Rental rate increases are sometimes a necessary evil. There are many legitimate reasons you might decide to up your rental rate, whether because of inflation, renovations, tax increases, or an endless number of other causes. The only question left is: how can you raise the rent without raising your vacancy rate? This article will give you the answers.
How Much Should You Raise the Rent?
For a landlord or property manager in Northern Virginia, it’s acceptable to ask for 3-5% rent increases per year. However, your neighborhood’s comparable rental rate levels may alter this. In any case, you want to balance your rent increases between being profitable and being affordable for tenants.
What to Consider When Deciding Your Rental Rate
Investigate Local Housing Laws: Rent increases must stay compliant with any applicable state or local laws. So, do your due diligence beforehand and ensure you meet your area’s requirements or limitations.- Research Market Competitors: Research area homes with similar specifications and amenities. If their rental rate levels are increasing across the board, it’s likely okay for you to follow suit. Also, look at market rates of similar properties across the country for a baseline.
- Compute Operating Expenses: Before you raise the rent, calculate your entire yearly spending on your rental property. Perhaps even add up all your previous whole year’s costs for comparison. After, divide each yearly total by 12. Your result is your minimum for covering monthly expenses and breaking even. In the end, you can use this to set your most profitable, yet reasonable, rental rate.
- Calculate Customer Price Index x Current Rent: This equation can help you estimate possible rate increases based on national market rates.
Tips for Keeping Tenant Retention When You Make Rent Increases
No matter how much you genuinely need rent increases, it can still be hard to break the news to tenants. After all, no one wants to pay more for the rent. Luckily, if you handle the situation with tact, you can set yourself up for success.
Honesty is the Best Policy
Uninformed tenants may assume you want to raise the rent out of pure greed. This can breed distrust among tenants if you’re not careful. So, you need to let the tenant know that you’re making this decision solely out of necessity, to make your business recession-resilient no matter how the federal government’s rental cap plan turns out.
By humanizing your motivations, tenants can find your decision easier to swallow. Needless to say, many people can relate to, and sympathize with, falling on hard times.
Times are tough, and many people are just getting by. As such, you must have a genuine, urgent reason for adding to their financial burden. For instance, they won’t respond well if your reason is that profits have been downgraded from booming to just decent. It goes without saying, but “decent” profits only make you tighten your belt—they ultimately won’t threaten your day-to-day financial survival.
To avoid this outcome, you should inform them how the current rent rate negatively impacts your financial stability. For example, you could explain that expenses have risen—expenses you can’t shoulder alone—and that the new rental rate reflects these costs.
However, be sure you have the numbers to back up your claims if a tenant asks for details. In a worst-case scenario, you don’t want to appear deceitful. That will earn you wrongful accusations that you’re a bad landlord.
Tenants might not exactly love rent increases. But hopefully, at the end of the day, they’ll recognize you’re just trying to get by like they are. This way, you can protect your tenant retention.
Incentivize Residents
By providing gift cards, thank you notes, or other incentives, you can make the deal sweeter for tenants. One especially effective idea could be having a discount month. As an example, in December, you could have a holiday discount of $100 per tenant.
Yes, this means a temporary dent in your earnings. On the other hand, it can be exceptionally attractive to renters, which protects your income in the long run.
Additionally, you may want to share how a rental rate increase would improve their lives. For instance, if rent increases would make it easier for you to afford long-desired improvements, this is an ideal time to say so.
Assure Tenants That Rent Increases Aren’t the Norm
Promising your tenants that you’ll refrain from rent increases for a specified amount of time can restore tenant confidence. By giving them a concrete timetable, you’ll persuade them to stick around for at least that amount of time. With your guarantee, they’ll feel secure knowing their rental rate will stay stable for a while.
What Are the Laws Around Rental Rate Raises?
In general, landlords are legally permitted to raise the rent during specific times.
- After a month-to-month or yearly lease has expired and it’s time to renew the lease
- Anytime during a month-to-month lease
- When making new lease agreements with new tenants
Meanwhile, they can’t raise the rent in these contexts:
- Without prior written notice (the timeframe can differ by lease and law)
- Before the renewal date
- When the lease promises fixed rental rates
- As a way of retaliating or discriminating against a tenant
While this serves as a general guideline, you should always consult your area’s laws, such as:
- Rent-Controlled Housing Regulations
- Limits on Maximum Increase Amounts
- Amount of Notice Requirements
- Restrictions on Frequency of Rent Increases
How to Notify Tenants You Plan to Raise the Rent
Many state and local laws require landlords to inform their tenants of rental increases in writing, in advance.
Furthermore, how far in advance you must provide it depends on your increased amount. If you propose rent increases under 10%, you oftentimes should provide notice 30 days in advance. However, this can differ by state, and even then, it can change over time. So, always check your jurisdiction’s laws to ensure you comply.
What You Should Include in a Rental Rate Increase Notice
- Personalization (opening with the tenant’s name)
- Property’s full address
- Date of writing
- Short message thanking them for being your tenant
- Current rental rate
- The increase amount
- Which date the increase starts
- Landlord contact information
- Requirements for responding to the notice – either agreeing to terms or giving the notice to vacate
- A friendly closing sign-off
One optional but helpful inclusion would be an explanation of why you must raise the rent. This can help tenants understand that economic or circumstantial forces beyond your control have forced your hand.
Also, you could explain how your property benefits tenants and could be even better with more funding.
Either way, a concise explanation shows tenants where you are coming from as an owner and helps them better understand the need for an increase.
Let BMG Handle Rent Increases for You
You can accomplish a smoother transition when you raise the rent by displaying transparency and honesty throughout the process. People will appreciate it if you are open about why rent increases are necessary for your financial health.
However, if you would prefer to avoid the discomfort of this ordeal, period, professionals can navigate it for you. Property managers are trained to deal with thorny situations exactly like this.
At Bay Management Group, we have the experience necessary to help you when you need it the most. To name just a few examples, we can take care of rent increases, rent collection, evictions, rental registration, inspections, maintenance, move-in/move-out reports, tenant screening, and more. We can even send you a monthly statement of how much you made from each of your properties so you can easily keep track of your profitability.
So, if you have a property located in North Virginia, Maryland, Pennsylvania, or Washington, DC, we can help streamline your business. Contact our team today to put the hard, uncomfortable work of being a landlord out of your equation.
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