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How to Raise Your Tenant's Rent - The Right Way

Raising your tenant’s rent the right way is the key to keeping good tenants in your property. These best practices will put you on the path to success.

Raising your tenant’s rent can be a tricky process. It’s important to keep your property at market rate, but holding on to a great tenant is one of the best ways to ensure your property’s long-term success. Sometimes it feels like these two things counteract each other.

Additionally, there have been laws introduced in recent years that directly affect how and when you can raise your tenant’s rent. As a landlord, you need to know the best practices for raising your tenant’s rent. In this article, we’ll guide you through relevant laws and provide helpful tips to make this process easier.

Term Tenancies

If your tenant is on a term lease (six month, one year, etc.), provide them with a 30-day notice that outlines what their new rent will be and when it will go into effect. If you are increasing the rent more than 10% in any 12-month period, a minimum 90-day notice is required.

Should the tenant not respond, many landlords choose to turn the lease into a month-to-month agreement. Be sure to outline in your lease what you would like to happen in this scenario.

A sample statement could read: “If Landlord accepts the rent due in advance for the rental month beyond the Ending Date, a new month-to-month tenancy shall be created. The rent for such month-to-month tenancy shall be at a rate agreed to by Landlord and Tenant, or as allowed by law.”

Month-to-Month Tenancies

If your tenant is on a month-to-month lease, you are required to provide a 30-day notice if you post it at the property or 35 days if you mail it. We recommend also emailing your tenant a copy of the notice.

As mentioned above, if you are raising the rent more than 10% in a 12-month period, a 90-day notice is required (95 days if you mail the notice).

Raising the Rent the Right Way

Deciding how much to raise the rent is where landlords often get stuck. They want to keep good tenants, but they also want their property to make money. Raising rents at least a small amount each year to keep pace with the market is recommended. 2022 is a unique year due to the significant rise in the market, but we typically recommend a 5-7% increase, depending on the tenancy.

The first thing you should look at are the market rates for your area. What are comparable homes renting for and how fast are they renting? How many vacant homes are sitting on the market? You want to remain in line with or slightly below these market rates to stay competitive, even while your property is occupied. Your tenant will be able to see these available units, and they’ll be inclined to move if your rent increase is significantly higher.

Next, review their tenancy. Keeping great tenants in your home will reduce vacancy costs and keep your property in better condition. If you really like your tenants, you may want to propose a slightly lower increase to incentivize them to stay.

Local and State Laws

In recent years, a number of local and state governments have enacted new laws affecting rental properties.

In 2019, the Tenant Protection Act (also known as AB 1482) was passed in California. This law limits the amount rent can be raised each year, stating that a rent increase for a 12-month period cannot exceed 5% + percentage change in the cost of living over the previous year’s Consumer Price Index AND cannot exceed 10% total. Additionally, the landlord is prohibited from increasing the rental rate in more than two increments over a 12-month period.

You are exempt from this ordinance if any of the following applies:

Your property was built in the last 15 years
Your property is a single-family home that is NOT owned by a corporation, a real estate trust, or an LLC with a corporation member
Your property is a duplex where the owner lives in one of the units
Local ordinances exist and are stricter than the state law

Do's

There are a few things you can do to increase the odds that your tenant will accept your rent increase and renew their lease. The first tip is to give your tenant plenty of notice. While the requirement is 30 days, you can notify them 45 to 60 days in advance so they have more time to make their decision.

Another thing you can do is give them a courtesy phone call if you plan to greatly increase their rent or haven’t increased it before. Although you may understand that keeping up with the market rate is important, your tenant may be blinded by sticker shock if their rent is going up. A quick call to explain the reason and ask if they have any questions can go a long way in helping them better understand the situation.

We also recommended that the increase go into effect on the first of the month to avoid confusion. Starting a new lease in the middle of a month means you will have to prorate the rent, which can get complicated. Additionally, you will need to provide any disclosures that are required annually (e.g., AB 1482 disclosure).

Lastly, if you want to be flexible with your tenant, provide multiple lease term options (e.g., six months, 12 months, or 18 months). Providing this flexibility shows that you appreciate them and are willing to work with them so they stay. This is a great way to keep good tenants for longer and avoid a costly vacancy.

Don'ts

We don’t recommend waiting until the last day possible to notify your tenant of a rent increase, as it can be stressful for both parties and result in a disgruntled tenant.

Avoid raising the rent too high above your neighborhood or market rates. Tenants have access to websites like Zillow and Craigslist and will see that they can get a better price on a comparable unit.

Lastly, don’t agree to tenant negotiations that will negatively affect your property long-term. Although you should be fair to your tenant, keeping the unit significantly under the market rate will cause bigger problems in the future. You will eventually fall so far behind that you’ll have to significantly increase your tenant’s rent, or local laws will prevent you from doing so.

