A recent survey revealed that 52% of renters cite rent increases as their reason for leaving their current living situation.
The challenge: How do you raise rent each year without losing tenants?
Demand goes up, supply goes down, expenses increase, and rent increases. These price hikes aren’t personal; it’s just the reality of the real estate market.
In this post, we’ll review strategies for how to raise rents on your rental properties (while keeping resident turnover and vacancy rates low).
How to Raise Rent without Losing Tenants
Tip #1: Find Market Price by Researching Your Competition
Don’t expect to attract or keep tenants if your two-bedroom, one-bathroom is listed for $500 more than dozens of other units down the street. The market is too competitive to support an unjustified rent hike.
Before a rent increase, it’s important to know what’s happening in your local rental market. If your pricing is way off compared to other similar units, you could either lose tenants or miss out on potential income. Doing your homework ensures you don’t go too far and still remain competitive.
Want to know how much to raise rent each year? You’ll have to do your research.
Here’s how to dig into local trends:
Step #1 for Market Research: Check out comparable listings
Start by looking at other rentals similar to yours—same size, same number of bedrooms and bathrooms, and similar amenities. Use rental sites to get an idea of what they’re charging. Again, if your two-bedroom, one-bathroom unit is priced $200 higher than comparable places nearby, tenants will likely notice and may look for a better deal–even if you cushion your prices with a get your first two-month free promotion.
Step #2 for Market Research: Pay attention to vacancy rates
If you’re seeing a lot of “For Rent” signs in your area, that’s your first red flag.
High vacancy rates are also a telltale sign that there’s more supply than demand, which means raising your rent could be risky. But if units in your area are getting snapped up quickly, you can be more confident about raising prices. On the flip side, raising rent in a high-vacancy area could lead to losing tenants and sitting on a vacant unit.
Step #3 for Market Research: Look at yearly average rent increases
If the average rent increase is typically 3-5% annually, tenants will be primed to expect a reasonable rate increase.
Remember, nothing beats transparency, so being open about the possibility of annual rent increases will save you painful discussions in the future.
Tip #2: Offer More Amenities
It’s no secret that people are willing to pay more when they feel like they’re getting more out of it. One of the easiest ways to justify a rent increase is to set yourself apart from other landlords out there.
As a property owner, it’s your responsibility to keep the perceived value of your rental higher than what they are paying. When tenants feel they’re getting more value for their money, they’re less likely to push back on a rent increase.
But how exactly do you increase the perceived value? Here are some great places to start:
- Add or upgrade appliances (energy-efficient washers, dryers, or dishwashers).
- Improve common areas, like the lobby or courtyard.
- Add storage sheds or parking options.
- Provide tech perks, such as faster Wi-Fi or smart home devices like keyless entry.
The nice thing is that it doesn’t have to come at a huge cost. In fact, these extra amenities don’t always have to be tangible or materialistic add-ons.
Remember: the way you interact with tenants is just as important as the physical space you provide. If tenants know that management is responsive, reliable, and easy to work with, they’ll often feel more inclined to stay, even when faced with higher rent prices.
So ask yourself:
- Do you actively check in and see how your tenants are doing?
- Do you make it easier to pay with an online portal or flexible payment options?
- How quickly do you respond to requests or concerns?
Nine times out of 10, responsiveness and attentiveness are what set a great landlord apart from a decent one. In addition to prompt response times, you should also:
- Communicate regularly and clearly
- Offer online rent payment options.
- Host tenant appreciation events.
These small gestures will make rent increases feel less burdensome and reduce the likelihood that your residents will look elsewhere.
Tip #3: Set the Right Expectations
Tenants are more likely to accept a rent raise if they understand the reasons behind it. Otherwise, they’ll assume the motivator behind these rent increases is greed.
Several events can warrant a rent increase, such as increased maintenance costs or property taxes. When the conversation is broached tactfully, reasonable tenants will empathize with you, their landlord, if the cost of living is the primary driver.
The best time to have this conversation is early in the tenant relationship. Upon signing a lease, let tenants know that they can expect rent increases periodically.
If you’re managing a larger multi-family property (25+ units)–with the help of a property management company–annual rent increases are to be expected. However, your tenants may expect more price flexibility if you’re a private landlord overseeing a residential duplex. After all, the decision can’t be chalked up to a third-party management company. You’re in charge. And because you’re managing a smaller subset of units/tenants, there are fewer operating costs involved–which can make it more difficult to justify price hikes.
For this reason, transparency is especially critical for landlords managing smaller portfolios.
Tip #4: Opt for Gradual Increases
Instead of hitting tenants with a steep increase all at once, consider raising rent gradually over time. Smaller, incremental increases are easier to digest and feel less disruptive.
Many property owners raise rent annually by a set percentage (e.g., 3-5%) to maintain their property’s competitiveness (while still covering necessary costs).
Tip #5: Offer Lease Agreement Flexibility
Offering options like month-to-month leases, shorter-term agreements, or even early termination clauses can give tenants peace of mind that they’re not locked into a rigid agreement.
