When managing a rental property, you’ll need to regularly adjust your rent price to remain competitive and fair for your area, as well as cover rising costs of rental property ownership. But it’s important to know what factors and laws to consider if your state limits how much rent can increase per year. 

We outline when landlords can (and can’t) raise rent, how much rent should increase per year, and how to determine a new rent price. 

When Can a Landlord Raise Rent? 

Landlords can raise the rent price when presenting lease renewal options, month-to-month leases, or when searching for a new tenant. However, some states place rent increase limitations that can influence how much you can raise rent by, especially if renting to tenants that receive housing assistance or Section 8 vouchers. 

States may also require you to provide a Rent Increase Notice informing tenants on how much rent will increase once the lease term ends. For that reason, it’s advised to refer to local landlord-tenant laws before changing the rent price. 

When Can a Landlord Not Raise Rent?

Depending on the state, there may be instances where you cannot raise rent. Examples of scenarios that do not allow landlords to raise rent are the following:

• The new rent price would exceed the threshold listed in rent control laws for your state
• An existing fixed-term lease has not expired 
• You did not provide a Rent Increase Notice when presenting lease renewal options
• Your lease agreement states the rent price will not increase if renewed for another term
• Your property is considered a rent-controlled property
• The rent increase is in retaliation of your tenant
• The rent increase is construed as discriminatory and violates the Fair Housing Act

How Much Can Rent Be Raised?

The amount rent can be raised each year will depend on your state, so first refer to your local landlord-tenant laws. But according to the latest findings in our Quarterly Landlord and Renter survey, nearly half (45.8%) of landlords expect to raise rent anywhere from 5% to 10% to cover the rising cost of rental property ownership. 

While it’s common for landlords to increase rent each year, it’s important to consider local ordinances, seasonality, local rental comps, and the current state of the rental market to avoid increasing the price too much. So even if some landlords increase their price by a certain percentage each year, it’s advised to determine what’s best for your rental.

How to Determine New Rent Price for Your Rental

If your state allows landlords to increase rent without any restrictions, the next step is determining your new rent price will be for your rental. Here are three steps to guide you along the process. 

1. Review Your Operating Expenses

Calculate the total amount of your operating expenses each month to see how much you need in rent to avoid paying them out of pocket. Operating expenses consist of costs that impact the day-to-day operations of your rental business. Examples include your mortgage, property taxes, Homeowners Association (HOA) fees, utilities, depreciation, landlord software fees, and more. 

This number can also serve as a guide to determine how much you need to generate a profit and cover your expenses each month.

2. Consider the Current Condition of the Rental Market 

The rental market is constantly changing, which is why it’s important to stay informed on recent changes to rent prices and how it’s impacting tenants. Our latest Quarterly Rental Market report found that nearly three-quarters (72.9%) of renters that saw their rent increase since moving into their current residence are considering moving to a more affordable residence. If you’re finding yourself in a similar situation, then it may be worth limiting how much you increase your rent to avoid driving away good tenants or long vacancy periods. 

On the other hand, if you find the local demand for rentals has recently increased, then this can give you more room to increase your rent price. 

3. Research Local Rental Comps

Researching local rental comps can help you see what other landlords are charging in rent for similar properties. Seeing what other landlords are charging can provide a benchmark as to what the average rent price is for similar properties. You can then decide if you want to charge more or less than the average rent price, depending on what you think is best. 

How to Communicate Rent Increases to Tenants

When planning to increase rent, it’s important to provide a Rent Increase Notice to inform your tenants on changes to rent. Some states also require landlords to provide a notice within a certain timeframe to avoid breaking local landlord-tenant laws. In addition to providing a notice, you can also contact your tenants directly to get their feedback on the new changes. 

What to Do If Tenant Negotiates New Rent Price

It’s common for tenants to negotiate the new rent price, especially if they’re hoping to renew the lease for another term. It’s your decision whether or not the price can be negotiated, but allowing tenants to negotiate can establish good landlord-tenant relationships and result in an agreement both parties are happy with. 

