Knowing whether to raise the rent on a rental property is something all landlords struggle with. After all, generating more profit is always a welcome thing. And with increases in taxes, insurance premiums, or even the general standard of living, you might be tempted to bump the rent rate up.
But sometimes raising the rent on quality tenants backfires and causes more problems than not.
Despite what the housing market is doing in Phoenix, you have to be careful when it comes to rent increases. Unhappy tenants that leave because of a rent increase have the potential to wreak havoc on your bottom line.
If you’re on the fence about whether to implement a rent increase come your tenant’s new lease term, keep reading. This comprehensive guide will help you make a sound decision that will leave you and your tenants satisfied.
Steps for Raising the Rent on a Property
There are many factors to consider when it comes to raising the rent on an investment property. Though each situation will be different, these steps will guide you in making the right decision.
1. Ask Yourself: Can I Raise the Rent?
The first thing you should always ask yourself when considering a rent increase is whether you’re allowed to.
If your rent agreement is a lease, with a fixed lease term, you cannot legally increase the rent until a new lease term begins and your tenants agree and sign for it. That is, unless there is a special provision allowing you to do so.
On the other hand, if your rent agreement is a month-to-month lease, you can usually raise the rent with proper notice, which is about 30 days for most states. This notice must be in writing. A judge will not enforce an oral agreement between you and your tenants to increase the rent.
Keep in mind, there are some instances when you are not allowed to raise the rent:
- The property is in a rent-controlled area
- You’re retaliating against your tenants
- You’re discriminating against your tenants with a rent increase
- You’re trying to force a tenant to move out
- The increase is above what the law allows
Knowing the landlord-tenant laws as they pertain to rent is important if you want to be a successful landlord. If you need help with keeping up with the rules and regulations, consider hiring a property management company in Phoenix to help you deal with increases for you.
2. Serve a Lease Renewal Notice
Typical lease agreements state that landlords and tenants have between 30 and 60 days to inform the other party in writing whether they want to renew the lease for another term. If you want to invite your tenant to renew their lease, as well as increase the rent rate, it is during this time that you will inform them of this.
Being proactive about lease renewals, whether you are increasing the rent or not, is always best. Tenants that don’t know whether you want them to stay or go often get nervous and start looking elsewhere sooner than later. It would be a shame to lose a great tenant because you didn’t tell them you wanted to stay.
In addition, you don’t want to blindside your existing tenants with a rent increase at the very last minute, even if the law says you can. People need time to think about rent increases, budgets, and whether they want to renew. Giving your tenants as much time as possible will usually lead to appositive outcome.
3. Check the Rental Market
Another important factor to consider when it comes to a rent increase is the current rental market. You face two scenarios with your rent rate:
- Too Low: if you set the rent rate too low, you risk missing out on profit. Sure, your tenants will be happy to pay a low rent amount each month. But as a landlord looking to generate money, going too low won’t work. Plus, you might attract the wrong tenant pool if your property’s rent is too low.
- Too High: if you set the rent rate too high, you risk driving tenants out of your property. This leads to an extended vacancy and no money coming in each month. The longer it takes to place a new tenant, the more money you stand to lose.
Knowing the status of the current market and what similar properties nearby are leasing for will help you with your decision to increase the rent or not. You’ll also want to think about the current tenants in your property. Sometimes going a little low on the rent to keep high-quality tenants long-term is worth it.
4. Determine an Appropriate Increase
Once you’ve decided to raise the rent on your property, it’s time to decide by how much. If you have existing tenants, we always recommend a slight increase. After all, the way you’re going to profit from your property is by keeping tenants in it that pay rent each month. Good tenants that enjoy living in your rental are likely to be okay with a small rent increase. It’s normal for rent to increase from time to time and your tenants know this.
If your property is vacant, there’s a little more wiggle room when it comes to setting the rent rate. However, keep in mind that asking for too much in an area where tenants know they can get a better deal will backfire.
If you’re not sure what to set your property’s new rent rate at, it’s a good idea to have your property analyzed by a professional. Luckily, many reliable property management companies in Phoenix offer landlords a free rental analysis. This, paired with fast tenant placement and 12 month quality tenant guarantees will help you start earning money as soon as possible.
5. Tell Your Tenants
Again, if you have existing tenants and you want them to renew their lease with you, complete with a rent increase – you have to tell them. This is not only the right thing to do, it’s the law. Every time a tenant renews a lease with you, they have to sign a new lease agreement. This means the rent increase will be in the new agreement that your tenants sign.
When raising the rent on your tenants, follow these tips to keep them from wanting to move out:
- Communicate that you’re raising the rent – don’t them discover it in the new lease agreement as they’re signing
- Explain that the new rent rate is competitive in the local rental market so they feel it’s fair
- Make a reasonable increase (2% or 3% each year is typical)
- Provide extra notice so your tenants can think about it and make an informed decision
If you spring a rent increase on your tenants, they will be surprised. If you don’t give them enough notice, they may not want to even consider signing a lease renewal with you. The best way to approach a rent increase is to be clear, transparent, and timely so that your tenants don’t fee blindsided.
6. Show Your Gratitude
Lastly, it’s crucial you always show your tenants your appreciation. In addition, the property manager you use to help you should be just as grateful towards your tenants. No matter how well the market is doing, if you don’t treat your tenants right and they leave, you’re out of luck.
Some of the best ways to show your gratitude, especially after raising the rent, include:
- Hiring the best property management company around to take care of your property and tenants
- Having an open line of communication with your tenants so they can express concerns and ask questions openly
- Gifting your tenants with a small token of appreciation such as a gift card to show them you care
- Agreeing to upgrade an appliance, give the home a fresh paint job, or replace the worn carpeting with a lease renewal
- Giving your tenants a discount on their first month’s rent
People love to feel appreciated and your tenants are no different. Even if you do increase the rent on your existing tenants, by showing a little gratitude they’ll feel you and your property manager care. This can go a long way in decreasing turnover rates and securing a long-term tenant.
Are you in need of Phoenix Property Management? Then contact us today and see how we can help you with rent increases, lease renewals, tenant placement, and so much more.
At Real Property Management Phoenix Valley, we know how hard it can be to place your investment property into that hands of another for management. Our experienced property managers understand that your investment property is an extension of you. That’s why we strive to protect your asset, generate the highest ROI possible, and leave your tenants 100% satisfied throughout their tenancy.
So, let us analyze your Phoenix property, determine the perfect rent rate for you and your tenants, and manage everything from lease agreements to property inspections to maintenance and repairs. You on the other hand, can sit back and reap the benefits of being a landlord without all the hassle.