Raising Your Rents, Without Raising the Roof

Increasing Your Rent Without The Ruckus

Last article I talked about how stupid we tend to be as landlords. We have a great property, we treat our tenants well and yet you still feel bad about raising your rents to help cover our own increased costs.

Tenants understand costs increase, they know taxes go up, the can relate to increased insurance costs, but what they won’t tolerate is greed or abusive rent increases. It’s a pain in the butt to move, but if they feel wronged, it’s worth it to them.

On the other hand, if they feel like they are in a good spot, the increase won’t put them in the poorhouse and perhaps most importantly, it’s a fair rent increase, they typically have no problem staying. As always, it also requires common sense.

If vacancies are skyrocketing and rents are dropping everywhere else, you can be assured your increase will definitely have a higher chance of causing them to bolt. So know your market and understand the local laws and regulations regarding increasing the rent you charge your tenants and increase it when applicable.

Because when or if the market does slow later and you have a vacancy, you will definitely have to lower them to keep attracting tenants.

It’s All About Positioning

I was recently coaching a landlord through this and it all starts with positioning. She hadn’t raised rents for several years and was missing out on as much as $300 per month of additional rental income. Her current tenants were good, so throwing a $300 increase all at once at them was going to be a little unfair.

After all she didn’t want them to leave, she just deserved fair value for her property.

The lesson from that is, if you are paying attention to your local rental market, you’ll have a pretty good idea of the local vacancy rates and whether rents are increasing or not. If you pay attention to this, you can deal with more gradual increases which benefits both the landlord and the tenants.

When it comes to a strong rental market with vacancies dropping and demand for units increasing, it’s very important for you to be paying attention to how the market is changing. You need to have an idea of how much rates are increasing so you don’t get left behind and this is also where your positioning starts.

When I refer to positioning, I’m talking about putting yourself in the best light. The position that helps you, while at the same time puts you in a position to still provide good value for your tenant.

In this example, if you’re finding rents have gone up $100 per month for properties equivalent to yours, you start off with that in your written letter to the tenant. Now I’ve always advocated trying to get top dollar for your property initially. I believe having one of the nicest rental units in the area helps set you apart, helps get you better tenants and helps you garner higher rent.

You may already have been $100 higher to start with if you followed this process and if you are, you’re in a great position. Because you don’t have to raise your rents $100 this time, if you show your tenants how much others have raised their rents and end up only raising yours $50 or even $75, you’re still the good guy.

If you haven’t been following this process, you can still use this technique, but you won’t be quite as far ahead, but an increase is an increase!

Sample Letter of Rent Increase

So let me give you an example of some wording you can use, and feel free to copy and use this where you need to!

As you’re most likely aware local rents have increased over the last year as the costs of everything from taxes to insurance have increased. After doing some research we’ve noticed rents in this area have increased by $100 per month and in some places even more.

Now while we value you as tenants, we need to cover some of our increased costs and remain competitive in the market. So rather than giving you a big $100 jump per month, we’d like to reward you for being good tenants and only increase the rent by $75.

At this price, you are still getting the property for less than similar properties in the area. We hope you find this fair and again, we really appreciate having you as tenants.

How does that sound? Does that make sense to you?

You’re starting by talking about increased costs. You segue to rents increasing by $100, and possibly more and then you increase the rent by less than the average coming out as as the good person.

You’ve positioned yourself as not only looking after your interests and trying to cover your costs, but also letting them know that you value them and that you’re trying to help by not increasing the rent as much as you possibly could.

Now depending on the market, you’ll need to change the number where they’re bolded to the appropriate values, but that’s part of your homework. Now just to make sure you get the impact of this $75 per month increase, you have to understand it becomes an extra $900 over the course of the year and that $900 can cover a lot of your costs. If you have a suited property and increase both suites by $75, that’s $1,800 to your bottom line by the end of the year.

If you haven’t raised your rents in several years, rents may have increased by $200, $300 or even more per month since the time you originally rented your space out. If rents have increased even $100 per year for each of the last three years, you’ve missed out on $7,200 worth of income. If your property was suited, that’s $14,400 in lost revenue because you didn’t increase your rents. 

Now this is assuming you raise them them maximum amount, but that’s to make a point. The point being, you’re leaving money on the table!

Guarantees and Rules

Now there is no guarantee this will work every time. You may have some tenants that simply cannot afford the increase.

Whether they are just getting by, whether your property wasn’t quite working for them, there will be times when people will move out on you leaving you with a vacancy. This isn’t a bad thing.

If that’s the case and you’ve done your homework, you now have a very solid idea of what the local rents are and if you have a great property, you will be getting an even larger increase than the potentially discounted rent you offered your tenants.

It can be sad to think about losing tenants and the extra work involved in having to prep the property for new tenants, going through the screening process, starting over with new people and the concerns about whether you picked the “right” tenants, but as I’ve also mentioned time and time again, landlording is a business. And you have to run it like a business.

Which brings us back to the rules your business has to work under. Make sure you understand all the applicable local rules for rent increases. There can be caps on increases, timelines for increases and many other variables you’re required to know when it comes to increases.

Some areas have rent controls in place limiting how much rent can be increased per year. Usually these are tied to inflation and they are typically far less than the market will bear. If your region is restricting your increases with rent control laws, you need to consider increasing rents the maximum allowable each year so you don’t get left behind.

Often you cannot retroactively increase, so if you don’t do it now, you lose it forever, so don’t miss out. Other areas have specific legislation about timelines for notifications to tenants about increases and how often rent can be increased.

My location requires 90 days notice of a rent increase (which must include three full months) and I’m only allowed to increase once every 365 days, or once per year. Your local landlord tenant laws may be similar or may be more restrictive, so make sure you look into that as well before you attempt to increase your rents.

An illegal increase may not necessarily result in fines ( in most cases they are simply void), but if you’re not sure find out. Usually it just results in resetting the clock and delaying when the rent actually increases.

Finally, some areas also have caps on how much rent can be increased in a year. This too can cause issues if you miss out as you cannot stack multiple years if you missed out. So again, become familiar with the local legislation.

If you’re going to be a successful, educated landlord, you really do have to run it like a business and this means rents changing to reflect the market. These days those changes are typically going to be upwards, so you need to stay on top of your market!

Hope you enjoyed this article, if you have any hints or tips you can share with the other landlords that visit us, be sure to leave a comment below and thanks for reading this far!