All prices rise, that’s just a fact of life. Whether you’re at the grocery store or looking at your tax bill, prices always seem to be going up; so why wouldn’t rent prices go up on a rental lease? Many landlords procrastinate much too long when it comes to the prospect of raising the rent.
Here are some of the more common reasons why:
They don’t want to confront the tenant
They don’t want to rock the boat
Can’t afford to make the tenant mad- he might cause a vacancy
They’re too friendly with the tenant
Fear of dealing with the tenant
They think the rent is high enough
At some point rent will have to be raised, and while it’s not the most pleasant subject it cannot be overlooked, and should always be built into the rental lease. Do not procrastinate because the more you do, the less money you have. Remember this is a business.
Every year an annual rent increase should take effect, even if it is only 20 dollars. Keeping the rent at one level for years and then making sudden changes to it may offend the tenant. Using a state specific rental lease agreement, you can have a plan laid out and can review it with the tenant at the time of signing.
Also, the more properties you have, the more a small rent increase on each one will positively affect you. If you have 10 properties and each has a $20 rent increase, that’s $2,400 more! That’s a lot of money, especially if you do that every year.
To give the tenants a heads-up regarding the coming rent increase, you’ll want to send them a “Rent Increase Letter”. This letter should spell out when the increase takes effect and for how much money. While this letter is typically not dictated by the rental lease, it’s a polite way of letting the renter know of the coming changes.
Also, per your rental lease agreement, you’ll want to make sure you give notice to the tenant within the 30 or 60 day window prior to the increase. Regardless of when you give the tenant the notice, you cannot raise the rent until the time period dictated in the lease.
Along with your Increase Letter it may be beneficial to send the tenant an “Intention to Vacate Letter”, just in case the tenant decides they don’t want to pay the rent increase and wishes to instead vacate the premises.
So let’s talk numbers: How much should we raise the rent? That can depend on a few things:
The Rental Market in which the property resides
The quality of your tenant and how much you want him or her to stay
The availability of new qualified tenants (always a tricky one)
A great tenant who pays on time will be given the smallest increase possible; however, a tenant who has been a habitually late payer will get a much higher increase.
Brian is a real estate investor and manager of EZ Landlord Forms, an online resource that offers free rental lease agreement forms, state-by-state landlord-tenant law summaries, landlord credit checks, and much more.
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