Raising rent consistently help you keep your property in line with your market. That being said, you can't just do it anyway. Start with doing the homework and find out if you can increase the rent. When you sign a lease with your tenant, the rent stays fixed till the lease term ends. And that is the reason rents are being raised upon the renewal of the lease.
Before we jump into details, let's talk about what everyone else is going through. With the economy recovering slowly from last years devastating hit, it is important to consider your tenants financial condition. That does not mean you should not raise rent but keep empathy in mind as we recover from the pandemic's hard hit.
You can raise rent at any time if you have tenants with monthly agreements given that you do give a minimum of 30 days notice. It may be even more, in some areas it is 60 days. Make sure you check with your local laws before making any move.
Similarly, there are areas where there are laws that control rent. That means, the state control the rent prices and there is a fair chance you wont be able to raise it even. That is why we recommend checking your local laws before you reach out your tenants about rent raise.
When do I increase the rent?
The answer to this riddle is quite simply. Observe your local market.
By observing your market, you would be able to compare your property with other properties in the market and make decisions accordingly. For instance, if there are properties in your area that provide less amenities in charge more than you do, it is about time you raise the rent of your property.
Keep this in mind that tenants do know that rents are being raised in the lease renewal and they expect it that way. So when you raise rent, do it when the time is right. This way, it won't be a surprise for your tenants and they won't get upset by the rent increase.
Notice period
Now you are wondering how much notice should you give?
The answer is simple. Check your local laws. To avoid any legal issue, get legal advice or simply check your local laws before rolling out rent increase notifications.
How do I increase the Rent the right way?
For instance, you happen to have a vacancy and the current market rate is $1200. You find a well-qualified candidate who is able to pay the rent and you give them the key to the property.
Now you need to tell your new tenant that you like to stay in line with the market rates. Hence, according to the market rents may increase. This way your new tenants won't be surprised if the market decided to raise rents and your tenants have to pay more now.
The first year passes and in accordance with your local laws, you reach out one, two, or three months prior to the lease expires. This way you will find out if your tenant want to renew the lease and want to stay for another year. Now here comes the tricky part of the game. Say your market decides to increase the rent $100.
How much should I increase?
As you had informed your tenant upfront, the rent increase should not be an issue. When you increase the rent a $100, it will give you an additional $1200 this year. But on the other hand if they left? how much time will it take for you to occupy the unit/property again? One vacant month is going to eat up the rent increase of the entire year.
That sounds like a gamble, is it even worth a try?
Splitting the rent increase is an idea that may save most of the landlords from losing. For instance you increase the rent only $75 when the market is raising a $100. This will make the tenants feel that they are paying less than the tenants living in nearby properties. The tenants who were considering vacating won't leave if you raise $50 instead of a $100. On top of that if you screen your potential tenants properly, there are less chances that your tenants would vacate over rent raise.
Learn from Marketers
To avoid vacancies, use this trick that smart marketers use to make sales. Marketers does not tell you about the product or its price, instead they will give you options to choose from. And your brain, instead of thinking about accepting or rejecting the propositions, starts to find a better option. You can do the same. Avoid telling your tenants what the revised rent is, instead give them options to pick from.
Almost every major brand give you options. Generally, there is basic, standard and premium. You can take the example of iPhone with pro and pro max being the options (variants). Same goes for Starbucks coffee, Ford F-150 etc.
Conclusion
Of course, there would be tenants complaining about the rent increase even though the it is dictated by the market but others will just accept it as a trend in the rental properties. Want to learn more about multifamily rental property investments? Read more on our blog. Join our FREE Membership and network with like-minded investors.