something ridiculous, you can request income documentation from them to justify.
• Don’t be afraid to share with them how much your property taxes & Insurance increased and that YOU cannot afford to absorb them.

ALWAYS get an increase or something of value annually or tenants will start thinking they should never have an increase, making future increases that much more difficult to negotiate.

Alecia Loveless · Answer

@Ghizal Miri I bought an 8 unit building where rents were $300 under market rent, $575-600 instead of $900. I simply ripped off the bandaid and sent out letters to the month to month tenants notifying them that in 3 months their new rent was $800.

Within the first 3 months I ended up with 3 vacant units. I have filled 2 of them at $900 and am showing the third this weekend for $900.

I think being direct is the best policy. If the rent you need to raise your house to is comparable to others in the area I wouldn’t worry about raising it. If the tenants move out and the market is strong you should be able to rent it again unless your rental market drops off after the summer or something.

Nathan Gesner · Answer

I disagree with most of the advice above.

You study the market to determine a fair market value for your rental. If your tenants only need a small increase (less than 15%) then notify them of the increase and they can choose to pay it or go through the hassle/expense of moving. If your current tenant is more than 15% below market, then I recommend terminating their lease and starting fresh with a new tenant at market rate. Most tenants can't handle a big increase of 15% or more.

If your tenants are absolutely perfect, then I would consider keeping them slightly below market as an incentive to stay. I don't ever want rents to get more than 10% below market because it gets harder to catch up.

Richard F. · Answer

Aloha,

You are now running a business. Treat it as such. Simply send a formal cover letter stating that "due to increases...blah, blah, blah, we have determined an increase is necessary". Please review the attached (single page) addendum, choose your option, and return to the address below by (Date).

The addendum should reference the name and date of the original agreement; and the parties. You provide two or three options:

1) Effective (Date based on local LL/Tenant law requirements) rent will be X. You will also need to increase your SD to equal the new rent.

2) Tenant is providing X days notice (per local law) that they are vacating.

3) Tenant proposes modification to terms, specifically _____________________.

(Signature, Date)

Gustavo Delgado · Answer

You don't need to give your tenant rhyme or reason or explain why you are raising rents. Before the lease is up, I would recommend 60 days out send them the notice of renewal. Give them the choice of month to month at around 10% increase, raise the rent 3-4% for renewal, or vacate. Now it is maybe in your interest to keep them to avoid vacancy or make ready (let them finish tearing up the carpet.) Now before setting on a 3-4% increase, do an analysis of what current rents are in the area to see if that 3-4 is appropriate or maybe still a bit short. Then you decide.

Chris Clothier · Answer

Not sure if you have already made moves to increase the rent on this property or not, but I wanted to echo a bit of the advice on here.  Regardless of how far off you may or may not be to market rent, establishing good communication in a respectful way will help tremendously.  Always give the resident the option to accept the increase, reject it and move out or ask for the ability to negotiate.  We have found that quite often, residents will sign a multi-year extension with built in increases based on good information and respectful delivery.

One thing for sure is don't make assumptions either way.  Don't assume a resident can or can't absorb an increase or will automatically move out if you ask and don't be scared of a vacancy.  Just be open and honest and give them room to discuss with you and you will often find a willingness to work together and keep your property occupied and growing in revenue.

Good luck to you -

Colleen F. · Answer

@Ghizal Miri  Determine market rent.  Set your rent at or slightly below market.  Send a notice to the tenant with the increase in advance 30-60 days depending on the law in your area.  Give them a timeframe to respond giving notice of termination or agreement to pay the new rent.  Always make the renter feel appreciated in your notification. Thank you for being a tenant etc. but costs have increased. Some people attach comps.   I know some people also offer a small needed upgrade at this time but I don't think this is essential.

Kevin Sobilo · Answer

@Ghizal Miri, I aim for 1-3% yearly increases and rarely will go over 5%. If I need a larger adjustment, it usually happens with a turnover.

The reason is that over the long haul I expect market rents to go up 1-3% per year along with my expenses. The increases won't be linear and in the case of "market rent" they can be difficult to estimate sometimes but that is what I expect.

Also, a tenant is a tenant often because they are living paycheck to paycheck. So, their finances aren't set up to handle sudden large increases to their largest monthly bill. However, they likely get a yearly raise/cost of living increase with their job in that 1-3% range! So, they can handle those increases without making their situation less stable.

With my approach, yes I MAY sometimes fall a little behind market rents or expense increases, but then there will be years where I catch up when property taxes don't increase etc. So, overall it evens out.

So, instead of immediately reacting to every change, I smooth the curve of change for the tenant and that helps maintain stability and keeps good tenants longer while still getting me what I need.

How to raise rent?

Most Popular Reply