It’s that time again: the end of your tenant’s lease is coming up and you’re looking at your options. They’ve been great, you hope they stay on, but rental prices are on the rise all around you. Should you raise their rent too? If so, how much? There’s a fine balance between making sure that you are taking care of your tenants so that the good ones will stay with you and making sure that you’re earning a profit in your business.
Before you raise the rent, there are a few questions you should ask yourself:
How does the rental income compare to your mortgage? If you’ve taken out a mortgage on your real estate investment, there will be a percentage of the rent that you use every month to pay on that. Part of deciding if it’s time to raise the rent or not will be taking a careful look at your rent versus mortgage ratio, which will include understanding the details of your mortgage as well as adjusting your ROI expectations.
Do you need to raise the rent? You will need to find a balance between what you need to turn a profit in your business and encouraging your good tenants to stay. Part of that is being aware of what other landlords in the area are charging. If you raise your rent above what they have similar properties set at, your tenant may feel it’s a better option to move, leaving you with the turn around and possibly even a vacancy for a length of time.
Is it legal for you to raise the rent?
What are your tenant’s rights? Tenants have certain rights when it comes to rent increases. You’ll want to make sure to check your local laws and have a thorough understanding so that you approach the situation in the best way possible.
Is your property considered a rent stabilized property? Depending on where your property is located, it may be considered a rent stabilized property. Take a look at the article above to see what that covers and what the rules about raising rent.
Is your tenant covered by a senior citizen rent increase exemption? Some local laws will cover various rent increases, including increases on senior citizens. While it’s not covered everywhere, you may want to check what is considered legal in your area before raising the price of rent if your tenants are senior citizens.
What does the law say about Section 8 rent increases? If you’ve decided to open your rental up to Section 8 tenants, you may find a few more restrictions than you would have had otherwise. Like with many things, there are pros and cons to choosing Section 8 tenants, but you’ll want to make sure that you follow the law when it comes to raising rent on these tenants.
Can you raise the rent on a disabled tenant? Once again, this may depend on the location of your rental, but some local laws will limit how much you may raise the rent on a disabled tenant due to the fact that they are likely on a fixed income.
What if you decide to raise the rent, then what?
Knowing it’s time: There are a variety of reasons why you may wish to raise the rent on your rental property, including keeping up with rising costs. If you choose to, you should make sure that your timing is right and that you stay on task when it comes to letting your tenants know about the change.
Writing a rent increase letter: Once you’ve made the decision to raise your tenant’s rent, you’ll need to let them know. You should provide this information through a written letter before you give them the option to renew their lease so that they have time to consider their options.
Tips for negotiating a rent increase: When you choose to increase the rent, there’s a chance that the tenant may wish to negotiate that increase. It’s good to know the type of negotiations that they may try and if you’re willing or even able to budge on anything for them.
Helping to take the edge off the increase: If you have a great tenant that you don’t want to lose, but costs and the local market are requiring you to raise rent, you may think about offering them something extra if they choose to sign on for another year with you. This helps to show them that, even though you feel like it’s necessary to raise the rent, you still care about them and hope that they’ll stay.
Additional options: In addition to the above options that you can offer to your tenant to encourage them to stay in your rental, you may think about reaching out to local businesses to see if they are willing to work with you. You can offer discounted prices that will last throughout the year, rather than a one-time gift.