Your tenant is nearing the end of their lease. In most cases, now’s the time when you, as the landlord, are allowed to increase the rent.
On the one hand, increasing rent seems like the financially savvy thing to do. On the other hand, you’re worried that a higher price will scare your tenant away from signing for another year.
Which is better?
Read our take on how to maximize your rental income thoughtfully, and without scaring off your tenants.
Why Raising Rent Is Wise
Far too many landlords fear raising the rent, especially when the market isn’t hot. But raising rent annually is the wise option for two reasons:
- Costs associated with owning and maintaining a rental property increase yearly. Similar to an employee receiving a cost-of-living raise, raising rent will help you cover costs (like property taxes, landlord insurance, HOA fees, and increased interest rates on loans) while still making a profit.
- Tenants are not surprised to see rent increases. They are surprised when they see really large increases. Raising rent routinely will allow you to meet rising costs slowly without scaring off your tenants.
How to Raise Rent the Right Way, Step By Step
- Find Out When You Can Legally Raise Rent
Each state has its own laws for landlords. Check your state’s laws regarding when you can legally raise rent. Most states require that you wait until the end of the lease. For example, if your tenant has signed a month-to-month lease, you can raise their rent each month. If they’ve signed a year lease, you can raise the rent after their year is complete.
- Find Out How Much You Can Raise Rent
Some states enforce what’s called “rent stabilization” or “rent control” laws. Texas doesn’t have these laws, so landlords can raise their rent by as much as they wish. That said, like we mentioned above, if you have signed a fixed-term lease with your tenant, then you’ll need to wait for the existing lease to expire before you can adjust the rent.
- Know How Much Notice Is Needed
Your state will also have laws dictating how much notice you have to give your tenants if you’re going to increase their rent. Texas is unique in that landlords do not need to provide notice before raising the rent (though the law stipulates that both parties must act in good faith, which is often interpreted as a 30-day notice). Many states, however, require that landlords tell their tenants (with a hand-delivered or mailed written notice) that their rent price is increasing, at least 30 days in advance.
- Double Check Local Laws in a State of Emergency
While some states prohibit rent control at a state and local level, there are certain exceptions. For example, if a city or municipality is experiencing a housing crisis, they may declare a state of disaster and impose rent control for a limited period of time.
- Examine and Match Your Local Rental Market
Every month that your property is rented below market rate, you’re losing potential income. Maximize your profit by asking:
Are rents increasing in my area? If so, by how much? How does my rental compare in price to similar units on my street and in my neighborhood?
- Raise Rent Little By Little
Put off raising rent for too long, and you’ll soon realize that you’re losing money on your rental. Instead, make small annual rent increases (by 3-4%) to avoid significant, less frequent rent increases that could send a good tenant running to another option. This approach allows for a more gradual adjustment in rent prices and provides a more stable and predictable experience for both you and your tenants.
- Offer A Lower Rent for a Longer Lease
Tenant turnover is where landlords lose the most time, effort, and money. The longer you can keep each tenant, the lower your turnover rate and the higher your average returns.
Offer to lock in the rent at the same price if they sign a two or three-year lease renewal. They win, you win, everyone’s happy.
Earn Big Returns on Your Rentals the Passive Way
Knowing when to raise rent, learning about local laws, and retaining tenants can quickly become overwhelming tasks. We know how hard it can be, and we can help.
Here’s advice from Kasey, who hired SmartEgg to manage her rental property.
“I am an out-of-state investor and having SmartEgg to manage my rental gives me complete peace-of-mind. My tenants are happy and I’m happy. They are attentive, capable, and transparent. I recommend them 110%. When I have questions, they respond back quickly. Best decision I ever made.”
Ready to hand over the reins? We’ll manage every aspect of your property and optimize it for the best possible returns. Schedule Your SmartEgg Consultation Today.