Annualized rent growth on single-family rental lease renewals has reached a record of 6.9% as of July 2021, the most recent month of available data. That’s an increase significantly higher than before the pandemic began.
However, even though rent prices seem to be going up almost everywhere, a tenant still might complain about an increase in the rent.
Here are 7 tips for successfully raising rent and keeping a tenant, along with things to think about before raising the rent.
- A landlord can generally raise the rent when an existing lease ends, unless a home is located in a city or state with rent control laws.
- While there may be no limit to how much the rent can be raised, raising the rent too much may result in a tenant not renewing a lease.
- Most state landlord-tenant laws prohibit a landlord from selectively raising the rent to retaliate or discriminate against a tenant.
- Tips for successfully raising the rent and keeping a tenant include running rent comparables to determine fair market rent, explaining to a tenant why the rent is going up, and offering a tenant an incentive for an early lease renewal with a higher rent.
When can a landlord increase the rent?
Unless a home is located in a city or state with rent control laws, a landlord can generally raise the rent when the current lease comes to an end, or more frequently if the lease has a provision allowing a rent increase before the lease ends. If a tenant is on a month-to-month lease, a landlord can raise the rent by providing proper notice, which is usually 30 days in most states.
Things to consider before raising the rent
However, there are some practical considerations a landlord may wish to take into account when deciding to raise the rent, and by how much:
- Raising the rent above the fair market rate may result in a tenant not renewing a lease, leaving a landlord with a vacant home and lost rental income until a qualified tenant can be found.
- A landlord may wish to get a tenant accustomed to annual rent increases, even if the rent only goes up by a small amount each year.
- Raising the rent may also lead to a tenant having to add money to the security deposit, if a deposit is based on the amount of monthly rent.
- Most states prohibit a landlord from raising the rent as retaliation or in a discriminatory manner, such as a tenant complaining to the local authorities about a property in poor condition or only raising the rent if a tenant is of a specific race or religion.
7 tips for raising rent and keeping tenants
A tenant is less likely to complain about a fair rent increase if their home is well maintained and the tenant is treated well. But that doesn’t mean a landlord can surprise a tenant with a rent increase.
Here are 7 tips to consider for successfully raising rent and keeping a tenant.
1. Perform a fair market rent analysis
Begin by running rent comparables and researching the current rent prices for similar rental property in the same area. You can use tools like Stessa Rent Estimate, Rentometer, or Zillow Rent Zestimate.
2. Review lease terms and conditions
After determining the current fair market rent, the next step is to review the existing lease. A lease should contain clear language on a rent increase including:
- How often rent can be raised.
- Advance notice required before increasing the rent.
- Any limit to how much the rent can be raised.
As a rule of thumb, if a tenant has a 1-year lease, the rent can be raised once a year, when the lease is renewed. However, if a landlord or property manager uses a 2- or 3-year lease to help keep tenant turnover low, a landlord may need to wait until the end of the lease term before raising the rent.
3. Read local and state landlord-tenant laws
If a rental property is located in a city or state with rent control laws, there may be rules that limit the amount of a rental increase, or even if the rent can be raised at all.
For example, California has statewide rent control caps, and cities such as Los Angeles and Sacramento also have city specific laws. On the other hand, states such as Arizona and Texas have laws that preempt rent control.
The National Multifamily Housing Council (NMHC) publishes an interactive map of rent control laws by state if a landlord wishes to learn more about local rent control.
4. Explain to the tenant why the rent is increasing
Give the tenant a phone call or set up a time to visit in person to explain why the rent is increasing. It’s no secret that rent prices are rising in most real estate markets, so a tenant may not be surprised to learn their rent is going up as well.
With that said, communication mixed with a healthy dose of empathy is a key way to successfully raise the rent and retain a tenant. A landlord may wish to explain to a tenant how much operating expenses like property taxes and maintenance bills are increasing, and to share rent comparables of similar homes in the same area.
When a tenant knows that a landlord isn’t being greedy, they may be more willing to accept a fair rent increase.
5. Provide proper notice before raising the rent
In many states, a landlord is required to provide a written notice of at least 30 days before raising the rent. But, as a general business practice, a landlord may wish to give a tenant 90 days notice if the rent is increasing. This gives a tenant more time to budget for a higher monthly rent or to let a landlord know that they won’t be renewing.
If a tenant plans on moving, a landlord has more time to pre-market a home using an online rental listing website to help minimize lost rental income from tenant turnover.
6. Consider offering an incentive to renew at a higher rent
Offering to discount the rent increase by a small amount may be a good way to get a tenant to renew early instead of dragging their feet.
For example, if the rent is going up by 6%, a landlord might offer a 2% discount for renewing a lease 90 days early, and a 1% discount for renewing 60 days before the current lease comes to an end. Depending on the tenant, a landlord may also consider offering a non-monetary incentive, such as a gift card or complimentary carpet cleaning.
7. Make any needed updates before raising the rent
A landlord may also strategically make improvements and updates at the same time the rent is being increased. Replacing outdated appliances owned by a landlord, professionally cleaning the home, or painting the exterior of the home may be tasks a landlord plans on doing anyway, but updates like these can also be presented as an additional justification for raising the rent.
How to write a rent increase notice
A rent increase letter is a formal notice given to a tenant that the rent is going up, even when a landlord has spoken to a tenant in person.
The notice should include specific information about the rent increase, such as the new total monthly rent amount, a reminder of the payment due date and late fees, and options for paying the rent online.
A landlord may also wish to reference the landlord-tenant laws that allow the rent to be increased, to help avoid having a tenant complain that a rent increase is illegal. A free template for a rent increase notice letter can be found online from sites including LawDepot and Zillow.
While it’s fair to say that no tenant looks forward to a rent increase, raising the rent is a normal part of owning and operating investment real estate. The odds of a tenant complaining or leaving because of a rent increase may be greatly reduced when a rent increase is reasonable, the property is well maintained, and when a landlord takes the extra time to communicate and explain why the rent is going up.