When Do You Raise Rent over 3%?

Question

Question for the group...

When it comes to raising rent on a tenant who's been living in a unit for a year or more, what are your determining factors (in areas that are NOT rent control)? Recently I've considered raising rent by $100 per unit, which would increase the value of my building by $100K. The building is in a hot area, so technically the market can handle the increase. Holding on to good tenants is always great, but when are you willing to risk it?

Theresa Harris · Answer

It depends on what the current rent is.  3% on $500 is $15.  $50 increase on a $500 rent is a lot (10%), but on a $1500 rent you are at 3%.

What is your reasoning for a 3% increase?  Inflation rate, rent was below market value and you are bringing it closer to market value, huge increase in property taxes?

Joe Splitrock · Answer

Rent increases are a reason for tenants to move. As long as your rent increase is still a good value compared to market, they will not move. It is less about percentage and more about the market price. Despite what people say, yes rent increases can be a catalyst for people moving.

Also keep in mind, if your tenant has been in the property for several years,  you can't expect the same rent as a similar unit in prime condition (fresh paint, new flooring, new appliances).

It is also important to consider turn over costs. Those costs include not only vacancy, but also rehab to get the property rent ready and tenant placement costs. When people allocate 5% or 8% for vacancy, they often forget these other expense.

Thomas S. · Answer

It depends on your market and your expense increases. You want to stay with the market, no reason to charge less, it will have no effect on whether tenants stay or go, tenants are prepared to pay market rent, charging below market is only costing you money to supplement your tenants rent....charity.

You need to track your fixed expenses like taxes, insurance etc. to determine how much to raise your rent. You also need to track your annual cost of living index each year. This will have a direct relationship to rent increases.

Rent increases are not a arbitrary number, know your market and charge full market for your property. If you do not charge market  you are devaluing your investment if it is a purpose built rental property. If it is a SFH you can charge what ever you please since it does not effect the value of your property.

Kenneth Garrett · Answer

@Ali Safavi

There is definitely a balance between raising rents and keeping your tenants.  The cost of rehabbing the unit and a vacancy for 30 days could cost 2K-4K or more.  Increasing the rent $100 is $1200/yr, but the cost of the rehab and vacancy is expensive.  It is dependent on your market.

CJ Ashton · Answer

My $0.02:

I keep my current good tenants at slightly below market at renewal so they have incentive to stay.  I give them more warning than is required in the lease if the increase is going to be significant.

When Do You Raise Rent over 3%?

Most Popular Reply