Do You Raise Rents Every Year? Why Or Why Not

46 Replies

I am thinking about raising rent on a year old rehab that I have a tenant paying $1200 monthly for! I am thinking of charging $1225. He is a Foreign Exchange student who is in his Sophmore year so I am thinking of upping it every year thoughts?

Has your cost of business gone up? Utilities,taxes,anything? $50.00 per month would be much more worth the trouble than $25.00

It really depends on your local rental market.  You need to understand if rents are increasing in your market and by how much.  How does your rental compare in price to similar units.  If you don't know realize your tenant may research himself.

Whether your expenses have gone up is irrelevant as that has no bearing on your market rental price.  Sometimes it may make sense to keep rents flat.  I've been a landlord since 2011 and have always raised rents every year.  However, if we have a big economic slowdown that time may come.

For me, I also consider the tenant before making any decision to raise rent.  Good tenants that pay on time, take care of minor issues themselves and respect my property don't see the level or number of rent increases that others do.

Yes!  Yes!  Yes!  I raise rents every year, on their anniversary.  I don't care if you are Mother Teresa, you are getting a rent raise notice.  Below market rents equals money lost forever.  The tenants are not going to appreciate the bargain you are giving them.  Eventually you be losing money so you will be forced to give a LARGE rent raise that will be seen as unfair by the tenants.

Train your tenants to expect a 3-5% rent raise (depending on your market) every year.  They will pay without a peep.

I️ wouldn’t raise rents assuming the tenants stay. If they stay longer than like 3 years I’d raise it.

@Randall Kates , on my inherited tenants I raise the rent by the local CPI (or 1.5%, whichever is greater)+ property tax increase. This is the rent control for the municipality. 

I will not raise the rent in my one building’s new tenants next year because of the ongoing renovations on the upstairs units. There current rent is market. I also will not raise it on another tenant in a renovated apartment in the other building because she painted, decorated and furnished a small common hallway. It is at market.

I was in the same situation as you when I raised the rent on a new tenant in the renovated apartment by $25. They moved out for other reasons and I immediately rented it for $75 more and got my common area decorated.

2019 everyone will be increasing most likely based on the CPI (or 1.5%) + property taxes even though it  does not apply to new tenants.

I usually raise rents about 3% a year but due to flattening market conditions next year may mean no increases. If you have GREAT tenants consider the costs of losing them.

Cost of living index goes only one way every year. If you are not raising your rent every year you are losing money. If you are operating a business you are no intentionally reducing your income annually. You should consider investing in something else. Business investors do not lose money intentionally. I have never had a reason to not raise rents annually and always do annual rent increases. 

If you are in a market where  market rents do not rise every year you are in a poor investment market and should consider selling to invest in a market where your profits are not declining annually.

If you are a hobby landlord you consider your tenant first when determining whether to raise rents or to supplement your tenants rent by a rising amount annually.

If you are not raising your rents annually or are not able to raise your rents annually you are devaluing your investment and losing money. Never a good business plan.

Low rent does not create good tenants. Landlords create good tenants. Paying on time is part of every tenants legal contract so never a factor in determining rental rates. As costs rise so shall rents.

Nope because the only material effect on my bottom line of doing so would be if it induces a good paying tenant to leave.

On a one year lease I have a tenant holdover clause in the lease where I show the increase (3%) after the first year. I tell the new tenant that it will be my right to charge the new rent rate at that time but I may keep the rent the same at my discretion based on how the tenancy goes. I think it creates a carrot on the end of the stick effect. I usually start with top of the market rates anyway so I usually don't raise the rent.

Generally speaking, yes. If rents are really going down for some reason in the market, then probably not. And we've kept rents the same when we had occupancy issues and we're more interesting in retaining tenants. But generally speaking, yes, we raise rents almost every year.

I agree with Rob Meyers. When I have an ideal tenant that always pays on time, and I never hear any complaint , I appreciate them. There is a real cost to replacing tenants and the next one may not be as good. I even will give them a $20 gift card to a local restaurant every once in awhile. (That's tax deductible.) That builds loyalty, and when I do raise the rent, there is no complaint. There is a real payoff in treating people well.

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I make sure I get me yearly lease renewal letter and lease out as soon as I can. This is just after the yearly CPI for the forth prior month to the lease renewal month- yeesh-  If it renews July, then February. My lease states that I am to have 60 days notice for renewal or non-renewal. This gives me plenty of time to market the rental or if it will be one of my inherited tenants (if only!) Then I can begin lining things up for the renovation. 

We consider what the market will bear and the cost of replacing the tenant.  New tenants mean painting the home and looking for minor repairs, paying the PM to find a new tenant, and the possible loss of income if it's vacant.  Sometimes it's more expensive to replace them than to keep them there at the same rent.

The other issue is whether the HOA and taxes have increased. We try to pass it on. However, there's someone in retirement living in our condo, and we know it's been difficult for her. I am not keen on raising rates just to raise rates because after all, they likely aren't earning any more money. Our tenants stay for years.

First and foremost this is a business, and you need to treat it as such. But part of this business is dealing with people, and keeping those people happy. A good tenant is an asset, just like a good realtor, lender, or bird dog is an asset, and they should be treated as such. I invest in B, or B+ areas, so to me a good tenant is more than someone who simply pays on time. (paying on time doesn't make you special, unless you invest in warzones).

