Track your rental property performance for FREE

Learn More

How to determine a reasonable rent increase in 2022

pen on rent increase notice
by Jeff Rohde, posted in Investment Strategy

As a landlord or property manager, you know that rent increases are a necessary part of doing business. So how do you determine a reasonable rent increase? What factors should you consider?

This blog post will walk you through setting new rent prices and offer tips for ensuring that your tenants are accepting of the increase.


Key takeaways

  • Know your area’s average rental rates. This will give you a good starting point for deciding how much to increase your rent.
  • Consider the condition of your rental property. If it needs repairs or upgrades, you may want to keep your rent increase modest so as not to price out current and potential tenants.
  • Think about how much your tenants are currently paying in rent. If they are already paying below market rates, you may be able to justify a larger rent increase.
  • Consider the current state of the economy. If there is a strong demand for rental properties, you may be able to assess a larger rent increase than you would in a slower market.
  • Talk to your renters about your proposed rent increase. They may be willing to accept a larger increase if you explain your reasoning behind it.

 

How much can you realistically raise the rent?

As a landlord, you are looking for ways to increase your rental income. After all, your mortgage or investment property loan still needs to be paid every month. 

If you’re like most landlords, you want to be able to put some money away each month for property taxes, repairs, maintenance, and other unexpected costs. So, how can you raise the rent on your rental property without losing tenants?

 

What factors to consider when increasing rent

There are a few factors to take into consideration before raising the rent. First, what is the current market rent for similar properties in your area? If your rental is in an area with high demand for rentals, you may be able to justify a more significant rent increase than if the home is in a market with less demand.

Second, what have your tenants been paying in rent over the past year or 2? If they have been paying below market rent, you may get away with a larger increase. However, if they have been paying at or near market rent, you will need to be more reasonable with your rent increase.

Finally, how long have your tenants been living in your rental property? If they are good tenants who have been living there for several years, you may choose to be more lenient with the amount of the rent increase. 

Here are some key points to keep in mind when deciding if you should raise the rent, keep the monthly rent the same, or lower the monthly rent to hang on to a good tenant:

Factors that could cause a landlord to increase the rent

  • Changes in local market conditions: If rents in your area are on the rise, you may choose to follow suit.
  • Renovations or improvements made to the property: If significant updates have been made to the unit or building, you may be able to pass along some of the increased costs to tenants in the form of higher rent prices.
  • The addition of new amenities: If you’ve added new amenities to a multifamily property, like covered parking or a pool, you could charge higher rents to offset the cost of these additions.
  • The expiration of a rent control ordinance: In some cases, landlords can only raise rents by a certain amount each year. However, if a rent control ordinance expires, they may be able to charge whatever they deem appropriate.

Factors that could cause a landlord not to increase the rent (or even lower the rent)

  • A decrease in local market conditions: If rents in your area are on the decline, you may need to lower rents to stay competitive.
  • A drop in occupancy rates: If your building has vacant units, you may wish to lower rents to attract new tenants.
  • Extensive repairs or renovations: If your unit or building needs major repairs, you may not be able to justify raising rents. In some cases, you may even offer discounts or lowered rates to entice tenants to sign a lease.
  • The financial situation of the tenant: If a good tenant is going through a tough financial patch, they may request that their rent not be raised. In this case, a landlord could agree to delay a rent increase instead of finding a new tenant.

 

landlord tenant law

How to stay within the law when increasing rent

You generally have the right to increase the rent on your rental property. However, there are key factors to consider to stay within the law.

Begin by checking your state’s laws on rent increases. Some states limit how much you can increase the rent, and others require you to give your tenants advance notice before increasing the rent.

Then, make sure that you are increasing the rent fairly and equitably. If you have multiple tenants in the same building, you should increase the rent by the same percentage for all tenants.

Third, it is always best to communicate with your tenants in advance about any impending rent increases. This way, they can budget accordingly, and there will be no surprises. Additionally, if you have good relations with your tenants, they may be more likely to accept a reasonable rent increase without complaint than if you were to blindside them with a large one.

By following these simple tips, you can stay within the law while still getting a fair return on your investment.

 

The don’ts of raising the rent

Raising the rent can be a touchy subject for landlords and tenants alike. As a landlord, it’s important to be fair and reasonable when increasing rent prices. Here are a few things to avoid doing when raising the rent:

  1. Don’t discriminate against a specific tenant when raising the rent. This could be considered unfair housing practices and could lead to a lawsuit.
  2. Don’t increase the rent as retaliation for something a tenant did. This could also be considered unfair housing practices and could lead to a lawsuit.
  3. Don’t raise the rent without giving proper notice to your tenants. Most leases require 30 days’ notice before any changes can be made to the rental agreement, so make sure you give your tenants plenty of time to adjust to the new rate.
  4. Don’t try to raise the rent too much at once. If you do, your tenants may choose to move out rather than pay the higher rate. Try to keep rent increases reasonable so your tenants can afford to stay in their homes under the new lease.
  5. Don’t forget to take into account your local rent laws, which could include rent stabilization or rent control laws when raising the rent. Some cities have limits on how much landlords can raise the rent each year, so be sure to check with your local housing authority before making any changes.

 

What are reasonable rent increases in your area?

It’s important to find the right balance when increasing rent. You don’t want to price your tenants out of the market, but you also need to keep up with market rates to ensure that you’re earning a fair return on your investment. There are a few different ways that you can determine what a reasonable rent increase is.

One way is to review comparable units in the area. Look at units that are similar in size and amenities, and see what they’re renting for. This will give you a good baseline for what you can charge for your own unit.

Another way to determine a reasonable rent increase is to survey the market. Talk to other landlords and property managers, and see what they’re charging for similar units. This can help you get a sense of where rent prices are heading and how much of an increase your tenants can reasonably afford.

However, you may find that the best way to help determine a reasonable rent increase in your area is with a Stessa Rent Estimate report.

This report considers various factors, such as location, property type, and short- and long-term rent trends, to give you a more accurate picture of what you can expect to receive in rent. With this information, you can set a fair market rent that will help keep your rental income up and your vacancy levels down.

Stessa’s 4-page Rent Estimate report takes a deep dive into key factors to help you set the right rent, including:

  • Rental unit comps by address
  • Full map view of all comps in relation to your property
  • Median rental analysis across the local market
  • One-, 2-, 3-, and 4-bedroom trends over the past 5 years
  • 1-, 3-, and 12-month changes in median rents for the ZIP code, city, county, and state

After signing up for a free account with Stessa, visit your Rent Estimates page and purchase a report for just $19.99 to find rental prices in an area.

Stessa, a Roofstock company, offers free cloud-based software that helps real estate investors maximize profits through smart money management, automated income and expense tracking, personalized reporting, online rent collection, and more. More than 100,000 investors already use Stessa to track over 250,000 properties with more than $60 billion in asset value.

 

Find this content useful? Share it with your friends!