Although owning a rental property is a lucrative and secure investment, there are a few elements that some landlords just don’t understand or like dealing with. This includes rental property management responsibilities such as taking on lease terminations, as well as conducting market research to determine what is a reasonable rent increase, and more.
It’s worth mentioning that as a landlord, you don’t actually have to take on these management tasks yourself; you can simply hire a property manager (PM) who will handle the job for you. Even so, it’s best to be well-versed in management responsibilities so you can communicate effectively with your PM when needed. In addition to this, it’s a good idea to know the ins and outs of rental property management in case you’re ever in a position where you need to take on that responsibility yourself.
Property managers and landlords who take on that role perform many tasks, big and small, but today, I’ll focus on three main responsibilities – providing a tenant with a “notice to terminate lease” document, handling late fees for rent, as well as raising the rent. With all that said, let’s get started.
1. Determining Reasonable Rent Increases and Complying with Rent Control Laws
Taking the proper steps to determine what is a reasonable rent increase 2025 and beyond, is a crucial task for those managing a rental. Why is this the case? Because it sets the stage for increased cash flow, profitability, and ROI.
Most landlords themselves are not well-versed in setting the proper rental rate. Some may raise the rent to a level that suits their profitability goals, while others may just raise it by a set percentage each year. However, there is much more to it that should be taken into consideration, and I’ll discuss the most important below.
Complying with Laws that Pertain to Rental Rate Increases
First and foremost, the rent increase will need to comply with state and local laws. It can get complicated because there isn’t a one-size-fits-all set of rules since the law can differ from state to state. For example, Texas, which is a landlord-friendly state, offers more rental rate flexibility when it comes to increases, and there are no state laws preventing a landlord from increasing the rent by an amount they deem reasonable.
In contrast, California has its eyes set on tenant protections, so you won’t get the same grace. In fact, some landlords, like those who have a rental in Los Angeles, have a rent increase cap of 8.9%.
At this point, you might be clueing in on the fact that a property manager may be better suited for certain jobs, such as taking on rent increases. They know the rental laws for their city and state inside and out. This will keep you, as the landlord, compliant with the law on rental rate increases. If you’re not convinced that a PM is worth the money spent, then be sure to dive into either of my two articles:
- Understanding Rental Property Management Fees and Why They’re Worth the Cost
- How Using a Property Manager will Put More Money in Your Pocket
Back to landlord-friendly states for a moment – if you’re not familiar with the topic, you really should read up on it. I mention this because you could potentially lose thousands of dollars if investing in a state that favors the tenant. Here’s a helpful article I put together that you can bookmark for future reading – Five Most Landlord-Friendly States for Real Estate Investors.
Performing a Market Analysis can Determine a Competitive Rental Rate Increase
To figure out what is a reasonable rent increase 2025 and thereafter, as well as what would be considered a competitive rate, a landlord would need to take a close look at the housing market. This includes evaluating individual investment properties in the area to compare rentals and rates, as well as being aware of which direction the market is going in.
For instance, if the area has a strong job market, a growing population with a high rental demand, and a crime rate that’s either not changing or lowering, then a max rent rate for that area can be applied. This is why it’s so important to get set up in the right location from the start. You can learn more about this in my post – Why Location Matters When Investing in Rental Real Estate – Tapping into Profitable Rental Markets.
On the other hand, if there’s a population decline, unemployment on the rise, and you’re seeing people moving out of the city, then that would be taken into consideration, too. Why? Because if the rent is too high for an area that’s not growing, you’ll end up with vacancies that will impact your profits. The bottom line is that understanding the location’s market is essential in setting the right rent increase and property management companies have a good handle on this if you don’t have the time to do the research.
Also, because every investor’s goal is to reel in as much rental income as possible, make sure to bookmark my article for some tips – Key Factors that Influence the Ability to Charge Higher Rental Rates.
Calculating Rent Increase Metrics
Since every market and rental property is unique, I wouldn’t be able to give you reasonable rent increase standards for 2025. However, your property manager should be able to provide this information. As mentioned, you or a rental property management company would start with state and local laws, then perform market research, and if needed, there are metrics that can be used to fine-tune the numbers. Here are a few articles that cover various metrics that you’ll want to look over:
- Determining Rent to Price Ratio: Metrics & Application
- Investment Metrics: Rentometer, Rent Estimates, Rent Roll, NOI
- Maximizing Rental Income: Rent Comparables & Gross Rent Multiplier
Informing Your Tenant of a Rent Increase
When it comes to disclosing a rent increase to your tenant, there may be regulations that you’ll have to follow, but generally, a 30-day notice is required. In some cases, where higher rent hikes are taking place, a 60-day notice may be necessary. You’ll want to send written notice by mail, with secondary notifications by email or even a notice placed on the tenant’s door. Sending a rent increase notification using two methods will decrease the likelihood of the tenant claiming they did not receive notification.
