Tenants dread rent hikes, and landlords hate breaking the news. With the right approach, alerting your tenants to an impending rent increase can take the pain out of the process, and even give it a positive spin.
Here are VerticalRent's 10 best practices for notifying your tenant—in writing—of a rent increase.
Steps 1-5: Consider Your Motivations for Increasing Rent Fees
Your decision to raise the rent on your property depends on multiple factors, some of which have nothing to do with your desire to increase your cash flow. Yes, property taxes, maintenance fees, and markets change over time and it's necessary to compensate for your expenses accordingly, but a little creative thinking and flexibility can save you money in the long run. Before you notify your tenant in writing of a rent increase, be sure you understand your options and obligations.
1. Know the laws
City, state, and federal regulations may restrict the percentage of a rent increase. Research legislation that affects your area, and any tenant-specific circumstances protected by law. Remember, new rental fees can't go into effect until your tenant's current lease is up, and tenant advocacy groups fight hard to enforce rent control policies.
2. Review your lease
Are you obligated to terms set forth in the lease your tenant signed upon occupancy? Did you promise a notice period beyond what's required by law? Month-to-month tenants usually require at least 30-days' notice of a rent increase.
3. Weigh the risks
Are you concerned you'll lose a fantastic tenant due to the increase? Have you held up your bargain to this point, or are your own shortcomings as a landlord enough so that an increase will be the proverbial straw that breaks the camel's back? In "Top 9 Reasons Tenants Move Out of a Rental: Learn Why Good Tenants Leave", a September 2018 The Balance Small Business article by Erin Eberlin, "too expensive" is the leading reason why tenants decide to move out. If your tenant vacates, are you confident you'll turn over the unit without losing more money than you'd make with an increase? Is a good tenant who pays a little less than the ideal fee worse than a bad tenant who pays a premium?
4. Develop an increase strategy
Think long-term. If you raise your rent in smaller increments over time, your tenants will experience less "sticker shock" than if they're hit with a huge number all at once. This is easier to manage with month-to-month tenants, but long-term adjustments are still possible with tenants who sign six-month leases. Consider implementing discounted rents or value-added incentives for good tenants to get them to transition from month-to-month arrangements to year-long leases.
Remember that turnover is one of the biggest drains on your bottom line. How can you increase your profits while keeping your units filled? Are profits determined by rental income alone, or through creative risk management and tenant retention?
5. Set your increase amount
Now that you know when, why, and how you're going to increase your rent, decide how much you can legally charge, and what you feel is appropriate for your circumstances. Also, know exactly where and how you can afford to make adjustments should you decide to give gold-star tenants a little leeway.
Steps 6-10: Compose Your Rent Increase Notification Letter
All official communication between tenants and landlords require written notification, and these letters must be formatted according to standard business practices. There are no exceptions, regardless of your relationship with your renter. Clear communication and formal agreements do more to preserve a relationship than does a pinky-promise.
6. Properly address your letter
VerticalRent offers a variety of templates for official landlord-tenant communication, but it's important that you take special care to get the name, address, and unit number correct to prevent delivery problems and the potential for loopholes. The full name and full address should go below the date you mail the letter, and your letterhead or typed name and address should go above that.
Next, write in bolded, underlined text, RE: NOTICE OF PENDING RENT INCREASE.
In your salutation, write "Dear (Tenant's Full Name)".
7. Introductory paragraph
Most landlords choose to soften the blow with an explanation as to why the rent will increase, but don't be patronizing. Use a respectful tone without being overly apologetic; rather than say "I'm sorry we have to raise your rent", let them know you evaluated the rising operation costs and adjusted the rent to be fair to your valued tenants while allowing you to meet your obligations to them and to the care of the property.
8. Clearly specify the rental increase
Make it easy for the tenant to understand exactly what they'll owe, and when. Providing a percentage puts the increase into perspective. Here's a sample paragraph that states the facts of the increase:
To reflect these changes in our operating costs, we have calculated a rent increase of $100.00 per month, beginning with your payment for the month of June 1, 2019 on which date the new rental fee of $1600 shall be due. This is 6.6% increase over your existing rent of $1500.00.
If you plan to offer your tenant incentives or alternatives to the increase (i.e. releasing good tenants of mandatory quarterly inspections, or negotiating tenant upgrades) it's best to make a follow-up call and get a feel for their thoughts about the increase, discuss their options, and present a new contract with the agreed-upon amendments and concessions.
9. Put the ball in the tenant's court
In the third paragraph, let the tenant know that you'll be sending an amended lease that reflects the increase, and that the rest of the terms remain the same, unless you've negotiated and adjusted the terms. If you choose to use VerticalRent's forms notification engine, ask the tenant to confirm their e-mail account with a message to yours. Let them know that should they decide to vacate, they should provide notice according to the terms of their current lease. Also, invite them to contact you if they have any questions or concerns.
10. Deliver the rental increase notices
Double-check your legal requirements for notice deliveries, and be sure you send them by certified mail so as to confirm receipt. If you're required to give 30 days' notice, add a few days to compensate for the delivery time. Adding an extra week to the notice period is good practice. Double-check the date above your client's address to make sure it's at least 35 days ahead of the date the rent increase goes into effect.
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