I always keep rents relatively competitive with the overall market, however I appreciate my 'good' tenants and purposefully keep their rent slightly lower than I probably could get. If you factor an 8% turnover rate as the cost of doing business in the SFR world, then you can afford to give your premium tenants a small break to help ensure they stick around. 8% on a 1k/month rental is 80/month that is being earmarked as being a vacancy expense. If you can charge 25 under market rent, and keep a quality tenant, then you are coming out way ahead.

I generally write my good tenants a letter about 3 months prior to their first lease ending.  I tell them thank you, and that they are appreciated, and as a show of gratitude their rents will stay flat this year should they decide to renew their lease, however they should expect future raises in price.  Additionally I have a friend who owns a restaurant nearby, and he gives me $20 giftcards which I mail to all of my good tenants along with a very short hand written thank you note during the Xmas season.  By delaying price increases by 1 year, that typically puts me right around the $25 I try to stay under, and after that prices get raise as normal.

Vacancy costs aside, a good tenant will also save you money on your repair budget. It may be your house, but to a good tenant it is their home, and as such they take pride in their home. Minor repairs all but disappear because the place is being properly cared for and maintained. Carpet actually lasts as long as it should instead of being destroyed after a year or two. Cleaning, painting, changing the locks, and everything else that goes into getting a house ready for the next tenant can add up. While a small reduction in rent won't guarantee that someone stays long term, I can say that I have a significantly lower turnover rate and repair cost than other people I talk to in the SFR business. Maybe that's all luck, but I doubt it.

I also value my time.  I am a landlord, but that doesn't mean I want to spend my Saturday screening a new tenant and doing property viewings.  Once a good tenant is in place, the entire operation is essentially on autopilot and I will never hear from them again until it's time for the next small bump in price.  Once you scale to large scale commercial multifamily properties such that you constantly have a wait list of people wanting to rent from you, and requires a permanent on site management team then the dynamics of things may change.

I do, and usually because that's when the lease ends. When raising rents I consider the possibility that the tenant might simply decide to move. If I'm not willing to take that risk I don't raise the rents. Since I do my own property management I don't mind turn over that much. They aren't that expensive for me and I've always been able to get more in rent. 

If you're worried about turn over consider incrementally raising the rent. Raise rent twenty five dollars a month until you arrive at the desired amount. I've had good responses to this strategy. Good luck!

@Adam D. , I like your strategy of raising $25 a month.  My leases are however 12 month.  I recently did a lot, and I mean a lot of work on the property.  Rents are booming in Denver Metro and recent appraisal revealed that I am way below market on my rents so I am considering going up to market value upon renewal, spring of 2018.  Once that is done, I really don't intend on raising rents every year, but again, that is to be determined.  Best way to ensure a locked in rate, if you are a tenant, sign a two or 3 year lease, just saying!

like everything else is a game of give n take. The more increases to rent the more likely that it is to loose a tenant. Then ur expenses to get another tenant erase ur gains of the rent increases. At the  same time u don’t want to leave money in the table if u don’t have too. I think the best way to handle it is to know ur market as best as possible: that will allow you to know when to raise rents n when not to. Is actually quite simple to know the market when u being at it for a while.

I am switching all my leases over to month to month @Anna M. . Give me a 30 day notice when you want to move and I'll do the same when I want you to move. 

I've found that yearly leases mostly benefit the tenant. A landlord can't raise rents, could be stuck with a bad tenant for a year or longer, can't sell property, the list goes on and on. 

I used to think that a tenant with a yearly lease would be incentivized to honor the lease. But I've found that when a tenant wants to leave they are going to leave. You really don't want a tenant in your property who doesn't want to be there. All of a sudden things start breaking and they become a pain just so you'll release them from their lease. IMO it's better to get someone in there who wants to be there. 

@ Adam D. I totally agree with you on getting someone in there that wants to be there.I have in the past had a tenant that was all nice at the beginning then just turned into a monster later.I like the idea of not being tied to tenant, but I also struggle with wanting some kind of stability and I find that yes while annoying, my one year lease as currently structured gives me a cushion should they choose to walk away.I currently do X2 monthly rent as security deposit and while yes they can break lease before due date, they are liable for 2.5 monthly rent and up to 4.5 monthly rent during winter.So this offers a buffer but on the flip side it leaves me stuck with a disgruntled, “i-hate-being-here” tenant. But hey!Such is life.Someday maybe I will do short term leases but for now, I do 12 month and even considering longer term for those I have vetted for the first year.

@Fernan Nava,Very good advice, “Know your market”.So, I am giving myself between now and spring to really evaluate the rent raises.One thing that is driving me to consider the raises, is that I am contemplating taking on exterior porch maintenance, something tenants were tasked with in existing lease but I have had to remind them repeatedly on, with little luck.I have come to find that it is easier to fight monetary vs. compliance issues in evictions court.I therefore want to put a monetary value to items/policies that don't currently have a monetary value.In existing lease tenants are required to keep their immediate exterior areas clean, but somehow either they are just lazy or just flat out stubborn and while yes I could issue a 3-day notice to quit, I choose not to.Instead, I plan to take on that responsibility and simply charge them for it, so I am not wasting my time reminding them of it during next lease term.Less is more in my opinion and I prefer an approach where I have more chance of success in evictions court.Up the price and take care of the exterior 3 times during the lease term and I don’t have to worry about it while at the same time I get to maintain curb appeal and keep pests away which is my biggest concern.

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