Rent increase yearly? Or not!

[Gladys Cepeda]

I own my first three family unit in Rhode Island and my Tenant’s lease are up in a few months! I know it’s common place for people to increase rents yearly, but I really do like my tenants and do not want to lose them nor do I wanna have any vacancies. Should I increase the rent this year?  if so by how much what is your recommendation thanks In advance! 

[Kevin Sobilo]

@Gladys Cepeda, I completely disagree with @Christopher Cerutti. Here are a few thoughts:

1. Rent prices have no direct correlation to your expenses! Sounds crazy, but your taxes and insurance may go up this year at the same time as market rents soften and go DOWN! You can't always just charge more because your costs went up. 

2. Market rent is the guideline. So, always study what market rents look like in your area. You need to do this for each rent increase and for each turnover to stay current. 

3. When considering what market rent is for your rental, carefully examine your "value proposition". What do you offer that is better or worse than your competitors. These include obvious amenities like a dishwasher, washer/dryer, off-street parking, etc. However this also includes policy decisions like allowing pets or what utilities to include or not. 

4. What is your pricing strategy? Will you always try to get the highest rent you can justify? Doing this, you might expect and need to budget for higher turnover/vacancy costs. 

5. My personal approach is to price at the low end of the market rent range and do yearly increases of 2-5%. The tenant never has a reason to leave unless their life circumstances change. For example they may leave to buy their own house. 

In addition 2-5% yearly increases roughly correspond to what market rents change long term and also what most people might get in a yearly COLA (Cost of Living Adjustment) raise at work. Since I start on the low end of market rent I can always make these increases without worrying about increasing rent too much and without destabilizing my tenant's situation with a sudden increase. Also, my always increasing rent yearly, I am usually offsetting any expense increases if not better. 

6. Despite, the fact that I said that your expenses do not directly dictate rent increases, sometimes a tenant will question the need for an increase. I will in those circumstances mention some of the expenses that have gone up recently. That makes more sense to them than trying to explain how market forces affect the rent prices in the region.