As a landlord, one of your biggest challenges is keeping your tenants happy and your own business sense satisfied. You want to stay profitable, but at the same time, you don’t want to scare any tenants away.
Raising the rent requires a delicate blend of marketing research, legal compliance, and public relations. It is also key to earning the true value on your property.
How often should you raise the rent, and by how much? Is there a specific procedure to follow? The process can seem overwhelming and confusing, with so many variables at play.
No worries; as always, Jack Jaffa & Associates has got your back! We’re here to make all aspects of tenant management easier for you – and raising the rent is no exception.
To that end, we’ve compiled a handy guide that will take the stress out of raising the rent. In this article, you’ll find all you need to know on this topic, including NYC’s laws on how and when you can raise the rent, along with actionable tips to keep the process simple.
When to Raise the Rent
If you own rent-stabilized units, you can’t raise your tenant’s rent during a rent freeze, regardless of how long it’s been since the last increase. Luckily, NYC’s two-year rent freeze on more than 1 million rent-stabilized units throughout the city, has just been lifted.
Effective October, 2017, landlords of rent-stabilized units can increase rent from 1-3% on 1-year leases, and 2-4% on 2-year leases.
If you haven’t raised your rent because of the freeze, now is the time to determine your new rent amount.
If you don’t own rent-controlled units, you’ll need to check your tenant’s lease. On the lease agreement, the rent amount and lease term are clearly indicated. You will not be able to raise the rent if your tenant is currently signed onto a lease.
If the tenant is on a month-to-month agreement, where there is no written lease or an expired lease has shifted the rental to a month-to-month tenancy, you can raise the rent at any time, so long as you give sufficient notice. Keep in mind, though, that most tenants find smaller, more frequent increases more manageable than dramatic increases over lengthier periods of time.
If the end of a tenant’s lease term is approaching, now is a good time to consider a rent increase. When drawing up a new lease, be sure to include the new rent amount in the lease.
TIP: If you stipulate that there will be an automatic rent increase at the end of the lease term, you’ll prevent any unpleasant surprises for your tenant.
How to Determine New Rent
Now that you’ve decided it’s a good time to raise the rent, you’ll need to determine the actual raise amount. Raise it too much, and you risk losing your tenants. Keep it too low, and you’re not earning the profit you deserve. So how do you find that perfect amount?
First, you’ll need to gather information on five comparable rental properties in your area. Find out what the going price is so that you can be sure you’re charging a reasonable amount. You can get these numbers by searching actual listings, asking local tenants, or simply by checking Craigslist, Zillow, and Rentometer. Make sure, though, that you are looking at rentals as similar to yours as possible, including numbers of bedrooms, bathrooms, square footage, outdoor space, amenities and parking spaces.
Determining the market price is a great starting point, but it shouldn’t be the sole factor in your decision. Be sure to take into account any advantages your property offers over the competition, as well as disadvantages it might have.
TIP: Rent increases of 2-3% fall within the average range.
How to Raise the Rent
Before taking any steps towards raising the rent, make sure that you are in compliance with state law.
Of course, if your properties are rent-controlled, you are not allowed to increase the rent.
But it gets more complicated than that.
Raising the rent in a discriminatory manner, or as an act of retaliation, can land you in court and create a nightmare of litigation and fines. It is not difficult for your client to prove that you’ve raised the rent for one of these reasons – all they need is to demonstrate a slight correlation between a recent event and a rent raise. That’s why you should not raise the rent if you’ve just discovered a client’s race, gender orientation, national origin, religion, disability or familial status. Similarly, do not increase the rent if your tenant filed an official complaint with a government authority, has been involved in a tenant’s organization, or exercised a legal right within the last 180 days. Raising the rent in these situations can constitute an act of retaliation.
If you are certain your raise doesn’t fall into any of the above categories, make sure you are in compliance with NY’s notification requirements. NY law requires landlords to give 30 days’ notice before implementing a raise in the rent.
Notify your tenant of the rent increase with an official letter that includes the new rental amount and the date it becomes effective. Sign and date the letter and keep a copy of the document for your records. It’s best to hand-deliver the letter or send it through certified mail so you can be sure that your tenant received it. It’s also courteous to send a follow-up email or phone message reminding your tenant of the new rent amount, immediately before the rent is due.
Be prepared for the tenant to get a little annoyed at the rent increase and maybe even try to negotiate the price. Remain as professional and polite as possible. Calmly explain that you are simply raising the rent to reflect the current market rate, and that you value your tenant.
Hopefully, you’ll tenant will agree to the raise with minimal fuss. In this case, when drawing up a new lease, make sure it reflects the increase. Of course, there is always a possibility that your tenant will use the rent increase as an excuse to up and leave. If this happens, be sure to part on cordial terms.
TIP: It always pays to be courteous. When tenants feel cared for, valued, and respected, they are more likely to stay.
Raising the rent doesn’t have to be complicated. So long as you’re not locked into a lease or held back by a rent freeze, your increase falls within market parameters, and you are in compliance with all relevant NYC laws, it can be a simple, stress-free process.