Reflecting on the DMAR year-end review and reports of an 18% percent increase (around $300) in average rents across the Metro Area, I thought I would share some best practices for raising your rents and some steps you can take to do so without losing tenants that you wish to keep.
To start, let’s take a look at a quick search with my MLS tool to get a good comparison for market rents in the Metro Area as a whole:
Average Sq. Ft.
If your rents are much lower than these, it might be time to work towards implementing some increases. Call me or Click Here for additional resources to help you determine market rents specific to your property.
Now before you go raising your rents to match the market, pause to consider how much of an increase you’re talking about. The general rule of thumb is to keep rent increases at around 5% but no more than 10% without special circumstances (like providing upgrades for the current tenants). This keeps the increase palatable for most tenants and typically won’t be drastic enough to motivate them into going out and trying to find a better deal (which likely won’t exist even if they do).
Once you’ve decided on how much to increase your rents, take these additional steps to keep from losing your favorite tenants:
- Set the Expectation
- The best practice is to raise your rents yearly so tenants can anticipate and budget for changes when the time comes.
- The less of a surprise you make your rent increases the better.
- Notify Tenants Prior to the Notice Period
- Refer to the notice period in your lease and/or notice period as defined by law (most often 30-60 days in leases and 10 days by law for month to month tenants)
- This is beneficial to both you and your tenant as it allows for time to move on amicably and fill their vacancy should they decide not to renew
- Be a Kind Human
- Inform your tenants of any rent increases either by phone or in person, in addition to the legally required written notice that you will send by certified mail.
- Take this chance to discuss the reasoning behind raising their rents
- Feel free to share your research on market rents (likely showing you are still below that), share property tax increases, share insurance cost increases...etc.
- Address any Deferred Maintenance!!
- Just do the fixes when they ask. The State, and especially Denver County are slowly but surely taking these decisions out of your hands so you might as well get it done in tandem with a rent increase. (Click to review the coming inspection requirements with Denver's Landlord Licensing Regulations)
- In general, the happier your tenants are the more accepting they will be of regular rent increases and the more they will want to stick with you so not to ruin a good thing.
- Offer Incentives or Upgrades
- While I'm not personally a fan of this, many landlords will choose to offer lower rent increases if their tenants agree to a longer lease period.
- I prefer to keep my leases on the shorter end or even month-to-month as it makes it easier to part ways with a tenant if anything changes for them or for you.
- Enforcing a broken lease is an expensive and lengthy legal process and hardly ever works out in the landlords favor.
- On the other side, if you should find yourself needing to sell the property or have some other use for it you'll need to have your tenants agree to vacate or you'll need to wait out the lease period.
- If you trust your tenant to take care of things at your property, consider offering upgrades alongside a higher rent increase.
- This can be an avenue to improving your property while recovering costs directly from the tenant and can set you up for a more marketable property when renting or selling the home down the road.
- Build late fees into your rents.
- So if you want to raise the rent by $50, actually raise it by $100 but offer to discount the rent by $50 each month as long rent is received on or before the due date.
These are just a few general examples, so feel free to call anytime to talk through specifics about your property.
As always, if you own too much real estate, or not enough, call me for free sound advice and direction. There’s never any cost or obligation until you’ve made the decision to hire me to help you sell or buy AND I get the job done for you!