How to Raise Rent Without Losing Good Tenants
I had to write the letter every seasoned housing provider hates to write: the one where we tell a great tenant that we have to raise the rent.
Honestly, I’m no different than countless landlords. We hate turnovers. And we’d rather charge a tenant who pays on time and is respectful and kind less than get more money from another tenant.
The irony is that the goal of owning an investment property is to achieve financial health. When taxes and insurance go up by double digits we have no choice but to raise it.
Of course, that always comes with a lot of fear. What if they move? They’ve been there a long time. How much will a turnover cost? How long will it take? What if I get a terrible new tenant?
That’s when I have to remind myself. If I raise the rent correctly, most good tenants stay. The ones who leave were probably going to leave eventually anyway.
What should you do?
- Market research. I plug the property address into rentometer.com to see what properties of comparable bedrooms and size have rented for in the area. I do the same on Facebook Marketplace, Zillow rentals, the MLS and even Craigslist. I compare the condition and amenities of what’s available with mine, and calculate what I think the going rent for a market-rate rent might be. Trust me. Your tenants are well aware of any gaps.
- Increase to just below market rent. Some experts will tell you to increase rent to market rate. I have a slightly different opinion. If I keep the rent just below that amount, they won’t compare my property to others. For example, if market-rate rent is $1700, I may raise mine to $1600 or $1650, depending on the amount of competition I have. I try to land at a number that would prevent someone from going through the hassle of renting a truck and paying for enough pizza and beer to persuade friends to help them move.
- Provide enough time. You can’t raise rent in the middle of a lease. For residents who are month-to-month, Minnesota requires a minimum of 30 days notice. Personally, I would want more notice, so I do my best to let them know 60 days in advance.
- Be clear and concise. While some explanation helps soften the blow (increased insurance rates, etc.), there is no need to go on and on. Clearly state how much the rent is going to be and the date on which it’s effective. I also always try to let them know I appreciate their residency. I also let them know I’m available to answer questions.
An investment duplex is a business, not a charity. While we value our good tenants, they understand we need to cover our costs too.