Rent Increase to Cover Taxes and Insurance

Investor · Dallas, TX · Member since 2020 · 31 posts · 10 votes

I purchased my first duplex and have kept the tenants on MTM to see how they do. I just received the appraisal for 2024 and the assessed value will increase $28K, increasing my taxes $600 if the tax rate doesn't increase. I will not know what the tax rate is until December. Would you recommend increasing the rent now knowing the taxes for this year will be approximately $600 ($50/month or $25 per tenant/month). My taxes are paid through escrow so I will need to make sure I am whole when taxes are due come December of this year. How do you all handle annual increases to adjust for taxes and potential insurance hikes and would you have them sign a new MTM agreement or add an addendum? The property is in Milwaukee, WI. Thanks!

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Quote from @Brittney Wright:

Increase the rent based on what the market supports. If your rental is worth $2,000 a month, then you should charge close to that and the rent should cover your expenses.

If you raise the rent $600 to cover taxes and it prices your rental higher than the market can support, then that indicates you may have bought a bad investment.

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Tyler Haanen
Rental Property Investor · Milwaukee, WI · Member since 2017 · 61 posts · 40 votes
2y
Well I think you should only increase the rent if the current rents are under market value for the condition of the units. Otherwise a vacancy because of an increase in rent could be worse than a $600 dollar per year increase.
I try to consider my expenses separately from my rents. You have two levers. You have one you try to use to lower expenses and one that you try to use to increase rents.
Just because your expenses increase does not necessarily mean rents increase dollar for dollar.
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Tim Ryan
Investor / Mentor / Contractor · Arcadia, CA Buying Out of State · Member since 2015 · 655 posts · 623 votes
2y
If these tenants passed your initial test for being good tenants, you should get them on annual leases. I would raise the rents unless you are the highest in the area. We call a $10-$15 increase a "nuisance increase" meaning they will squak but they almost never leave. A $25 increase is a bit more than nuisance but as long as it's in line with the market, you should get them to accept.
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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
You got away easy, many assessments in Milwaukee came in 100k+ higher. This was necessary to get assessments caught up with rising property values. West Allis is particular, which was one of our hottest markets last year.
Most people misunderstand the consequences. A higher assessment does not automatically mean higher property taxes. It only defines the size of your fair share. Simplified example: if all assessments would exactly double, individual property taxes would stay exactly the same.
Milwaukee is currently the 2nd most competitive market for renters in the US, you can watch a video on current Milwaukee rent increases here.
It looks like the school referendum will have some impact on property taxes, but the decision to increase rents should not depend on your cost, but on how far you are way from market rent. But if they have been there for more than a year, you are probably under market and $25 may not be enough.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Brittney Wright:

Increase the rent based on what the market supports. If your rental is worth $2,000 a month, then you should charge close to that and the rent should cover your expenses.
If you raise the rent $600 to cover taxes and it prices your rental higher than the market can support, then that indicates you may have bought a bad investment.
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Olivia Grabka
Property Manager · Leominster, MA · Member since 2022 · 103 posts · 50 votes
2y
@Brittney Wright
Issue a written rent increase notice
1. We typically give tenants 45 - 60 days notice
2. We have them sign extension paperwork with specifics on new rent
We do not typically provides specifics, other than to let them know we are adjusting to be in line with the market
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