If you plan on sending a rent increase letter to a tenant you need to understand how this can play out.
If you have a standard form letter announcing a rent increase you may get your monthly bump in cash flow, but at the expense of creating a long term relationship. And long term relationships are one of the secrets of stress free landlording!
Think about it, when you get a form letter in the mail does it bring a smile to your face, or is it so impersonal you simply ignore it or worse build up negative feelings. I’m guessing even if you do ignore it deep down your subconscious is still feeling like you’re just another number in the system.
What if instead of a form letter you instead received a personalized letter. One that addresses you, your potential concerns and perhaps doesn’t have your name in a different font! How would that make you feel?
Well that’s the reason for creating a customized rent increase letter for any tenants facing a potential rent increase. But it’s not just a matter of customizing it.
You also need to position it! Now I go much more in depth about positioning in a previous article about raising rents and you can go check it out here, Raising Your Rents Without Raising The Roof (I also provide a sample rent increase letter you can look at).
The quick lesson about positioning is you have to make sure your tenants know you value them and that you’re not just randomly raising rents, but rather that you have expenses to cover as well.
Expenses like ever increasing property taxes, skyrocketing insurance rates and bank fee after bank fee. While they’re not a huge deal if they trickle in, after a couple years they can put a significant dent in your cash flow, and you’re already taking the risk of being a landlord so these costs need to be passed onto the tenants.
Just to be clear, I’m not talking about doubling your rents either. There is a fair and positive way to increase your rents and you need to understand that it starts with your rent increase letter.
If you haven’t gone to take a look at that earlier article yet I’d suggest you go take a look and get started on your rent increase letter sooner rather than later.
One last thing, make sure you understand local rules about rent increases. This can include how much you may be allowed to raise rents, how often you can raise rents and how much notice is required for a rent increase.
If you have any questions or feedback, leave me a comment below!
Good article. I recently inherited a 3 family house. My parents never keep good records. Security deposits, no idea where it is located. Leases, none. I collect the rents now from the tenants and did some homework. No one is paying market rate.Not even close to market. Any ideas how to handle this mess?.
Hey Joseph, thanks for the feedback.
Where to begin with you? It may end up being very important (at least once tenants start moving out) to understand how much of a deposit they may have in place. If you can’t get the answers from your parents, you may have to assume worst case the tenants left the maximum deposit amount.
To determine what this is you’ll want to contact local landlord tenant bodies to find out how deposits work in your area of if they even use deposits. Some regions simply use first month and last months rent paid up front, soem allow security deposits to equal the months rent and other’s only allow it to be half the rent or possibly rent plus half.
Knowing your local laws will clarify that for you and allow you to know your maximum potential payouts. If the tenants have never had their rents raised it should also give you a much firmer idea of that original deposit. Once you have that figured out, or if you simply can’t get answers, you may need to confirm with the tenants to see if the numbers match up.
This can be risky as some may fib a bit, but if you have a few good people in place start with them.
When you’re contacting local landlord/tenant groups (usually there is a state or provincial agency that you can find with a google search) you’ll also want to inquire about how much and what kind of notice is required for rent increases and if there are any restrictions in place as to the amounts and how often.
Again this varies drastically from area to area. Some regions have rent controls in place limiting increases, some have caps on maximum increases and some have extended notice periods that are required to increase rents. Knowing this in advance allows you to move forward smartly.
Your next priority is to get leases in place so you have all the important information set. Information like the rules, rents etc.
This might be your biggest challenge as people often won’t agree to sign a new lease if it’s not beneficial to them so it’s up to you to position this correctly. What I’d suggest is informing them you need to get organized and offer a slightly lower increased rent to those that sign the lease.
(Side not also find out if you have benefits of using fixed term versus month to month leases in your area. Fixed term may give you more flexibility with renewals, increases and evictions versus month to month which typically put more power in the tenants hands, as always learn how this works locally!)
So, assuming you can used fixed term leases and rents are currently say $500 per month with market rents at $600 per month and there is no cap on how much you can increase. Offer people who sign new leases a rate of $550 for the term and those that want to stay “leaseless” a rate of $595 in exchange for their staying there without a lease.
You may require more flexibility depending on how much you intend on increasing the rents, but remember to much of an increase may simply drive your current tenants out. If they are good people and good tenants it’s a bit unfair (yes I understand we as landlords need to make money to continue on, but piling these increases on due to someone else not doing it correctly earlier isn’t right either). Find that balance to keep the good ones in place and to push the less favorable tenants out, delicately.
Also make sure all the correspondence is provided in written format as well so you have a paper trail and finally, and perhaps most importantly, make sure you have a good quality lease you can use for those that agree to the new deal.
Hope this gives you some guidelines.
Bill
P.S> If you are going to be increasing the rents quite a bit another landlord recommended that he ties this is with improvements to the property. Rent goes up $200 per month, everyone gets a new fridge or stove. Rent goes up $400 per month, they get a new fridge and stove and can borrow your car on weekends… ok, maybe not the car part but definitely the other part to make it more acceptable.