Raising rents every year

Rental Property Investor · Downey, CA · Member since 2017 · 347 posts · 25 votes

If you raise the rent every year, do you always need to fix something small on the property to justify you raising the rent or every other year you dont have to improve something and just tell tenant raising rent for the cost of living or property taxes or insurance that went up. I guess what Im asking do you have to justify to tenants every year why you raise the rent and if so what reasons can you give tnem?

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Ken Musial

Virginia Beach, VA · Member since 2016 · 46 posts · 33 votes

I self-manage 5 units and I tend to focus on the market rates and less about making sure the rate goes up every year. I realize that operating costs increase steadily, but unfortunately that rental market doesn't always follow. If it does, great. Raise rents accordingly. As a landlord, my biggest expense is vacancy and communicating to tenants that your rate is going to go up every year regardless of what other units are charging is a great way to ensure they don't stay very long.

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
7y
@Horacio Gutierrez I wouldn't tie rent increases to property improvements. I would say Annual operating costs have increased due to such things as property taxes and insurance.
It much easier to do a 3% to 5% increase every year, than wait multiple years and then try and catch up.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
I give annual rent increases without exception. I send out written notification as required by the regulations and never provide any reason, excuse or justification, It is not required or necessary. Tenants understand the cost of living goes up every year and expect a rent increase. I maintain and repair my properties when it is necessary. I do upgrades periodically but prefer to do them when I am not raising their rent. My tenants are generally too smart for that cheep ploy and will make a comment.
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Michael Ablan
Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
7y
@Horacio Gutierrez Inflation. The cost of living rises every year. The value of money decreases. Therefore, your expenses go up just because the cost of everything else in your life is increasing.
I'm always trying to make improvments to my properties, and will usually do one reasonable tenant request per renewal. I haven't raised rents in the past, mainly due to my market, but I'm going to start on my next batch of renewals. Even it's something small like $20 per month. It adds up over time.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
A landlord should never feel they need to justify any business decision. If they feel they must then it is likely guilt caused by unjustified decisions.
Long ago I would ask the guy at the gas station why the price of gas goes up every Thursday and he always said it's just business. Truth be told I expect it to go up, don't care why and do not expect free giveaways. Pay or leave, no questions asked.
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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
7y
I dont give a reason, and since I maintain my properties in tip top condition there is no special thing I do.
I just text or discuss in person with the tenant and then once I talk to them I send a notice per my locales rules.
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Carl Fredrickson
Wichita , KS · Member since 2017 · 35 posts · 25 votes
7y
As an apartment dweller, the first place I lived at and the previous manager of my current complex raised the rent every year. The current manager of my complex has been keeping the rent the same but tacked on a surcharge to cover water (water is not metered to individual apartments) and property taxes. The surcharge seems to increase every 2-3 years.
I've been concerned the manager is going to significantly increase the rent at some point, at which point I'll have to figure out whether to stay or go, although it's likely that the new amount would still be less than if they had raised the rent a little bit every year.
From a psychological standpoint, I think it's easier to take a little increase every year compared to staying flat for a long time and then a big jump to try to catch back up to market, even if you end up paying less overall with the second option.
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Ken Musial
Virginia Beach, VA · Member since 2016 · 46 posts · 33 votes
7y
I self-manage 5 units and I tend to focus on the market rates and less about making sure the rate goes up every year. I realize that operating costs increase steadily, but unfortunately that rental market doesn't always follow. If it does, great. Raise rents accordingly. As a landlord, my biggest expense is vacancy and communicating to tenants that your rate is going to go up every year regardless of what other units are charging is a great way to ensure they don't stay very long.
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Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
7y
Raising rents and making repairs are not related to each other. You raise/lower rents when the market dictates that your rent should be higher/lower. You make repairs when the condition of the unit dictates that you should be making repairs. If you train your tenant that every time you fix something there will be an upcoming rent increase, they will not tell you of problems and it will cost you a lot more down the line.

