Is there a rule of thumb when raising rent?

Question

Eric James · Answer

My opinion is, your expenses are irrelevant. If you are charging below market rent you can likely raise them. If you raise to above market rent your tenants will likely leave. They don't care if your taxes or other expenses went up. All that matters is the market rate.

Brianne H. · Answer

Just be sure that you're A) giving enough notice to increase the rents, and B) Make sure you follow the law exactly in regards to how to go about giving notice to raise the rents. In some local areas, they can be extremely strict with how and when to serve the notice to increase, like in BC Canada. (For example in BC, you MUST use a specific form to raise rents. If you don't use that EXACT form, the tenant can take you to court, and they WILL win, and get all the increase in rents due back to them. It's happened.)

Lynn McGeein · Answer

No matter what your cost increases have been, if you increase rent above market range and tenant can find comparable units for less, you will likely have a turnover.   And if you are higher than comparable units, you will likely have vacancy issues, so it's worth checking comparable rents to find the proper range before asking for an increase.   I do have one unit recently renovated that I charge the high end of the neighborhood range because the comparable units are somewhat dated, and I have not had a problem renting it at the high end of the range.   But I also have a unit where the flood insurance doubled but the market did not increase to cover as it's one of the few requiring flood insurance, so I have reduced cash flow on that unit until the market rises there.

Lynn McGeein · Answer

The only rule I use is that I do check current market rents at every renewal to make sure I am at least at lower end of current range.  If I'm still in target market range, I offer a good tenant the same rate for renewal as I'd rather keep a good tenant than turn over.  If I'm under current market rent, I will offer a 1-year renewal at the higher current market rent and a 2-year renewal at the lower end of range, somewhere between what they are currently paying and the 1-year rate.    This has worked well for me since I've started it,  with most renewing with the 2-year option.

Jeff B. · Answer

There are State Regulations on increases.  Here in Calif, for tenants of one year or less tenancy, the notice is 30 days and for more than a year 60 days.  Additionally, any increase exceeding 10% requires 60 days.

Make sure what YOUR state requires.

That said, the lease renewal is also an opportunity to issue Notice of Non-Renewal to boot a PITA tenant and find another.  This avoids the eviction process :grin:

Rent increases can be touchy - - too much and the tenant may move elsewhere when you would have really liked to have kept him.  The price sensitivity of each tenant will vary and as you approach or exceed +$100/mo, the risk goes up.

Thomas S. · Answer

Cost of living index reports are issued annually. Cost of living has never gone down always up. It goes up every year and so should rents. If not then as a landlord you are supplementing your tenants rent payments. Tenants rents must cover all annual landlord cost increases. If you have a unusual high increase (taxes, insurance etc) your tenants must pay for that through a rent increase.

Every business raises their prices every year to match increased costs. When a landlord does not do the same they not only supplement tenants rent out of their own pocket, reducing the value of their property and operating a inefficient business. Rents must be maintained annually at market and market should reflect the annual cost of living index. Tenants expect rent increases and turn over will not occur due to annual rent increases that maintain market  if landlords are operating a business they do annual rent increases. I have never had a tenant leave as a result of a annual rent increase.

Landlords that charge below market and do not apply annual rent increases are operating a charity/business due to their lack of understanding of the business.

That is OK for mom and pop, since they care little about the money, but for a successful business that is not appropriate.

Is there a rule of thumb when raising rent?

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