Annual Rent Increase

13 Replies

Does anyone initiate the "Annual Rent Increase" in their lease contracts, where you use a percentage factor to increase your rents on an annual basis, even if you have some one sign a multi-year lease.

@Gerald Marshall - My leases are typically just 1 year leases so I don't have an annual rent increase.  If I have good tenants, I will email them 2-3 months before lease expiration and let them know that I'm planning on increasing the rent if they are moving out, however, if they want to stay, I'll give them a discount, essentially waiving any rent increases.  This discount approach has worked well for me.

To me, it is worth not having the vacancy (even if just for a week or 2), unit turn costs, showing the place, etc.  

I think not having the rent increase in the lease could also help if you had bad tenants or high maintenance tenants where you didn't want to renew their lease.  Instead of a 3% increase predetermined in the lease, you could hike it up by 10% and they would not renew.  I think not having the rent increases in the lease allows you some flexibility in choosing your ideal tenants and what to charge.

IMO, rent increases are viewed as harassment and easily irritate good tenants. IF I feel my rents are not comparable to FMR in the area, I make adjustments on turnovers.

When implementing an annual increase program, I would use the Cost Of Living Index and make sure the tenants were inform that was the reason for  the change.  Landlords are, like it or not, viewed as money grubbing and greedy and IMO, such a system contributes to that opinion.

@william 

@William Price , thanks for your reply, and I agree with most of what you said.  I guess my issue is that I have 6 rentals that have tenants that have been with me for 5+ years.  Usually I just send them a letter of the upcoming rent increase before the renew date, which really doesn't exist since I've allowed them to just stay month to month after their original lease expired.  I have discussed with my partner (wife) about new leases after each "term" just to guarantee the income.

I guess I'm mostly looking at the built in rent increase factor to forecast the future earnings and how to combat the dreaded increase in expenses.

@Gerald Marshall you have to implement annual rent increases. I don't like to tie my hands with a set percentage in the lease, unless you have a multi year lease.

Your insurer isn't going to keep your rates the same just to keep you, especially when they know what everyone else is charging. Same is true for your plumber, etc.

Check out what rents are for comps in your neighborhood and try to stay competitive. Your tenants may be staying because they have such a deal. You can have incremental increases and still stay competitive.

Costs of everything rise ever year, tenants expect their rent to rise every year as well. My tenants are all M2M and receive a annual rent increase notice each year without exception.

I am in business for one purpose and one purpose only and that is to make money. I do not ever supplement a tenants rent from my profits..

@Jeff B. I agree with your view on how we are viewed. But I don't think taking money out of my pocket is going to change that. I think the bad rap comes with unreasonable increases, especially if undertaken in line with good and responsive maintenance.

Should read unreasonable increases WITHOUT good and responsive maintenance!

Hi @Gerald Marshall

I don't include rent increases in my lease unless it is part of the original lease negotiation. I like to have the flexibility, year to year. I DO include an automatic HOLD OVER rate to encourage tenants to sign a 1-year lease extension addendum and not remain on MTM indefinitely. For example, If my rental rate is $1000/month, my holdover rate would be $1150/month. That way if the tenant wants the flexibility of MTM, they are paying a premium. 

Originally posted by @Gerald Marshall :

Does anyone initiate the "Annual Rent Increase" in their lease contracts, where you use a percentage factor to increase your rents on an annual basis, even if you have some one sign a multi-year lease.

 I think it depends on the location. Some high demand short supply areas definitely systematic annual increases would be expected. Other less popular outliers might go much longer without any increases. In a nut shell, whatever the market supports determains what the LL can get. 

I have a clause for up to 10% but I never due the full amount. I typically do 3% or $25.

@Gerald Marshall Mr Landlord himself, Jeffrey Taylor, recommends offering a gift at the time of renewal.  For example, when the lease is about to end he sends the tenant a brochure of gifts the tenant may choose from.  Gifts range from a 32' flat screen to ceiling fans etc....  That way the tenant is  thinking about the gift they are receiving and not the rental increase. I may start implementing this policy.  I like the idea of improving my property while increasing the rents.  Its a win win for the tenant and landlord.

@Christian Bors , Funny thing, i started doing that last year.  I don't offer gifts for say, I offer upgrades.  For example, one of my properties needed carpet, and I offered to install laminate "hardwood" floors in the living and dining area when they renewed their lease.  They actually decided to sign a 2 year lease, which prompted me to do the kitchen as well.  These items needed replacing anyways so it was a win win situation.  I have 2 lease renewals coming in December, and will be making similar upgrades.

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