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Increasing the Rent

What do I do when...

I have to Raise the Rent?

By John Nuzzolese

Have you noticed when you go to the supermarket that the prices seem to be going up? How about on your real estate tax bill? Why in the world would you not raise the rent?

The subject of raising the rent is one of the most procrastinated tasks facing landlords. The reason is simple:

  • Fear of confrontation,
  • Fear of rocking the boat
  • Canít afford to make the tenant mad- he might cause a vacancy
  • Tenant is like a friend Ė donít want to damage our relationship
  • Fear of dealing with the tenant
  • The rent is high enough

    There comes a time for every landlord when the rent has to be raised. It is not a pleasant subject from the tenantís point of view, but it must not be overlooked. You must not procrastinate it because every day it is put off, it is money out of your pocket. Food out of your childrenís mouths. Think about it at the supermarket checkout line. Every increase you donít enforce really adds up.

    You should have regular rent increases, even if only by small amounts. The tenant that is used to the same rent for a long period of time usually gets offended when the rent finally must increase, so it is better to make smaller gradual annual rent increases.

    You can address the subject of raising the rent with the tenant in a conventional or LPA Lease agreement. By having a plan for scheduled rent increases, you'll get the equivalent of a raise in salary very year.

    Letís say you have only three house rentals that you donít increase until you re-rent. Letís say your tenants stay an average of 3 or 4 years each. Letís also say the increase they should have gotten per year is only $25.00.

    WOW! Thatís $75.00 per month more for just the first year! Multiply by 12 months and that is $900. x 3 years = $2,700. just for the initial first year increase. Add the second yearís increase of $900. (assuming itís still a $25. increase) Then add the third yearís increase of another $900.

    1st year total increase after 3 years = $2,700.
    2nd year increase after the 3 years = $1,800.
    3rd year increase totaled = $ 900.

    Total accumulated from the 3 annual $25. increases = $5,400.

    Could you use a spare $5,400. about now? I know I can.
    I know these numbers are small, but think about the possibilities if you have more properties. Most landlords with more than a few properties are no strangers to the art of increasing rent.

    Obviously, you know there are many reasons the rent needs to be increased.

    • rising taxes
    • high mortgage, negative cash flow
    • escalating cost of living
    • lease enforcement, rent increase agreed in lease
    • high maintenance property
    • high maintenance tenant
    • college tuition
    • want to make tenant leave rental
    • how the tenant is treating the rental
    • many more reasons

    I recommend using good Rent Increase Letter to notify tenants that you are raising the rent. It tells the tenants the amount of their rent increase, when the increase takes effect, and the new payment amount. It is a polite notice that reaffirms that all the terms and notice periods agreed in their lease will still continue to remain in full force.

    It is important to remember proper notice periods as agreed in your lease or rental agreement. Always remember that your 30 or 60 day notice period begins on the first day of your next rent period, so serve it early. Also, keep in mind that you can give notice to raise the rent whenever you want, but your lease may not allow it until it is time to put together your Notice of Lease Renewal.

    I also send a Tenantís Intention to Vacate Letter along with the Increase Letter in case the tenant does not agree to the proposed rent adjustment and would rather move out. Sending the Intention to Vacate letter also lets the tenant know that you are OK with the idea of them moving out.

    Iím often asked, ďHow much should we raise the rent?Ē
    Well, that depends on a few things:

    1. The Rental Market
    2. The quality of your tenant and how much you want him or her to stay
    3. The availability of new qualified tenants

    If a tenant is wonderful, we'll hold our increase down to an absolute minimum. If a tenant is bad news, the increase is likely to be much higher.

    One little technique I like to share with you is to prepare the increase letter with the maximum increase amount filled in (what the rent probably should be at top market rent or a 7% increase) then cross out that amount. Then hand write the lower amount on the form with your initials authorizing the change. The tenant will see what the increase would have been if you didn't save the day by lowering it. Letting the tenants know that we value their tenancy and we did everything we could to keep the payment at a minimum makes them grateful to you that the increase wasn't as high a it could have been!

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