Note: If a tenant terminates a contract early, this can also lead to unexpected vacancy, so try to adjust for risk as much as possible.
One common approach is to offer longer leases with “locked-in” lower rates.
In practice, it will look something like this: If a tenant signs a two-year lease, they’ll pay $1,800 a month. More loyalty = more savings.
If the tenant opts for a shorter, one-year lease, they’ll pay $1960/month, given that landlords run a greater risk with short-term leases. As the property owner, you should also consider taking a larger deposit for shorter leases as a buffer for unexpected vacancies.
And for those residents who want the freedom of a month-to-month contract, you might charge $2,050/month for that same property. Extra flexibility = extra costs.
| Lease Type | Cost for a One-Bedroom Unit |
| Two-year lease | $1,800/month |
| One-year lease | $1,960/month |
| Month-to-month lease | $2,050/month |
Why Raise the Rent?
In most cases, we’re less profitable than we think. A rent increase is a great start to boosting profitability–but you’ll need to be able to justify it.
Here are some reasons you might find that warrant raising the rent.
Reason #1: Increased Cost of Repairs, Maintenance, and Improvements
Repairs and other maintenance costs can slowly eat into your profitability. To minimize the dent in your bottom line, you’ll need to factor these expenses into the cost of rent.
Consider routine maintenance (landscaping, servicing appliances, inspections, etc.) Hiking your rent prices is one way to offset these costs. Rent increases can also free up funds for window replacements, appliance upgrades, etc.
Reason #2: Tax increases
Your property is appreciating in value (hopefully), and ever so often, you’ll get a new tax assessment. This is an added expense for you. Even if you were to own your rental free and clear, property taxes will always need to be paid. You’ll not only have to account for tax increases but predict them, too.
Ultimately, you want to avoid locking yourself into a 3-year lease without forecasting what taxes might look like three years into the future. Research your property’s tax history and stay ahead of it.
Reason #3: Rising Insurance Premiums
It’s not uncommon for insurance premiums to jump substantially, especially in our unprecedented season of disastrous weather. When property insurance becomes more expensive, the rent usually follows.
Reason #4: HOA Fee Increase
Homeowner Association fees are paid by the homeowner. These HOA expenses cover neighborhood maintenance (landscaping, parks, pools, and gyms) and are more common in suburban areas.
Just as the HOA passes expenses down to the homeowner, the homeowner will pass all (or some) of these expenses on to the renter.
Reason #5: Property Management Fees
If you own a few rental properties, you might have a property manager (or two) on your payroll. If you do, that’ll be an added expense for you. For example, I recently switched property management companies, which added $40 in expenses per door.
Reason #6: Market Demand
If rental demand goes up and supply stays the same, raising the rent is usually a good idea.
If there are lots of people looking for rentals in your area, the risk of a tenant leaving is much less. This is one of those situations when a rent increase can’t be attributed to a direct cost.
But beware: landlords should be cautious when taking this approach. The market can change quickly, and tenants will easily be able to justify moving if you’ve overpriced yourself.
Alternatives to Raising the Rent
If it’s more monthly income you’re after, but you can’t justify a rent increase, there are other ways you can increase your monthly revenue without passing it on to your tenants.
Turn Extra Storage Space into Cash Flow
You can earn some ancillary revenue by turning some of your unused space into storage solutions for others. If you have unused parking spaces, garage space, basements, sheds, or attics, partnering with Neighbor is a simple way to earn hundreds of dollars in additional monthly revenue.
With Neighbor, you can rent your extra space to non-residents and maximize your revenue:
- List your space
- Approve Your Renters (we will find them).
- Collect payments. Neighbor not only collects payments but guarantees them. That means you get paid even if the tenant doesn’t.
FAQ
How Do I Write a Rent Increase Letter?
Writing a rent increase letter? Be clear, professional, and respectful. Start by addressing the tenant by name. Clearly state the current rent amount, the new rent, and the effective date of the increase.
You should reference any clauses in the lease agreement or local law that allow for the rent adjustment. Provide the required notice period, typically 30-90 days, and offer to answer any questions. A polite closing can maintain a positive relationship. Remember, you’ll still need to mention rent increases in your lease agreement.
What Is the Most That a Landlord Can Raise Your Rent?
The maximum rent a landlord can raise depends on state and local laws where the property is located.
In areas with rent control laws or rent stabilization laws, such as certain parts of California or New York City, monthly rent increases are capped at a percentage determined annually, usually between 3% and 8%.
For example, in Los Angeles, under rent stabilization, landlords can raise the rent prices by a set percentage based on inflation, which in recent years has been around 3% per year.
In San Francisco, landlords can only raise rent by a certain percentage (currently around 2-3%) based on the Consumer Price Index (CPI).
In areas without rent control, landlords generally have more flexibility but are often required to give reasonable notice, and the increase cannot be considered retaliatory or discriminatory. It’s important to check local laws for specific limitations.
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