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Steve Welty

Steve Welty is the founder and CEO of Good Life Property Management. Since its establishment in 2013, Steve and his team have made owning rental property easy for over 1,000 San Diego homeowners.Their purpose is Life Improved–creating opportunity, enjoyment, and impact for their community is what matters most. DRE #01744610

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Raising your tenants rent can be a tricky process. It’s important to keep your property up with market rates, while holding on to a great tenant is one of the best ways to ensure your properties long-term success. Sometimes, it feels like these two things can counteract each other. On top of that, there have been laws introduced in recent years that directly affect how and when you can raise your tenants rent. I’m Bryce with Good Life Property Management, and today we’re going to talk about the best practices for raising your tenants rent. Before we get started, be sure to give this video a like and subscribe to our channel for more awesome content like this. First, let’s talk about term tendencies. If your tenant is on a term lease, like a six month or a 12 month lease, provide them with a minimum 30 day notice that outlines what their new rent will be and when it will go into effect. If you’re increasing rent more than 10% in any 12 month period, you need to provide a minimum 90 day notice. Be sure to outline in your lease what you would like to happen once the lease expires. A lot of landlords choose to have the lease automatically turn into a month to month tenancy if there’s no action by either party. If you do this, make sure you state the new rent in any other necessary details. For month to month tendencies, you’re just required to provide a minimum 30 day notice if you’re posting the notice at the property or 35 days if you’re only mailing the notice. We always recommend emailing your tenant a copy of the notice as well to leave a paper trail. Just like term leases, if you raise the rent more than 10% in a 12 month period, a minimum 90 day notice is required or 95 if you’re only mailing it. Deciding how much to raise the rent is often where landlords get stuck. You want to keep your good tenant, but you also want the property to make more money. Raising rents at least a small amount each year to keep pace with the market is always recommended. 2022 has been a unique year due to the significant rise in the market overall, but good life typically recommends a 5% to 7% increase depending on the tendency. Look at the market rates for your area. What are comparable homes renting for and how fast are they renting? How many vacant homes are sitting on the market? You want to remain in line with or slightly below these market rates to stay competitive, even while occupied. Your tenant will be able to see these available units and if your rent increase is significantly higher than those properties, they won’t be inclined to stay. Next, review the tenancy. Keeping great tenants in your home will reduce your vacancy costs and keep your property in better condition. If you really like your tenants, you may want to do a slightly lower increase in order to incentivize them to stay. Now let’s talk about laws. In recent years, a number of local and state governments have enacted new laws affecting rental properties. In 2019, the Tenant Protection Act, also more commonly known as AB1482, was passed in California. This law limits the amount that rent can be increased each year, stating that a rent increase for a 12 month period cannot exceed 5% plus the percentage change in the cost of living over the previous years consumer price index, and cannot exceed 10% total. Additionally, the landlord is prohibited from increasing the rental rate in more than two increments over a 12 month period. You are exempt from AB1482 if any of the following apply. If your property was built within the last 15 years, if your property is a single-family home or a condo that is not owned by a corporation, real-state trust, or an LLC with a corporation member, or if your properties a duplex where the owner is occupying one of the units. It’s important to note that local ordinances exist and they may be stricter than this state law. You can read more about these California laws at the link below. Alright, now let’s get into our do’s and don’ts when raising your Tenant’s rent. There’s a few things that you can do to increase the odds that your tenant will accept the rent increase and renew the lease. The first tip is to give your tenant plenty of notice. While the requirement is just 30 days, generally speaking, you can notify them 45 or 60 or even 90 days in advance so they have more time to make their decision. Another thing you can do is give them a courtesy phone call if you plan to do a large increase or have an increase the rent on your tenants before. In fact, most of the time it’s good practice to give your tenants a courtesy call that a rent increase is incoming. While you may understand that keeping up with the market rate is important, your tenants may feel blindsided or get sticker shock if their rent is going up significantly. A quick call to explain the reasoning and ask if they have any questions can go a long way. We also recommend having the increase go into effect on the first of the month to avoid confusion. Starting a rent increase in the middle of the month means you will have to pro-rate the rent which can get complicated and confusing. Lastly, it can go a long way to provide some flexibility for your tenants by providing the multiple options for the lease extension. Providing this flexibility shows that you are appreciative of them and are willing to work with them in order to get them to stay. It’s a great strategy to keep great tenants in your property for a longer time and avoid a costly vacancy. On the other side of the coin we have a few don’ts. We don’t recommend waiting until the last day possible to notify tenants of a rent increase as it can be stressful for both parties and lead to tenants being disgruntled. Another don’t is raising the rent too far above rates in your neighborhood or the market will support. Your tenants have access to all the websites that you do like Zillow and Craigslist and will see that they can get a better price on a comparable unit. Lastly, don’t agree to negotiations by tenants that will have a negative effect on your property long term. Why should be fair to your tenants keeping the unit significantly under the market rate will cause bigger problems in the future. You might eventually fall so far behind that you will have a big increase on your tenant or you won’t be able to catch up at all due to local restrictions. And that wraps up today’s video. With these tips you’ll be able to keep great tenants in your property. I’m Bryce and that’s Olivia behind the camera. We’ll see you next time.