Most landlords find it hard to raise rent on a loyal tenant. And understandably so, you may not know whether or not the tenant is going to be receptive to the increase. You even opt for ways to increase income without raising rent.
However, an increase in the cost of running your investment business can quickly eat into your profits. And you may be left with no other option but to raise the rent. However, you’ll need to be diligent to make sure that your property remains attractive in the eyes of current and prospective tenants.
So the question is – how are you going to successfully raise the rent without risking losing a great tenant? The following is everything you need to know in this regard.
Begin by Checking the Local Laws
Before you can consider raising rent on a tenant, begin by familiarizing yourself with the local rent control laws. Local rent control laws can have restrictions, for instance, on how much rent you can charge, how often you raise it, and how much notice you must give tenants.
Luckily, in Florida, there is no state law governing how much rent you can charge or how much you can raise it by. There’s also no limit on how much late fees you can charge, only that it must be reasonable.
That said, make sure to comply with Fair Housing Laws when raising rent and ensure that it isn’t an act of housing discrimination.
Have a Clause on Rent Increase in the Lease Agreement
Tenants are usually used to a rent increase every year. As such, consider making it one of the terms the lease agreement to minimize potential disagreements when it comes to lease renewals. The following is some of the rent-related information that you should include in the lease:
- How frequently you are going to increase the rent. Is the increase going to be annual, biannual, quarterly, or yearly?
- The formula you’ll use to calculate the rent increase. Will you base it on a fixed percentage, for instance?
The amount of notice you’ll provide the tenant with. While there is no state law requiring landlords to provide a notice, providing it is ideal nonetheless. A 30 days’ notice will usually suffice.
Remember, though, that you cannot raise rent on a tenant on a fixed-term lease. You must wait for the current term to end to make the raise.
Determine How Much You Can Increase It By
To know how much to increase the rent by, you’ll need to factor in a number of things. For one, you will need to check how much comparable units are charging. You can either interview landlords or check online from sites such as Zillow and Trulia.
Another factor you will need to consider is the vacancy rate. Do you usually have a hard time finding a tenant? Are similar units in your neighborhood struggling to find tenants as well? Or, is your property located in a great area that has year-round demand?
Identifying this will help you know whether or not raising rent will be worthwhile. In areas with high vacancy rates, raising rent may not make sense because the tenant will have many options to consider. However, in popular areas with constant supply and real estate demand, raising rent will be worth considering.
Generally speaking, a rent raise of between 3 percent and 5 percent is typical. So, if charging a monthly rent of $1,500, you may raise it by between $50 and $100.
Consider Upgrading the Quality of the Rental
If you have made quality upgrades to the rental property, then that would give you a solid reason to raise rent on the tenant. The following are examples of rental upgrades that can yield a high return on investment:
- Kitchen and bathroom remodels, such as installation of new appliances, countertops, or fixtures.
- Energy-efficient upgrades, such as switching to energy-efficient appliances that can lead to savings in energy bills.
- Extra storage spaces, such as closet organizers or built-in shelves.
- Technology upgrades, such as Wi-Fi, video doorbells, and smart home devices.
If you have more budget, you may also consider doing capital-intensive upgrades such as replacing the roof, adding square footage, or upgrading the flooring.
In addition to upgrading the rental, you can also incentivize the tenant by providing regular maintenance. By being responsive, it’ll show that you care for the tenant’s wellbeing and that may make them more receptive to the rent increase.
Send the Tenant a Rent Increase Notice
After deciding on the rent increase, the next thing would be to let the tenant know of your intentions. Again, check what state law says about how much notice you must give the tenant before raising their rent.
As already mentioned, Florida doesn’t have specific rent control laws. As such, there is no minimum notice requirement that you must abide by when raising rent, at least at the state level.
That said, local jurisdictions may have their own laws in place. For instance, in Royal Palm Beach and Miami-Dade County, to increase the rent by more than 5%, you must provide the tenant with a notice of at least 60 days.
You also want to make sure the rent increase doesn’t cause a strain on your landlord-tenant relationship. So it’s in a landlord's interest to send a respectful notice to ensure tenants feel in the loop.
Raising rent on a tenant is never an easy proposition. There is always the risk that the tenant may not be receptive to the news, and may not want to renew the lease after the proposal. But this guide will help you raise rent successfully and mitigate conflict.
If you have a question or need expert help in managing your rental property, look no further than Gifford Properties & Management. Get in touch to learn more about our property management services!