Do You Raise Rents Every Year? Why Or Why Not

Philadelphia, PA · Member since 2014 · 129 posts · 29 votes

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?

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Bettina F.

Investor · Post Falls, ID · Member since 2016 · 606 posts · 699 votes

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.

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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
8y
Absolutely- the rent increases we give usually don't even come close to covering the annual property tax increases we see. If you don't, a couple years down the road you'll find you are way behind market, your taxes have gone up $100 per month and all of the sudden you need to give your tenants a 15% increase rather than a 5% once per year- you are not likely to have a tenant balk at a 5% (or so) annual increase, but a big one every three years could cause some real issues.
We have a standard renewal letter that we send to tenants that we want to keep and give them a choice. They choose the length of the lease that they want and that correlates to a specific increase in their rent, usually 3-6%. They feel empowered to choose and we don't have to knock on their door and argue about an increase. We've been doing this for over five years now, and I have not had a single conversation or argument with a tenant about an increase since. The renewal shows up in the mail or my email and it's done.
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Elaine Fawcett
Investor · Worcester, MA · Member since 2017 · 66 posts · 36 votes
8y
I always raised my rents every year. Except the one year I had a long term tenant, the market for rentals had tanked (becoming much cheaper) and he went back to school. That year I lowered it $100 rather than lose him. But other than that, even a small amount is, like mentioned above, training for expecting it.
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Gregory B.
Brooklyn, NY · Member since 2017 · 68 posts · 28 votes
8y
Why do people people not build in their escalations into their leases? Eg rent will increase 3% from the previous years rent on the renewal of the lease each year or on a month to month, the anniversary date. That will save any discussions about rent increases and you can get creative on the escalation calculation. Also, when people use month to month leases, their tenants are alright with that? I’m guessing there is a large market difference between NY and most places, for example, usually the tenant pays the brokerage fee which is between 8% and 15%, so on a 2k a month apartment the fee is somewhere between 2 and 4K plus moving expenses can be expensive. Not to mention the price escalations that can happened here... $2,000 on month then $2,500 the next would be a steal increase but may fail inline with the market
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
I have never experienced a tenant leaving over a annual rent increase.
The rent increase annually is so small that it is not worth the expense, let alone the effort, for a tenant to bother moving. If they move it is for other reasons.
Operating any aspect of your business out of fear is not logical and will ultimately cost money.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
There's no easy answer to this question. Everything depends on your market, the class of housing you are renting and the quality of tenants you can attract. Renting out homes is like any other business. The rent you charge is a balance between what you have to offer, who you have to offer it to, and what others are pricing similar offers. For some of my homes, the rent goes up on a pretty regular basis and at big intervals because certain homes attract students, who stay for fixed periods and then leave - there's lots of turnover, so few are around long enough to see rent increases, and there's lots of demand. Other homes attract a smaller demographic, and those tenants stay longer. In those cases, I have tried to price the homes pretty strong from the beginning and then just keep an eye on what the market says. Tenants that are not moving to another area or buying their own homes will leave once they perceive the value of what they are receiving to be poorer than what they could receive elsewhere.
One other thing: the amount of rent you can receive is directly related to how hard you want to work to receive that rent. I know landlords that bust *** and make more from their homes than I do. I don't want to work that hard, since this is just another income stream for me, so I proceed accordingly.
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
If the tenant is easy and pays on time, I don't raise rents. My tenants stay 2-3 years and I just increase it on the lease up
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Richard C.
Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
8y
Rent is not determined by the amount you have invested, the CPI, any sort of rigid rule (I always add 3%!!!!) or anything of the like.
The rent you can get is based on the local rental market for like units. PERIOD.
If you try to impose your will on the situation, and the market doesn't support it, you will pay the price. Whether in vacancies, bad applicants who have no other choices, begrudging acceptance that results in pushback in other areas that costs you money, etc.
The landlord does not set the price, the MARKET does.
So, the answer is that you raise rent if the market indicates that you are underpriced.
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Jay Helms
Rental Property Investor · Gulf Breeze, FL · Member since 2014 · 1k+ posts · 733 votes
8y
It depends on your market, your product vs other products, supply vs. demand, etc but mostly, I'm in agreement with @Bettina F., train your tenants to expect a rent raise every year.
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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
8y
Unless your market is going down raise it every year even a minimal amount. If they leave over a rent increase your market doesnt support that increase or they were leaving anyway.
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David Moore
Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes
8y
I just want to chime in that I agree with most of the posts that indicate you should raise rent every year. The one exception to this, is if a competing building is near and holds rents flat, then it puts a brake on how much I will raise rents.
