Savvy Ways to Increase Rent on Your Investment Property

2022 was a brutal year for inflation, hitting consumers and landlords alike. Unfortunately for renters, many saw their monthly rent go up when they renewed their lease. In fact, more than 80% of property managers surveyed by Rent.com increased their rental rates between 2021 and 2022.

If you're looking for a stronger return on your rental property, it might make sense to bump up the monthly rent. Landlords need to understand how to be savvy when raising rents, without losing the current tenants. In this article, we'll explore the process of raising rent and action steps you might consider implementing.

Questions to Consider

1- What are the viable substitute/alternative properties available in my area right now? (ie. how much inventory and competition exists)

2- Does the tenant pay on time and are they "high maintenance"?

4- What is the fair market rental value for a property in my area currently?

Before you raise rent, it's wise to do some market research to determine if there is a high amount of inventory in your area. Plus, you'll also want to find out the market rate for rent in your area. Raising the rent too high will lead to turnover and may be more trouble than it's worth finding a new tenant.

Here’s what landlords need to know and the steps to take to raise rents in an effective and savvy manner:

Step 1: Determine the Amount of Rental Inventory Nearby

A thorough search on Zillow will help provide context into the amount of competitive rental options in your area. Every market is different, but obviously it's best for you, the landlord, if there are limited options/inventory.

For example, if you're located in a mid-sized market, you might consider searching 10-15 miles around your property for comparable homes. Make sure to match the characteristics of your property to the search criteria. If you have a 3 bed, 2 bath, single family house - then, only search for 3 bed, 2 bath properties.

If you observe limited inventory and those properties also are being offered for a higher rent than you're currently charging, this is a very good sign and suggests a rent increase is justified.

Step 2: Determine the Market Rent

When performing your local market search (using tools like Zillow, Rent.com or Realtor.com), take note of comparable property rents being offered. It might be helpful to make a spreadsheet to track and compare comps.

Do your homework before raising the rent and make sure you don't try to raise rent too high - leaving you with a vacant rental unit and a bigger headache in trying to find a new tenant.

The average rent increase nationally in 2021 was about 9%, which is actually about twice as high as it was the previous five years. If you attempt to raise the rent 3-5%, generally, you'll have a high acceptance rate from the tenant. Unless it's justified, raising rents more than 10-15% often results in a non-renewal of the lease.

Step 3: Notify Your Tenant of Price Increase Upon Renewal

When informing your tenant of a rent increase, you'll want to provide formal, written notification. You can do this via email or a written letter. Concise and professional communication will help reduce pushback from the tenant.

When you provide written communication, you can:

Cover the timeframe in order to prevent confusion over when the rent increase will go into effect.
If necessary, provide comparable properties to demonstrate justification for price increase.

You can also use this time to update the lease agreement or reinforce things like rental policies or late fees.

It's typically best to sending a rent increase letter 60-90 days before the rent increase will go into effect. Be sure to check your local law to make sure your written communication complies. You can even give the tenant an incentive to renew their lease early. For example, you could let the tenant lock in for a longer term or even promise to not increase the rent for a certain period moving forward.