One of the best ways for landlords to increase revenue in 2020 is to raise the rent.
Raising the rent is a time-tested way for landlords to get more ROI from their multifamily investment properties but it’s also a method that has become more difficult in recent years.
In states like California and Oregon, landlords now cannot raise the rent more than 5% per year plus inflation while other states are considering similar measures to curb rent increases or slow them down drastically.
Can landlords still raise the rent in 2020? The answer to this question is yes, in this article we will provide you with a “guide” to follow for raising the rent this year, or in 2021.
Check with Your State Laws Before Raising the Rents
Depending on which state that you live in, one of the most important things that you should do is check with your state laws to confirm that there are not any new laws that were recently passed which limit how much you can raise the rent on your tenants each year.
In California, the recently passed AB 1482 states the following:
“ This bill would, until January 1, 2030, prohibit an owner of residential real property from, over the course of any 12-month period, increasing the gross rental rate for a dwelling or unit more than 5% plus the percentage change in the cost of living, as defined, or 10%, whichever is lower, of the lowest gross rental rate charged for the immediately preceding 12 months, subject to specified conditions.”
Oregon’s new rent control law has similar language:
“Under the measure, landlords across the state can raise the rent no more than 7 percent per year, plus the annual change in the consumer price index. The bill carves out an exemption for rental properties that are less than 15 years old. It also limits a landlord’s ability to evict tenants without a reason after they have lived in a property for a year.”
Besides California and Oregon, New York has also had longtime rent control regulations on the books while other high rent states like Florida are considering moving towards rent control.
The good news regarding rent control is that it’s not as popular as many people believe it is nationwide, in fact, some states including Arizona and Alabama have laws in place that prohibit rent control laws in any form from being passed.
One major factor that could change the advancement of rent control nationwide is the 2020 Presidential Election. If we see President Trump reelected, this could mean that rent control will continue advancing slowly in Washington. Let’s say that Trump is defeated though and a Democrat is elected, this could mean that rent control will be on the fast track for the entire nation.
Rent control currently has a lot of supporters in Washington. Everyone from Bernie Sanders to Alexandra Ocasio-Cortez is supporters of rent control and want to see nationwide rent control laws passed.
Start the Rent Increase Process Early
If after confirming that your state doesn’t have any new rent control laws or regulations, the next is for you to get started with raising the rent by doing a comparative analysis of rents in the area where your multifamily property is located.
This is important because if you find out that your multifamily property rarely has vacancies, it’s a pretty good indication that your building is charging some of the lowest rents in town.
Once you find out where your buildings rents stand in comparison to other buildings in the area, the next step is for you to start the rent increase process early.
I suggest sending out a rent increase letter to your tenants at least 90 days before you increase the rent. This will give them plenty of time to respond to your rent increase letter (if needed) and plan accordingly if they want to move to another property.
How Much to Increase the Rent
Depending on the area where your investment property is located, I recommend not raising the rent more than 3-5% per year. This is important because hitting your tenants with a $200 rent increase could make paying the rent very difficult for them especially if you haven’t raised the rent in a few years.
Let’s say that your multifamily property is located in a city like Miami, in this case, you may be able to get by with a rent increase of $100 or more but I wouldn’t suggest raising the rent by that amount each year.
Always remember that a great tenant is worth a lot more than a rent increase because of the obvious reason that if you keep raising the rent on your great tenant, they will eventually choose to move out and you will be left having to find another tenant.
With the rent increase letter that you send your tenants, it’s best to include a new lease for them to sign. This is important because it will be easy for your tenant to sign the new lease and submit that lease to you without you having to chase them down when it comes time to renew their lease.
Example Rent Increase Letter
[Today’s Date] [Your Tenant’s Name]
RE: RENT INCREASE NOTICE
Dear [Tenant’s Name],
As you are aware, your lease at the above property will expire on [Date of Lease Expiration]. We sincerely appreciate your stay with us!
Please be advised that effective [Date of Increased Rent], the monthly rent for this premises you now occupy shall be increased to $_________ per month. This is a change from your present rent of $ __________ per month.
If you wish to sign a new agreement or continue your tenancy month-to-month, this new amount would be required. All other terms of the Lease Agreement will remain in full force and effect.
Not planning on renewing your lease? Please provide your 30-day notice as soon as possible, or no later than the legally required date of [Date of last day notice required].
If you have any questions, please do not hesitate to contact me at [Phone Number].
There’s no doubt that rent increases remain a contentious issue in this day and age but it’s the responsible thing to do as a landlord, especially if you want to have confidence that you’re renting your property for the current market rents.