If the tenant asks why rent is going up, tell them the truth. The rent is going up because in this area the comparable units are renting for more money and you are adjusting the rent closer in line with the market. That's all they need to know. If you feel the need to share more, tell them more truth. In addition to that, property tax only goes up, insurance only goes up, HOA fees only go up, etc.
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Kenneth GarrettPro Member
Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
7y
@Horacio Gutierrez
Rents should go up per the market. As stated earlier rents should go up at least to keep up with inflation (taxes and insurance). Repairs and upgrades should be conducted as necessary. Don’t wait to raise rents. If your rent is significantly under market it’s hard to raise rents dramatically without some improvements. It may take 2-3 years to get to market rent. It’s all based on what the market will bear.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
@Thomas S.@John Underwood @Mary M. this is one thing i cant quite wrap my head around.
if you raise every single year rents would be 10k a month on the average rental if this was true going back the last say 30 to 50 years. Well maybe thats a little exagerated but it would certainly be higher than the 700 to 1000 that is average in most of the rental markets in the US> ( west coast and high priced cities excluded)
Rents in Oregon for instance were flat for a good 10 years prior to about 2012
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
There's no need to give specifics. Taxes, insurance, maintenance costs, and everything else goes up almost every year.
"Due to the increased costs associated with the property, we are instituting a X% rent increase, effective 1 March 2019."
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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
7y
@Jay Hinrichs I dont raise rent every year. However, when I do raise rent I discuss with tenant and then send them a formal form.
When I do raise rent it has been a small amount -less than 2% usually as my rents already are some of the higest around. For example I went from 1795 mo to 1825 which is less than 2%.
I did raise one tenant a much larger amount but that was due to them having below market rent.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
@Jay Hinrichs
I am not aware of your area but for us the egovernment announces the annual "cost of living index". This is the average that any indivulaes cost rise each year. This is the minimum amount a landlord a landlord should be increasing their rent by each year to stay up with inflation. If not the business is losing money.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Mary M.:

@Jay Hinrichs I dont raise rent every year. However, when I do raise rent I discuss with tenant and then send them a formal form.
When I do raise rent it has been a small amount -less than 2% usually as my rents already are some of the higest around. For example I went from 1795 mo to 1825 which is less than 2%.
I did raise one tenant a much larger amount but that was due to them having below market rent.
Like I said rents in Oregon if you look back were flat for a good 10 years.. there was signing bonus's and rent decreases..
not many if any rent increases the increases were the last 5 years and in some areas they were substantial like 50% in 3 to 4 years.
this led to a back lash in the city of Portlandia so now you have all these people screaming for rent control and you have the law that did pass were you have to pay 4500 to terminate a lease.. and other sundry items.. In Eugene might not be as acute .. But I can tell U in the mid west massive rental markets no way rents get raised every year.. HUD does not raise them every year and so many landlords are tied to hud section 8 or other subsidized rents.. in some areas they actually fall.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Thomas S.:

