Successfully Raise the Rent With a New Rental Agreement

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As all real estate owners know, the cost of owning a home or rental property rises steadily over time, from pesky tax assessment increases, to property insurance premiums shooting up, to property repairs. For landlords, this means their rental income must increase alongside these rising costs, which in turn necessitates raising tenants' rents. While not a fun conversation by any means, here are a few tricks to make it a little smoother, and to reduce the prospect of a vacancy.

Trick 1: Remember the Season

It's much harder to sign a new rental agreement in the fall and winter months than the summer months, as most people prefer to move in warmer weather. This means, quite simply, that you should wait until spring to raise the rents on your tenants, in case they decide to leave and you need to find new tenants.

Trick 2: The Personal Connection

This one is important: broach the conversation in person when you ask your tenants to sign a new, more expensive rental agreement. The reasons are many, but people are far less likely to say "no" or start a confrontation in person than they are through less personal communication. Additionally, you will find your tenants far more amenable if you sit down in person and explain your reasons for raising the rental amount (i.e. rising property taxes, insurance premium going up, etc), than if you simply send them a notice that they have to start paying you an extra $50/month.

Trick 3: Give Your Tenants Notice

Landlords have to give a certain amount of advance, written notice in most states, so make sure you comply with your state's laws. When you sit down with your tenants face-to-face, it's a good time to give them the written notice, and keep in mind that if your tenants decide to leave, you'll have even longer to find a new tenant before your old tenants vacate, the more notice you give them.

Trick 4: Secure a Long Term Rental Agreement

No tenants wants to worry that every twelve months they'll be subject to rental price spikes, so one way you can reassure them is to offer a long term rental agreement of several years. Tell them you're willing to commit, in writing, to this new rent for at least two years, by signing a new rental agreement with them, and you've not only assuaged their fears but secured a good tenant for the next several years.

Trick 5: What Are Other Rental Properties Going For?

Many tenants have misconceptions about what market rents are in the neighborhood, and think they can automatically get a good deal by going elsewhere. Do your homework before approaching tenants, walk through some other available rental properties on your street, and gather some rental market data. When you ask them to sign a new, more expensive rental agreement, you can also provide them with data about other nearby rental units, proving that they're still "getting a good deal" by staying with you.

Trick 6: Are There Other Options?

Sometimes, it doesn't make sense to raise the rent on your tenants, even though market rents are higher than yours. Some tenants are so great that they're worth keeping even if your cash flow reduces as a result, because they pay like clockwork and treat your property well. If they're struggling financially as it is, or if they were thinking about moving sometime in the near future, you may lose them by pushing a hike in their rent. So, consider alternatives when you sit down and discuss the situation with them, including signing a long term rental agreement instead, or phasing in the rent hike slowly over the course of a year or two.

Raising the rent is just one of those things you have to do as a landlord, if you want to stay solvent, as your expenses rise. But, stability in your rental unit is also valuable, so remember that signing a long term rental agreement has its own value, and remember to be fair, honest, and to consider each rental hike on a case by case basis.

Brian Davis is a traveling landlord and photographer who owns several rental properties. He contributes to online real estate publications such as NuWire Investor and EZ Landlord Forms, providers of real estate news and custom rental agreement contracts, respectively.