Raising rent without losing your tenants
Are you considering raising rent, but scared you will lose or upset your tenants?
Before raising rent there are a few things you should consider.
The first thing to think about is what your motivations and priorities are for your property and time. For example, you may be busy with your day job and want stable tenants that give you little grief. If you have good tenants already, don’t raise rent because the risk of losing your good tenants goes against your investment priorities.
Perhaps you want more profit and can take the risk of tenant turnover. If this is the case, then read below, because this article is for you.
The first thing to consider is how much you can raise the rents. Each market is going to have a different threshold of what a tenant will tolerate.
Check out these rates as a starting point.
- 1-5% increase – This will not encourage your tenants to move unless there are other similar properties that are far below your rent increase.
- 5-10% increase – Your tenants might consider moving, but if you take good care of the property and its in a good location you are probably safe.
- 10%+ increase – Expect your tenants to seriously consider moving.
The next thing to consider when raising rent is the true cost if you lose your tenants. Lets say your tenants decide to move. The cost of the vacancy, painting, marketing the property for rent, and paying a finder’s fee could cost $2000.
If the additional rent gives you an extra $600 a year, it will take you over 3 years to recoup losing your tenants because of a rent increase. This is something to consider.
You need to find out what number you can reasonably increase rent based on market conditions. Then figure out how much turning over a property will cost you. Then you can determine if raising rent is viable.
Don’t skip the market research
So, with that said, you need to do some market research. This helps you find out how much you can raise rent. Additionally, you can use this research to explain to your tenants that its fair.
To do market research, you need to find properties in the area and how much they rent for. Then determine how your property compares to others’. If you find that after looking at the data that your house is already above market, then it’s not wise to raise rents.
If, after all your research, you decide to increase rents there are some basic does and don’t for communicating the increase to your tenants.
- Do thank them for being your tenants!
- Don’t apologize for raising rent.
- Do be clear and succinct
- Do communicate the rent increase in a letter or email
- Don’t write a novel explaining or justifying raising the rent.