@Jay Hinrichs
I am not aware of your area but for us the egovernment announces the annual "cost of living index". This is the average that any indivulaes cost rise each year. This is the minimum amount a landlord a landlord should be increasing their rent by each year to stay up with inflation. If not the business is losing money.
my point is and its a point to the US is that rents when I started funding out of state rehabbers in 2000 ish.. were already 750 to 900 in those same cities they are still 750 to 900 average rents.. no way they rose 3% in a linear fashion over the last 20 years.. Section 8 does not go up that fast.. rents would be over 2k per house or door if that was the case and I can assure you rents are not that high.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
https://www.statista.com/statistics/200223/median-apartment-rent-in-the-us-since-1980/
If you take a look at this you will see how it works.
The average cost of living increase over the past 20 years is 3.22% (Canada) meaning costs double every 20 years. The numbers work out. Don't forget we are looking at averages. There will be some depressed or overly inflated areas that will add to creating a overall average.
Sorry that link does not work without an account. If you simply do a serach on statistics you will find th esame info. Choose an area and search rental rates for any given year to present date and see what you find.
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Morgan PorterBusiness Member
Property Manager · Richmond, VA · Member since 2018 · 36 posts · 19 votes
7y
All my leases include a clause that says the rent will go up 3% each year. I try to highlight this clause when a new tenant signs a lease so they know in advance. The first, most obvious reason is the increase in taxes and insurance. Any improvements can also be mentioned but are not the total driver behind your increased costs. Most of my rentals on 12 month terms but if someone wants to sign a longer term (2 or more years), they can lock in the rent and it won't go up.
On the other hand, if I get a good tenant and they complain about the 3% increase when its time to renew, I may waive the increase to avoid looking for a new tenant.
As the property owner you have the right to set the rent to whatever you want. Tenants, of course, have the right to move out. So ultimately, it's about getting the price right for that property and the local market.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
@Morgan Porter
"but if someone wants to sign a longer term (2 or more years), they can lock in the rent and it won't go up".
You place a lot more trust in tenants than they deserve in my opinion. The second year of your lease is a 100% crap shoot on your part. You would be safer to raise the rent the second year then give a discount on the last month of their two years. There is no way you should ever trust they will actually stay 2 years. You may win or you may lose by not raising the rent but from a business perspective it is not worth the risk.
Do it the way I suggest and you do not risk a loss.
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Morgan PorterBusiness Member
Property Manager · Richmond, VA · Member since 2018 · 36 posts · 19 votes
7y
@Thomas S. Honestly, the 2 year lease is just an offer and so far no tenants have taken that route. They end up moving out or renewing for another 12 months with the 3% increase.
I should also add that my rentals are in fairly desirable areas with higher rents than most areas. So tenants typically pay a bit more to avoid moving unless they have a major life change that dictates the move.
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Roni BanerjeePro Member
New to Real Estate · Wappingers Falls, NY · Member since 2013 · 4 posts · 1 vote
7y
@Horacio Gutierrez you do not have to justify anything but you might consider having a discussion with the tenant and tell them about the increase rather than just send a letter. I only have 1 rental but have managed to keep a really good relationship with the tenant for the last 8 years by having an open dialog about rent. They know the increase will come every 1 or 2 years (I have based it on increase in taxes). How much you increase will depend on your market I believe. In my area I have seen 2% is fine.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
I have never believed the incentives of no rent increases or below market rents to be of any value. Most tenants would not be swayed by them. I have difficulty understanding any landlord that believes rent increase result in tenants moving. Their simply is no proof to support that theory. Same goes for charging slightly below market rent numbers. NO proof to support the belief that it has any impact on tenant decisions to stay or go.
I find the business practices of hobby landlords to usually be illogical. They tend to overwhelmingly base their decisions on emotion rather than common scenes.
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Patrick M.
Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
7y
I am in a location which recently agreed, thankfully, to phase out rent control upon vacancy. I was very fortunate in my timing. My remaining rent controlled tenants are raised every year as per CPI (or base 1.5%, part of new ordinance) + RE tax increase as per ordinance. They are considerably under market. So even with a yearly CPI (remember we have had negative and miniscule figures) increase they fell far below.
So you have a situation where you have tenant who won't leave and landlords that can only profit by neglect.
But what any investor should realize is that you are actively and purposely decreasing the value of your investment.
So I join @Thomas S.- It is illogical.
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Amit P.
Las Vegas, NV · Member since 2018 · 49 posts · 40 votes
7y
I try to raise rents every year. Sometimes as little as $15 and sometimes as high as $100, it depends on the market. Since all my loans are 30 year, every dollar increase drops to my bottom line. But no need to justify it to the tenant.
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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
7y
@Jay Hinrichs oh yeah, I agree with you.
Agressive rent increases always end up in tenants getting up in arms and Portlandia and SF are examples of what happens when that happens
While i am pro fairness I am againt rent control as It just does not work to do what it is supposed to do. Instead it ends up with higher housing costs. I have never been able to comvince tenants of this tho.
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Ken Musial
Virginia Beach, VA · Member since 2016 · 46 posts · 33 votes
7y
Here's an example of a unit I own. It's a 3-BR condo in Virginia Beach that I rented out in 2010 for $1,450 which was close to the market rent. Today, there are still similar units in that area renting for between $1,400 - $1,500. I have left that rent at $1,450 for all 8 years, which I directly attribute to the same tenants living there the entire time. I will take 0% vacancy over an 8+ year period all day long. But, let's say I was going to raise rent every single year at 2%. If these tenants would have made it to current day, their rent would be $1,700, which there's no way they could afford. They probably would have moved out years prior. But lets say they got very comfortable and didn't want to move and thus paid me the higher rents. I would have made an additional $10k over 8 years. If they didn't stay, then it would only take 7 months of vacancy to erase that, and that's assuming I didn't have to revert to market rates to get new tenants back in, which also would be unlikely. It sucks that this particular market hasn't grown much, but I firmly believe I have made more revenue on this unit by not raising rents than I would have if I had jacked it up every year. I know the larger/commercial property managers play this game of overcharging based on a "comfort fee" and have the volume to back up this strategy. As a Mom and Pop investor, I can't afford to play that game.
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