How to Raise the Rent in 4 Easy Steps [Free Template]

Last updated on July 27, 2015 by

Raising the RentRaising the rent on your tenants can be almost as difficult as asking your boss for a raise.

The difference is that you typically need to justify your reasoning to your boss, but you don’t need to do so with your tenants, even if you have plenty of valid reasons. such as:

  • Increasing insurance premiums
  • Increases in taxes
  • Maintenance fees that go up
  • Rising homeowner association dues
  • and, there’s always cost-of-living increases

You don’t need to explain your finances to your tenants. All you need to do is let them know in writing that there will be a rent increase and what it will be.

It’s understandable that you might be hesitant the first time you’re preparing to present a tenant with a rent increase. You might be afraid to rock the boat, worried that your tenant will be so offended or mad that he or she might leave. Or perhaps, you fear a confrontation and subsequent retaliatory property damage.

If you follow these four tips, you can eliminate most of the angst from raising the rent, and you’ll begin to think of this process as just another normal part of being a landlord.

1. Automatically include a small rent increase at each lease renewal period

Most tenants expect a slight rent increase at renewal time of say $20-50 or so. But if you spring a $200 or more increase on them after not having increased the rent for five years, you’ll likely get some negative feedback. A good rule of thumb is to raise the rent about 3-5 percent a year.

If you have an excellent tenant that you are trying to convince to renew, you might want to waive the rent increase if they will sign for another year. After all, you can always make up the difference by raising the rent when he/she finally moves out.

An excellent tenant is worth far more than any rent increase.

Related: Tip #8, Don’t Always Raise the Rent

2. Send notice 60 days before lease end

Sending a rent increase letter this far in advance lets you know what the tenant’s intentions are. If he or she doesn’t plan to renew the lease, you have time to start marketing and showing the place without having a vacancy period.

In the rent increase letter, which you can send through regular mail or email, thank your them for being such great tenants. Compliment them on their good traits, such as paying the rent on time or taking care of the property.

Then, get right to it and say that you need to raise the rent. You can add an explanation if you like, such as you needing to keep up with your expenses. Point out that you are raising the rent as little as possible, and that you hope they will stay with you.

You’ll need to state what the new rent will be and the date it becomes effective, which would be the day after the lease ends.

If you have a fixed-term lease, you could include or attach a new lease with your letter or email. Ask that your tenant read the new lease, sign it and send it back to you. Explain that you’ve highlighted or underlined any changes, such as the rent increase, and that everything else remains the same.

If you have a month-to-month lease, the tenant won’t need to sign a renewal since it automatically renews every month.

Sample Rent Increase Letter

3. Know the law

Although the property is yours, you can’t raise the rent however much you like if your place is rent controlled, or if there is a statute that limits the increase amount. And you can’t raise the rent whenever you like if you have a fixed-term lease.

If your tenant signed a lease, you can’t raise the rent until the lease period is up. The only exception is if the lease states that you can raise the rent during the lease period – but even so, it negates the idea of a “fixed” lease and is often not allowable in court.

If your tenant is on a month-to-month tenancy, you can raise the rent after giving the proper notice for your state, which is usually 30 days, but varies by state. Your notice needs to be in writing (letter or email), and unfortunately, any verbal agreement with your tenant usually won’t stand up in court if argued.

Learn more about your state laws, click on your state: 

 

Please know that you can’t raise the rent in a discriminatory manner because you don’t like a person’s race, religion or sexual orientation. Neither can you raise the rent because you just made some needed repairs to the property or to punish a tenant for complaining to the city about a code violation.

In many states, if a tenant as filed an official complaint to a government authority, been involved in a tenant’s organization, or exercised a legal right, then you are restricted from raising the rent for a set period of time. Many courts will assume “retaliation” by the landlord if negative action is taken on the tenant anywhere from 60 – 180 days after any of the prior tenant actions. Again, check your state laws regarding the rules on retaliation.

