Should I Raise My Tenants' Rent?
/Being a landlord and knowing when and how to raise rents can be difficult. I want to discuss some ways to know when it’s a good time to raise them, how much to raise them, and how to break the news to your tenants.
Determine Market Value of Rents
You can pay a property manager to determine this for you, but I find it relatively simple to do it myself. Here in Salt Lake City a quick search on Rentler or KSL Classifieds will show you what properties in the same area are going for. Also look at the number of days the ad has been listed - if it’s been awhile, they are probably asking too much. This search is free. The only cost is a bit of your time.
Determine Your Profits with your Current Rents
Take a look at the previous year’s expenses. Will the expenses this year be the same? Have taxes or insurance rates gone up? Are there maintenance needs to be addressed? Will you make a profit at the current rental rate?
If you have determined from Item 1 that your current rents are under market value and that your current expenses will keep you from making a profit, it’s definitely time to raise those rents. However, even if you are making a profit, if you are under market value, you could still increase them.
Decide How Much Should Rents Be Increased
This can be difficult. Many landlords hold off raising rents for many years because they have great tenants that they don’t want to lose (raises hand, guilty!) so that when it comes time to raise rents you are miles below the current prices. Going to a tenant with a large increase to catch up is not the greatest idea. It’s a hardship on the tenant to suddenly have to pay $100 or more per month and you will be more likely to lose them.
Many experts recommend increasing rents by no more than between 2-4% at a time. On an $800/month apartment that is an increase of $16-$32 dollars each month. This is a much more manageable amount.
Utah isn’t a state with rent controls in place as of this writing (2020) so landlords here don’t have to keep that in mind when raising rents. Some leases may stipulate how much rent can be raised so make sure you are aware of the verbiage of your lease. Always make sure you are complying with the laws when making rent adjustments.
When and How Often to Raise Rents
The same experts that recommend the 2-4% increases, suggest a raise of that amount once a year (once the initial lease period is over). Then you will keep up with the yearly inflation of rates and not have to worry about that massive “catch-up” increase if you put it off for 5 years. And do it at the same time each year so your tenants aren’t surprised and can actually plan for it.
How to Notify Your Tenants
Always keep in mind that your tenants are humans and deserved to be treated as such. Hearing about a rent increase with a short notice is difficult and alarming. Give your tenants as much notice as possible. I would recommend at least 60 days so they have time to plan and adjust. And don’t be afraid to tell them why the increase is coming. And let them talk to you about it. Be approachable and answer their questions and concerns honestly and kindly. And if they’ve been great tenants that need a bit of a break - consider it. Great tenants that take care of your property are often worth keeping.
Raising rents can be stressful for all parties involved. Hopefully these tips will help make it easier on everyone.