Should I Increase the Rent with the Inflation?

Question

Hey Biggerpockets Community,

I have a question for the landlords out there who has rental properties. Did you guys recently increase your rent due to inflation? I'm a new investor who has recently bought a rental property from out of state, located in Maple Heights Ohio that's currently being rented for $1,200 a month. I was wondering do you think it'd be reasonable to increase the rent by $30-$50 per month or is it too high? How do you actually raise it? Do you just tell your property manager that you'd like to increase the rent?

Kar Sun · Answer

In my example I will have to raise the rent by at least $300 because I am grossly below the market.. My renter is reliable and I have not done increases in 2 years. He also makes plenty of income (no less than $300,000 annually). By bringing it up I will be on par or slightly below market. I must do it because I can not have a negative flow due to some upgrade that has to be done. If he leaves then I am confident I will get someone else, even if it will take me a bit of time. He won't find similar property anywhere in a 50 miles radius for the price. He will have to pay extra $200-300 on top of my increase to get anything remotely similar.

Dave G. · Answer

@Cheza M. You adjust your rent based on whatever your market is doing. Inflation could be high and market rent flat if you have a lot of net outflow migration. It is a multi-variable equation. That being said, yes, inflation is a large factor in most markets these days.

My property managers do a market analysis on a frequent basis to know what to market an available property for or for lease renewals. And my PMs' compensation is aligned to how much rent they collect so they are motivated to seek market rent levels versus being lazy and undercharging to make their jobs easier.

Kar Sun · Answer

ok, do not just use rentometer. look on zillow, apartments.com, zumper, realtor.com what similar units go for. I would not blindly trust some rentometer algorithm.

Elizabeth Perez · Answer

I increased our rents by $25 because they are great tenants. If they decide to leave I would increased rent by $100 for the new tenants just because of inflation. I did not add anything new to the units, I used a template I found in google. Property management companies should absolutely have their own.

Kar Sun · Answer

Yes, as long as you have comparables in your market. The only time it can go higher is if you have a highly desirable feature on your property.  I would not increase every month. Just assess what you need for the life of your upcoming contract. $50 dollars is practically nothing these days.

Lane Kawaoka · Answer

Your property manager should know the market rent if they have a portfolio of properties that they manage in the area. If they are good, they will have the best insight of how much rent to charge with that particular property/nieghborhood.

Dave Spooner · Answer

@Cheza M. I would look at the market around the area to compare how much rents are increasing. A lot of PMs are already checking to see how the market is doing so even asking them would be useful. Overall, If it's a great tenant that's been there for a while I wouldn't increase it by much but increasing it by $25-$35 makes sense.

Mark Long Jr · Answer

If it's a reliable renter. Be careful. I just raised rent 50 dollars and said it was to increase in taxes. A reliable renter is worth a discount in my opinion

Austin McClain · Answer

I agree to look at rent comps around your rental on Zillow. You don't want to be the highest rent around, but raising it by $30-50 sounds reasonable. I like the plan of doing a small rent raise often to avoid having to do a big one in 5 years or so when the rents are way under market.

Marcus Auerbach · Answer

Wage growth is a better reference point than inflation - long term it's not in your best interest to squeze tenants; ideally it is a mutually beneficial relationship.

Just know that the cost of a turnover is much higher than a year worth of increases.

Should I Increase the Rent with the Inflation?

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