Raising your tenant’s rent is a matter of “finesse and analysis,” says Keith Becker, president of DeDe’s Rentals and Property Management in Santa Rosa, California.
You don’t want a good tenant to move out because then you’ll have to incur the expense to find a new tenant. But you don’t want to leave money on the table, either.
“Your existing tenant is a known quantity,” Becker says. “You don’t want to raise the rent on them to what you’d charge if the property were vacant and you were starting over. At the same time, you don’t want to leave the rent flat if you have an improving market.”
4 tips to raise rent
- When you increase the rent, put the notice in writing.
- If you intend to raise the rent by a large amount, do it gradually, not all at once.
- Don’t raise the rent the day before Christmas.
- Be flexible if it’s appropriate, such as giving a good tenant a 1-month delay in a rent hike.
The best approach is to find a rent that’s moderate and appropriate, balancing your contradictory goals to keep your tenant and maximize income.
To start, research the fair market rent of comparable homes that are vacant in the area, keeping in mind that a vacancy is different from an in-place tenant. Online rental websites can be a good place to look for data.
If rents are rising fast, it’s best to take a gradual approach, raising the rent annually. Don’t wait several years and then hit your tenant with 1 much larger increase, Becker says.
May, June, July
Whatever you decide, be sure to follow the notification period and process required in the state and community.
“Summertime is usually more productive in terms of readjusting rents than doing so around the offseason around the (year-end) holidays,” Becker says.
That presumes you’ve timed your tenant’s lease so you can raise the rent at the optimal time.
Take it or leave it
Don’t open the door to negotiation. That mistake will cost you money.
“You’re setting yourself up for failure by saying, ‘Dear tenant, your rent is $1,800 and we are going to raise it to $1,950. If you have a problem with this, please let me know.’ You know they are going to have a problem,” Becker says.
If your new rent is lower than the prevailing rent for similar places nearby, it’s reasonable to expect your renter to stay and pay the higher amount.
But be prepared for your renter to pack up and clear out instead.
“Some people, no matter how good a deal it is, still find themselves forced to make hard decisions,” Becker says. “They may find themselves bumping down from a 3-bedroom to a 2-bedroom or moving back in with mom and dad.”