Landlord Hack #2B of 10 - Automatic Rent Increases.

Along with my last blog of Automatic Lease Renewals is Automatic rent increases. This is pretty straight forward.

I would have to say that it's a pretty universal  that prices increase. Can't really think of one thing that's cheaper now than it was 10 years ago. Everyone knows that and pretty much accepts that. Why not build that into our rental agreements? We all strive for good long term paying tenants. Why be charging today's rental rates in 10 years?

Some say that keeping rent the same amount a "reward" to tenants for staying. I agree with the need to reward behavior that you want to be repeated. At the same time, why not reward yourself as well? For me, when my lease automatically renews, it also automatically increases. It is my experience that tenant with no rent increase can become entitled and will leave as "punishment" if you try and increase rent in year 3 or 4 because the market has gotten away from you.

How much is the question in my mind. Right now rents are increase at a rate of about 8-9% per year in my market. It was fairly flat for several years previous (1-2%). I set my rate increase at about 1/4-1/3 of current market rate so at 8% my rates increase about 2-3%. Sometimes I push it a bit and may do a bit larger increase depending on the property and overall demand. An example of this is, just a $25 increase on a $1,000 rental rate. When times were less robust the rent increase could be as little as $5 per month. I've had tenants stay several years and after about 4 years that is $100 per month or $1,200 for the last year or a total of $3,000 over the course of the 4 years. It also covers increase in insurance and taxes. That is how I explain it to tenants if they question me on it.

I avoid trying to match market rate increase as it is forward looking and I will drive way long term tenants when I miss and get it too high. I want tenants to realize that the longer they stay the better deal they are getting. In my current market, tenants staying beyond 3 years are really smiling. My units tend to be smaller and have turnover as people move on with their lives. I adjust rents to market when the tenants change.

I've never had anyone move because of it and I always have the option of adjusting the amount by giving notice per the lease renewal.

What is your experience? Any reason not to raise rents?