Do you increase rent yearly when market allows ?

Question

I got 3 SFH in Texas which have all tenants for nearly a year. The last year rent was little below market value ( like 50 USD below ) .

This years market value had increased by another 50-75 USD. Will you increase the rent and risk to lose the renter or do you increase it ?

If yes by how much and do you give them a reason for increase ?

Marc Winter · Answer

We have a 5% per year increase built into the lease.  It is up to the owner to decide to exercise the increase in whole, in part, or not at all, depending on the tenant, their payment history and individual situation.

If you start giving a reason (they will read it as 'excuse') for the increase, it always leaves room for argument or discord from most people.  If it's baked into the lease, well, there it is.

Good luck!

Carl C. · Answer

We generally only increase rents when a tenant moves out. If there is a dramatic change in the market, we will make minor adjustments rather than the full potential amount. We have found that a great tenant is worth a slightly reduced rent.

Chris John · Answer

@Michael Thach

I'm saying this as someone that didn't keep my rents at market and wish I had.

First, when we did raise rents (to a point where they were still below market) my tenants still got pissed anyway.  I became annoyed that they had zero appreciation for what I had (and was still doing for them) and it caused acrimony.  I'd saved them thousands of dollars over years and they were annoyed that rents went up $50 a month.  The entitlement was crazy.  Many threatened to leave, but they looked around, and signed the new lease.

Second, this is supposed to be a business and I lost sight of that fact. It cost me money and caused hard feelings (again).

Third (and the one I never anticipated), California just passed rent control.  Luckily I came to my senses beforehand and got rents to market, but there are tons of properties in my neck of the woods with rents that are way below market.  You can't get rid of these tenants if you buy the property and it will take years to get the rents to market prices.  To me, it greatly diminishes how much I'm willing to pay for a property (nobody else seems to care, so maybe they know something I don't though).

Good luck!

Alvin Sylvain · Answer

From what I've heard, and this is what I've done, you want to do some sort of increase annually regardless. It doesn't have to be a measurable percentage, like 5 or 10 or 15%. Raise it $5. Anybody ought to be able to afford a $5 increase.

The point is to help train your tenants to get accustomed to the fact that the rent will increase.

And why shouldn't it increase? With the inflation we've had for like forever, everything else is going up in price. Why carve out a special exception for rent?

You will need to increase it enough to at least chase market rents. Otherwise, you'll end up after a few years with tenants paying a third of market because you never raised it, and they can't move out because everywhere else costs three times as much. If you sell the place, the new owner is going to triple the rent which would create extreme pain.

The long and short of it is, you can keep it below market, which helps reduce turnover, but don't lock it down with zero increases. You don't have to increase it a lot, but your tenants should expect that it will increase. Then if you must increase it due to some necessity (e.g., unexpected capital expense), your tenants won't be shocked.

Steve Morris · Answer

Find out what market rent is in your neighborhood.  Existing tenants will pay a little more (the pain/cost of moving to a cheaper place vs staying and eating it).

In general, I like to do an increase annually, even if it's de minimus, just to train them :)

On your side, you need to decide if they're good (you want to keep them = lower rent bump) vs bad (give them as high an increase as possible to encourage them to move out) tenant.

Steve Morris · Answer

"I'm saying this as someone that didn't keep my rents at market and wish I had. "

Be VERY careful.  In Portland, they limit rent increases to 10% per annum - Sense is that it'll get worse for landlords than better.

This punishes nice landlords in terms of income when they own them and sales price when they sell.

You get a couple of years of no rent increases and may take you 3 year at the max to catch up.

Brian G. · Answer

@Michael Thach yes, normally we increase our rents yearly to market rates. Usually for us it’s a small bump. I simply ask my PM what she thinks and she tells me, then we post notice of rent increase. Our PM knows what our units command and the going rates. We like to be at or slightly under market rates.

Bjorn Ahlblad · Answer

We do annual, gentle increases on longterm tenants-because they expect it. Turnovers we spruce up the place and raise to whatever the market will bear and a little more.

Suzette T. · Answer

Marc, what a good idea!

Sandy Gabin · Answer

On my first home,  I had increased the rent to all tenants one time of 7%. In my case,  I am not planning to increase the rent because all tenants pay on time,  take care of the units. We are all happy. If you have good,  responsible tenants like the ones I have,  you are going to have these tenants for a long time!

Do you increase rent yearly when market allows ?

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