Related: Ask Lucas 002: How Much Can I Raise the Rent?

4. Know the market rates

Your costs don’t dictate what you should charge for rent; the market does. You can’t expect to keep a tenant if you’re charging significantly more that other similar rental units around you.

But as long as your rental rates are in line with other similar rentals in the area, you follow the rent increase laws of your jurisdiction and you tactfully and professionally give your tenants a rent increase notice, you’ll wonder why you ever stressed about this process.

Check Craigslist, Zillow, and Rentometer to determine comparables and your realistic market price.

Bonus: Collect your rent online

You can save a little money — and a lot of time — by collecting rent online using Cozy. It’s easier for you and your tenants, and completely free. While you can sign up and start collecting rent using Cozy at any time (even if you’re in the middle of a lease), if you’re updating your lease anyway, it’s a great opportunity make it your preferred payment method.

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Topics:
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51 CommentsLeave a Comment

  • David Ross

    I’ve been leasing a condo I own in Arizona to the same tenant for 5 years now. A few months ago, however, a new occupant (i.e. girlfriend) came on the scene. My tenant requested that I add her name to the existing lease… which I did.

    Now, the original tenant has contacted me indicating there is trouble in paradise and – though he wants to continue leasing the unit when the current lease expires in May 2017 – he does NOT want the co-tenant to remain on the lease or in residence.

    My question is this: Can I write up a new lease for my original tenant only when the current lease expires (i.e. in effect, forcing the newer co-tenant to vacate)… or would doing so infringe on her legal rights as a co-tenant on the current lease?

    • Craig

      Hi,

      I think you need to ask your tenant to “man-up”. He invited her in and he needs to invite her out. It’s not your job to split them up. If he does his job, it’s a mute point.

  • maxi

    I have not increased my tenants rate for the past 8years, they have been paying me #36000 per year which is #3000per month, now I have decided to increase the rent to #48000per year which will be #4000per month….. I hope that am not charging them much?

    • vickie sanders

      This is precisely why modest regular rental increases are so important. Had you increased the rent over the years you would not be in a place where you must shockingly raise it all at once.

    • Sheila Hepp

      If you were to calculate a 3 to 4% increase in rent for the last 8 years from $3000 starting point for tenants you have had that long, you could show them what the rent increase would be had you done your increases annually, and then be ready to negotiate to keep good tenants happy. You could negotiate for longer leases, improvements, or split the difference and take smaller percentage of increase to give them a win.

      Expenses for the last 8 years: taxes, insurance, maintenance, or planned renovations that would impact your revenue would be a rationale for raising rent at this point. It’s good to give them an honest reason instead of an arbitrary figure, and then maintain a percentage of increase annually.

  • Cris Smyrnos

    I have a commercial property lease with my tenant that states rent will increase yearly by 3%. I did not increase the rent last year and would like to increase the rent this year by 5%. Is that fair to my tenant or should I just hold to the 3% and avoid any issues down the line.
    Thanks for the information.

  • rich Knapp

    Yes, I have a good tenant who is going on her fourth tear on my 2 bed / 11/2 bath condo. she signed the lease when rents were cheaper because of the recession, etc. Her rent is in the 600’s area and I see on Zillow it should be in the 800 to 900’s a month range.
    I would like to raise her rent by 6% for the new May lease. She gives me 12 pre signed, post dated checks a year, so I don’t want to raise it too much. Does this sound right to you?

  • Julie

    My tenants have a 1 years lease, they have been late 10x. Their lease is up in two months. Is it wrong to increase their rent 5% to 6%. I know my rent is a little lower in the area.

    • Sheila Hepp

      Rent that is delinquent is usually charged a late fee. If you want to keep high maintenance tenants that require footwork on your part to collect rent that should be on demand, give them a contract with a late fee that you actually hold them to, increase the rent to market value, and let your contract do it’s job. They will leave, you will be free to charge what you want, and you can start fresh with a new spine and new tenants.

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