Raising rental rates is something most landlords or property managers must do at some point or another. Over time, operating costs and other expenses, such as taxes and utilities, go up. When those increases start to eat away at your profits, it’s time to consider passing at least a portion of that onto the tenant. But raising the rent should be done strategically. Otherwise, you could end up losing a good long-term tenant in the process. Here is some guidance to get you pointed in the right direction.
When should you increase rent?
It may seem logical to consider raising rental rates when there has been a material change in circumstances. Perhaps property values have increased since the original agreement was made, or inflation has taken a toll on your current rates. The important thing to remember when considering a rental increase is that it should be fair and realistic in nature. And while you don’t necessarily have to justify your decision to your tenants, you should be able to comfortably and confidently.
The ideal time to implement a rent increase is in between tenants. The new tenant will likely have no idea that the former tenant was paying less, so there will be less friction. Additionally, you will be able to weigh how competitive your rate is based on the amount of interest your available unit generates amongst prospective tenants. An abundance of incoming applications will confirm that your new rate is still in line with other comparable rental properties in your area.
Of course, you won’t always be able to wait for a tenant to move out before having to raise the rent. In this case, there are a couple different options for implementing an increase, which we will cover next.
How to Raise the Rent
When it comes to rental increases, there are generally two different trains of thought. These generally fall into the following:
Consistent Increases – Some landlords firmly believe in raising the rent in smaller increments spread out over regular intervals. For instance, rather than waiting until a tenant has been in a unit for several years and then increasing the rent by 10%, they might implement an annual increase of 2-3% each year until they reach their desired amount. This can be effective because, for many tenants, the cost and hassle of moving will often outweigh the smaller increases in their monthly rent.
Periodic Increase – On the flip-side, other landlords feel it’s better to try and maintain consistent rent for as long as possible, particularly for a good, long-term tenant. In this case, the increase is typically done in one transaction, which means it will be more significant. Most reasonable tenants will find this acceptable, provided that the property is in good shape and the higher rate is still in line with whatever they’d be paying elsewhere if they decided to move.
Tips for Increasing the Rent
Let’s be honest. Nobody wants their bills to go up. But while it’s highly unlikely that your tenants will be happy about an impending increase, there are some things you can do as a landlord to soften the blow and make a rental increase a little easier to take.
- Maintain positive relationships with your tenants.
- Keep your properties in good shape.
- Be reasonable with your amount of increase and make sure it’s competitive.
- Provide a written explanation with details on how you arrived at the new amount.
- Conduct regular rent reviews, such as every 12 months. (Hint: Do this even if you’re not planning an increase.)
- Couple increases with value-added work, such as renovations or upgrades.
- Provide ample notice. You may only be legally required to provide a 30-day notice, but giving a more generous notice of 90 days will give tenants a little more time to prepare.
Being a landlord can be a profitable and rewarding endeavour, but success sometimes involves doing things that are less than pleasant, such as raising the rent. By following the guidelines above, you should be in a much better position to be able to increase your rates without driving your good tenants away.