Facing a renewal and wondering about raising your rent? This video blog from Rentec Direct’s Brentnie and Kaycee will discuss whether you should raise the rent on your tenants. Learn about how to raise your rent, when you should raise it, and how long leases can impact your rent increases. Additionally, dive into the options and best practices for rental discounts or incentives for great tenants.
Rent increases are an expectation of the rental industry, and most housing providers and tenants alike anticipate occasional increases. But some landlords worry that, if they have a good tenant, increasing their rent will cause them problems down the road. Fortunately, industry professionals can offer great advice on rent increases.
In this video, Rentec Direct’s Brentnie and Kaycee discuss rent increases, whether you should raise the rent on a good tenant, and why it’s important to increase rent in small increments rather than one large increase. They also explore ways to reward great tenants without falling short of market rent, which can be particularly vital in areas where rent increases are regulated. Follow along for more advice and answers to questions found on landlord and homeowner forums.
Should I Raise the Rent on Good Tenants at Renewal? – Video Transcript
Brentnie:
Hi, this is Brentnie and Kaycee here from Rentec Direct. Today, we’re going to be talking about landlord questions, and we actually have one off of a landlord Reddit page. The question is:
“First-time landlord here, currently renting a home to a young family. The original lease was for 1.5 years, and I anticipate them wanting to sign again at another lease term, probably two years. Should I raise the rent if I’m locking myself in for that length of time?” And then they add, “For some context, they’re good tenants, and they don’t ask for much. I have no problem with renewing their lease and honestly have no problem keeping them for two years. Being totally honest here, my only reason for raising the rent is the additional income.”
Kaycee:
Okay, so my advice is always yes, raise the rent. I’ve always said to build into your annual lease renewals to do at least like $25 of raising the rent. I live in Oregon. I’m in a situation right now where it is very challenging to get our rent prices up to market rent, even, because of the rent control laws that are in place statewide that weren’t there five years ago. So I think it’s always a good idea to do small incremental annual increases, even if you have a good tenant. $25 annually is pretty palatable for someone to take on.
But if I haven’t raised years of rent in five years, suddenly here’s a $200 increase that can kind of scare away a tenant, who’s like, “What? I’ve been paying so little for so long.” And it’s even becoming illegal in some states to do something like that in the first place.
How Long Leases Impact Rent Increases
So, a couple of things I noticed was they were talking about a year-and-a-half lease and then wanting to sign another two-year lease. I’m always very curious about where these properties are because that would be super uncommon in my town and where we live and have all of our rental properties to do these long-term leases.
What were some of your initial thoughts on this question, Brentnie?
Brentnie:
Yeah, so I found that interesting too. Also, one and a half years is an interesting lease. I know that it does occur, it’s just not as common. I think that if you have a great tenant, keeping them happy and renewing is amazing. But I do agree that you’re looking at almost four years with them renting with you. And, if you end up facing some large expense or you’re just trying to keep up with market rent, tenants may have a shock at the end of their second lease term. I’m also curious if there are other opportunities for increasing the rent to keep it at the market rate. Are there other situations where you would offer a lease discount or some sort of incentive?
What would be your recommendations there, Kaycee?
Learn more: What Landlords Should Know About Lease Renewals
How to Increase Rent on a Good Tenant
Kaycee:
I love the idea of doing a one-time discount instead of reducing rent across the board. So if you really like these tenants, you’re excited about them signing the lease again, say, “Okay, we are raising the rent to just be comparable with market rent. We’re raising it by $20, $50. But since you’re such a great tenant, I’m going to discount your first month or your first two months of rent off that raised rent price.”
You would still be netting the same amount, but you have to think about how that additional income increases over time. So, especially if you’re looking at a two-year lease term, that’s a lot of potential income that’s left off the table, but you can still reward these tenants with a one-time rent discount to get them to sign the lease, show that gesture of goodwill, and maintain a great landlord-tenant relationship, which it sounds like you have.
Cherish that, value that good relationship and maintaining a long-term tenant, great things to do, but please still try to do that small rent increase, especially if you’re approaching a lease term that is going to be extended and under contract for that long.
Brentnie:
Yeah. And a one-time discount is nice too, because if you are in a state like Oregon, you’re not facing this issue of suddenly your rent was a lot lower, and you’re trying to make that up. Even if you wanted to give them such a big discount that it kind of made up for that same amount. So I think that that is definitely a great answer, especially if you’re in a state where that could be a concern down the road, if it’s not yet.
Kaycee:
I wish this person a lot of luck as they continue to approach their landlord-tenant relationship, and I’d be very curious to hear where this property is located, so maybe we can figure out some follow-up comments to see what the original poster did with this property and what they ended up doing.
