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Is It A Good Idea To Raise The Rent Of A Good Tenant?

Good tenants are hard to come by. Finding a good tenant often requires extensive knowledge, experience, time, and effort, not to mention a good amount of luck. When you finally have one, you want to do whatever it takes to hang onto them.

But there comes a time when the local real estate market requires you to raise the rent. It could be the cost of living that has gone up, your property requiring a higher amount of upkeep, increased income and property taxes, and other situational reasons. So, should you go ahead and increase the rent and risk losing your good tenant? Or is it better to keep the tenant and settle for a lower profit margin?

Well, this is a question that many landlords ask themselves, especially when it’s time to renew a lease. Increasing rent is quite a risky prospect for landlords, because opting to not raise it would mean leaving money on the table, while raising it can have good tenants scurrying for a new home, leaving you with the expense of finding a new tenant.

To help you make a good decision, we’ll share a few essential pointers to keep in mind.

What Makes a Good Tenant?

  • They Always Pay Their Rent on Time, Even Early
    One of the qualities of a good tenant is that they go out of their way to make timely payments. They don’t want to lose a good landlord, just like you don’t want to lose a good tenant.

Tenants who ask to sign one-year or two-year leases are often good tenants. While it might be a strategy to avoid rent increases, it assures you of the income within the lease.

  • Treats the property as their own
    Whenever there’s a maintenance issue, such as a broken window, a clogged toilet, or leaking faucets, they fix the issues themselves (if the lease allows it). That’s because they understand each of these issues costs you time and money to coordinate for repairs. They also report these maintenance issues in order to avoid expensive repairs down the line.
  • They Avoid Unnecessary Qualms and Expenses
    For example, having pets often translates into extra security deposits and/or fees to cover the costs of any damages caused by the pets. These fees go hand in hand with pet-friendly rental housing, and vary widely based on the location, type of pet, and number of pets. Good tenants understand this and will wait until they own a home.

Nonetheless, for landlords, raising rent is sometimes inevitable. It’s something that you will have to do at some point. Of course, one of your priorities is to get a good ROI on your property. But before you decide to raise the rent, here are some important considerations to have in mind:

  • What’s the Current Market Value of Rentals in your Location?
    Determining the current market value of your rental property will help you decide the rental amount to charge. If you haven’t increased the rent in a long time, you could be undercharging substantially. Here are some ways to learn the market value of your property:

Rational Comparisons

These will take time, but won’t cost you much. All you need is to evaluate 10 (or more) similar rental properties in the area. You could limit your analysis to the comparable homes within the same block or houses within a few miles.

The first step would be to analyze your property, ideally looking at what features your home include, such as:

• Subjective features like design, views, and style

• A comprehensive list of amenities such as a swimming pool, fireplace, etc.

• Location in terms of proximity to marketplaces, major roads, schools, etc.

• Number of floors

• Construction age

• Square footage

• Number of bedrooms, bathrooms, etc.

You can then use platforms such as Zillow and Redfin to help you find comparative rental rates of local listings.

Rent Estimate Tools

You can also check the current rental prices of the area with online rent estimation tools. Good examples include Rentometer, Zillow Rental Manager, and My Rent Rates. Such tools will help you get a rent estimate depending on the specific features of your property.

Property Managers

Hiring a good property manager can help you determine the amount of rent you can surcharge for your rental. But unlike the options listed above, this won’t come cheap, and may cost you part of your month’s rent.

Is the Rent You’re Charging Profitable?

This involves accounting for the total expenses of managing your rental. The most common expenses include insurance premiums, property maintenance, utility costs, HOA dues, and property taxes. Some questions you need to ask yourself include:

• How much do you pay in monthly mortgage?

• Are there costs expected to go up?

• Any costly repairs or maintenance expected soon?

• How much did you pay in costs for the rental the previous year?

Add these up and subtract the total from the rent amount. If it’s still profitable, you don’t need to spike the rent if you have a good tenant.

Is it Possible to Increase the Rent without the Risk of Losing a Good Tenant?

If you can increase the rent tactfully and delicately, it’s possible that a good tenant will stick around. The key here is to make the process as painless as possible, with the following tips in mind.

• Keep the rent $100 less than comparable properties and let your tenant know that although you needed to increase the rent, it’s still lower than the rents in the neighborhood. Once you give them the notice for the increase, the tenant might start looking around to see if they’re getting a good deal. If it is, they’ll most likely find a benefit in staying.

• Clear and honest Communication. Communicating with your tenant way in advance in a kind, clear, honest, and professional manner will help to reduce the potential conflict with them over the raise. A written communication often works best, and is required by many local laws. Of course, ensure you follow the due notification period and process as outlined in your state and community.

With your communication, ensure that you:

• Leave no room for arguments or negotiation as the information is relayed as honestly as possible.

• Decide when to raise the rent – the lease agreement and the state laws will both determine how and when you can increase the rent.

• Cover all the necessary information in a way that you don’t leave room for confusion over the raise and when they’ll start paying it.

For instance, in California, the landlord is required to give their tenants at least a 30-day advance notice in case the ret increase is 10% or less. But overall, the earlier the notice, the better. If you’re on a 1-year lease, be sure to reach out to them 90 days in advance before the lease expires. This can go a long way in helping them adjust their budget and prepare for the raise.

If you can, encourage them to renew their lease early with an incentive. An example of a good incentive is a 3% raise when they renew their lease 2 months before the lease ends, and have them know it’ll jump to 5% if they choose to wait until it expires.

So, is it a Good Idea to Raise the Rent of a Good Tenant?

Rent increases are a normal part of the rental housing market. Some renters actually expect a rent increase based on the location of their rental, the required maintenance of the property, and the type of housing.

Nonetheless, many owners still don’t understand the tenant’s mindset. They assume that if they raise their rent by a small amount, the tenant isn’t likely to incur the cost and inconvenience of moving for that small amount. But reality proves otherwise. In most cases, tenants don’t think about moving expenses, all they care about is the monthly payment.

Keep in mind that there are landlords who are willing to offset the moving costs with move-in special offers to help move into their home. Why? Well, vacancy is the biggest cost to the owner. Vacancy also means incurring turnkey expenses to get the home into a rent-ready condition again, utility costs, tenant procurement costs, etc.

And while we aren’t advising anyone to keep the rates low or undercharge if there are no reasons to, raising the rent for a good, clean, already paying tenant is not always the answer. Consider the amount that will be wiped out in case the tenant chooses to move after the increase. Would it really be worth it? And are you ready to spend the time and effort needed to find another good tenant?

Always assess the overall value that a tenant brings when considering your rent increases, not just by the amount of cash they put in your pockets. Of course, when the tenant hands in their notice, you can always increase the rent for the next one.

As the landlord, you have to do everything from accounting and marketing to maintenance and customer service. If you do decide to increase the rent and you want to keep the good tenant, be sure to practice good customer service, and make your decision based on concrete data.

About Travis Wright

Hi! I'm the owner of Let's Grow Real Estate and Full Circle Clothing. I love writing, creating businesses and investing.

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