You can use eforms.com to generate your letter by using their rent increase form, as well as view a sample rent increase notice to get an idea of what’s typically included.
2. Setting a Late Rent Fee – Disclosures & Legal Considerations
Now that you’ve got an idea of how to go about raising your tenant’s rent, you’ll want to have a handle on late fees for rent that’s not paid on time. To be able to properly charge a late rent fee, landlords must make sure they’re sticking to specific legal guidelines and that the late fee payment expectation is disclosed in the lease agreement. This includes spelling out the amount of the late fee, the grace period before the fee is applied, and if there’s a returned check fee payment.
Keep in mind that late rent fee laws can be different from state to state or even by county, so it’s important to understand local regulations before setting the late fee terms. Most laws require that late fees be reasonable and not excessive, and they are often capped by a percentage of the monthly rent payment or a fixed dollar amount, and may be set to 5-10% of the rent.
Providing a Late Rent Fee Notice
You’ll have to provide your tenant with a late rent fee notice, which could be delivered in person or sent by certified mail. You can create the document that you’ll need through eforms by heading over to their Late Rent Notice (to Pay or Quit) page, or use any reliable company that provides free form downloads as well.
And remember, a rental property management company can handle all of this for you, they’re used to dealing with charging and collecting late fees. Here are a few additional articles if you’d like to learn more about a property manager’s role, as well as the financial benefits of using one:
- The Ultimate Guide to Residential Property Management
- Financial Benefits of Hiring a Property Manager
3. Providing a “Notice to Terminate Lease” Letter and Not Renewing Lease Agreements
If you ever need to terminate a lease early, you’ll want to follow the law on this one. Also, if you’re planning to not renew lease agreements with your current renters, you’ll want to brush up on any important rules regarding that as well.
Deciding to Not Renew Lease Agreements with Your Tenants
When a landlord decides not to renew a tenant’s lease for a residential property, there are various legal factors to keep in mind to make sure you’re on par with the law. The laws can differ depending on where the property is situated, but here are some details and potential laws a landlord should be aware of.
First, landlords typically have the right to not renew a lease at the end of its term. Once that term is up, neither party is forced to continue the relationship unless the lease says otherwise, such as an automatic renewal clause. When not renewing, the landlord must provide proper notice, which depends on the law for that location. For example, some states require a 30-day notice, while others might require 60 or even longer.
If you decide to not renew lease agreements with any of your tenants this year, you can create a non-renew lease letter through eforms or just view an example non-renewal lease document so you can create one yourself.
Providing a “Notice to Terminate Lease” Letter
Sometimes, a landlord will decide to end a lease early and will, therefore, need to provide a “notice to terminate lease” letter to the tenant. This differs from a non-renewal in that the landlord has the option and right to not renew because the lease legally ended. In contrast, if a lease is terminated, it’s ended earlier than the lease agreement states, and so this would need to be approached more carefully.
What’s the best way to go about providing a “notice to terminate lease” document? Well, the landlord should first review the lease to see if there are any early termination clauses, such as conditions allowing cancellation for not paying the rent, property damage, or illegal activity, and so on. If nothing was spelled out in the agreement that applies to the reason the lease is being terminated, the landlord might need to rely on local laws and would need to provide a valid reason for the termination.
Once the landlord is clear on the right to end the lease based on the circumstances, they would then provide written notice to the renter. The notice should explain the reason for termination, such as unpaid rent or intent to sell the property. Just like a non-renewal, the amount of notice required is typically 30 or 60 days. If the landlord has the right to end the lease, and the renter refuses to move out, the landlord may need to file for eviction through the courts.
If you’re taking this on yourself, you can create a lease termination letter on eforms, as well as view a “notice to terminate” lease example letter.
Successful Rental Property Management is the Key to Holding Profitable Investments
Whether you care for your properties yourself or rely on a rental property manager to run the show, being in the know about rent increases, late rent fees, and lease termination notifications will keep you on track for things running smoothly, which, of course, keeps profits on track as well.
Our full-service investment company provides build-to-rent homes where an established rental property manager is placed, as well as a tenant. This not only takes the daily tasks of caring for a rental off your plate, but also removes the burden of finding a good rental property management company you can rely on.
If you’re interested in purchasing a cash flowing new construction rental property, feel free to contact us. In the meantime, if you’d like to find out how many rentals you would need to become financially free, head over to our Freedom Number Cheat Sheet to play with the numbers.
Also, before you go, dive into the following video for more insight: Is it Worth It to Hire a Property Management Company?