Some have said reward a good long term tenant. I've seen buildings with long term tenants, and most are in disrepair. We keep our buildings in really good shape, and that cost is borne by the rents. We will continue raising rents by 3 to 5% per year.
The other thing I do not do is give gift cards for renewals. I know my job is to pay the bills, maintain the building, and respond when something needs fixing. Tenants job is to pay their rent. No incentive, or thank you card is necessary.
There is no nice touch, or class thing to do that makes business sense, other than giving them a well maintained building. That is my job.
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Stanci March
Rental Property Investor · Lawrence, KS · Member since 2016 · 84 posts · 20 votes
8y
I reward good tenants with stable rents, unit upgrades, and honeybaked hams for the holidays (not joking).
Depending on the unit: By the time you factor in advertising, showings, taking apps, and prorated rents; basic turnover (normal wear and tear) runs equivalent to about one month's rent and goes up from there, in my experience. That's 8% of total annual revenue! In most markets that is equivalent to about 4-6 years of rent increases saved in a single year by keeping a good tenant in place and avoiding turn costs.
I have even gone so far as offering decreasing rents for multi-year leases. That's better than discounting at the beginning IMO because multi-year residential leases can be hard to enforce (in my state) and because people's plans often change. So your rent may start out at just slightly above market (i.e. $1,000) then drop in year two ($975) and again in year three ($950) at which point I offer to hold it for three more years. Tenants feel like they're getting a great deal and have incentive to stick around and not violate the lease terms. If the tenant's plans change and they decide they'd like to leave after year two or three...no problem. I let them out of their below market $950 lease and repeat the process with a new tenant starting at whatever market rent as at that time.
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Michael Swan
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
8y
Always raise your rents at least $15-$20.00 a year. If you wait a few years to raise the rent $100.00, the tenants will weigh there risk reward. Is it worth to move over $200.00 a year or is it worth it to move for a rent increase of $1200 or more for a year. I would argue and I have found by experience of having over 100 front doors, that if you treat your tenants like royalty and they are quality tenants, they will not move over a $15.00-$20.00 nuisance increase. Often we will offer to have there carpet cleaned in one room if they renew. Also, we explain the honest truth that costs go up every year too.
Swanny
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Sam Josh
Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
8y
No. I like my tenants and not increasing the rent is a retention tool.
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Kay March
Gainesville, FL · Member since 2013 · 127 posts · 21 votes
8y
Having relatively small annual rent increases (say $25) built into the lease can actually benefit the tenant, because when rents are rising the landlord has an incentive to end a long-term low rent tenant's lease. Not all tenants are clearly desirable or undesirable, so if a tenant is just so-so, or is a pain to deal with, and if he's been in place for a while and the property is in need of some cleaning and refurbishment anyway, the landlord might decide to end the lease and start fresh with a tenant paying higher rent. Having the annual rent increase included in the lease prepares the tenant mentally, too, and quite a few tenants won't move out over a $25 monthly increase.
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Ihe O.
Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
8y
Every time you try to raise your rent you remind your tenant of how much they are actually paying and inviting them to question it's value.
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Craig CurelopBusiness Member
Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
8y
@Randall Kates - It's much easier to raise the rent gradually each year by $50 than to increase it by $200 or $300 every 4 or 5 years. I always suggest the slow and steady increase.
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James Barnhart
Rental Property Investor · Ocala, FL · Member since 2016 · 226 posts · 140 votes
8y
I have read the various comments on this question and I noticed something. The landlords that say they definitely raise rents every year to every tenant, have almost no forum votes.
The ones that say they value an ideal tenant and may not raise the rent, have received several votes. Hmmm....
Apparently, some people see a tenant as only a paying unit of consumption, and others see a tenant as a human being who wants to pay to live in your house or apartment.
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Matt Long
Rental Property Investor · Northeast Missouri · Member since 2016 · 21 posts · 10 votes
8y
Most of our tenants stay for around 3 years. We normally do a rent increase when tenants change out. Yes it is a business but it is a people business. Some might say that we are losing potential income each year. Perhaps. But if I get lousy tenants who trash the place or cause me headaches then that is a higher cost in my opinion than the couple hundred dollars in rent increase.
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Is the increase worth the effort or he is going to stay? It is always good to review the market vs actual.
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James Thomas NakashianPro Member
Massapequa, NY · Member since 2017 · 90 posts · 42 votes
8y
@Randall Kates I agree with @Bettina F. She is right we raise our tenant's rent 3-5% every year. You need to raise them but find away that works for you and doesn't seem like you are being a terrible landlord. It's all in the approach. It will be a little harder implementing it to a tenant but ours are in all our leases a new tenant signs knowing that the next year and years to come 3-5% increase. Love her last statement "Train your tenants to expect a 3-5% rent raise (depending on your market) every year. They will pay without a peep." -Bettina F.
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