However, if you do not want to alter the new rent price, then the tenants will need to notify you if they accept the new price or will move out once the lease expires. 

Looking for an Experienced Residential Property Manager?

If you have a home to rent in the Orlando area be assured there is no substitute for experience. Covering Clermont, Winter Garden, Windermere, Dr Philips, Kissimmee, Davenport, Champions Gate, Hunters Creek and Haines City. We remain focused on this greater Orlando area to ensure we are able to provide outstanding service to our Clients without sacrificing performance. Looking for an experienced residential Property Manager in the Orlando area with a demonstrable track record – look no further.

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What Is ROI on a Rental Property?

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Investment properties can be a lucrative source of passive income, but factors like profitability, maintenance, and the housing market at large can become good reasons to sell a rental property.

It is reported that roughly 16% of landlords reported plans to sell an investment property in 2022.(Source) If you’re wondering whether to sell your property or when to sell it, here’s what to know about selling a rental property.

How Do I Know if I Should Sell My Rental Property?

Determining whether to sell or keep renting your property depends on a variety of factors, but these are a few indicators that it may be time to consider selling:

• Profitability: Ideally, your rental property should bring in more money than you’re spending to maintain it. If the rental income you’re generating isn’t higher than the cost of your annual operating expenses, the profits (or lack thereof) may not be enough to justify holding on to the property.
• Maintenance: Maintenance is an unavoidable part of owning a property, but it can be time consuming. If the time and money spent on rental property maintenance becomes overwhelming, it may be time to consider hiring a property manager or selling.
• Tenant turnover: High tenant turnover can be the result of many things — the rental market, the property itself, or even your style as a landlord. But high tenant turnover means spending time and money advertising your property and losing rental income due to vacancy, which can become unprofitable over time.
• Property finances: Financial factors like property appreciation, capital gains from selling a rental property, and new investment opportunities should be considered, too. If your rental property is worth a lot more now than when you bought it or you’ve identified an even better investment opportunity, it could make sense to sell. Note that it’s important to be aware of any capital gains taxes from a sale and how to defer them with a 1031 exchange.
• Housing market: The current housing market can dictate how much you can charge for rent, how high tenant turnover is, and how valuable your property would be if you were to sell. In highly competitive housing markets, landlords may be more incentivized to sell a property.
• Location: If you’re moving away from your rental properties, you can always try long-distance real estate investing. But since this often means hiring a property manager, some landlords opt to sell their rentals, instead. 

What To Do Before Selling a Rental Property

Before you list your rental property on the market, a few things need to be handled:

• Notify your tenants: You’ll need to give tenants appropriate notice that you’re selling the property. The amount of notice often depends on your lease and local laws, but can also dictate your timing for listing the property. In some cases, tenants will need to leave the property, but in others, a new owner will take over the rental lease.
• Prepare the property: Once you notify tenants of the sale, you’ll need to prepare the property for sale. This consists of a property inspection — regardless of whether tenants are staying or leaving — to identify any wear and tear or damage and address any needed repairs. If tenants have moved out of the property, it may be a good time to tackle property renovations that will help increase the value of the rental.
• Research home value: Doing some research on your property’s value is essential, even before working with an agent.
• Work with an agent: You can sell a property on your own, but most sellers choose to work with a real estate professional to make the selling process a lot smoother. An agent will be able to help you prepare the necessary paperwork, get your property in front of buyers through a multiple listing service, and assist with the entire home-selling process.
• Time your sale: To avoid being hit with short-term capital gains tax, it’s commonly advised to hold on to a rental property for at least one year. In some cases, you’ll want to wait until a lease has expired or allow time to complete renovations. An agent can help you make decisions about when to list your property on the market. 

Resources for Selling a Rental Property

When you’re ready to sell your rental property, Remax Heritage Bardell Real Estate (863) 424-2309 or visit our WHATS MY HOME VALUE where we can help you track your property’s value and match you with a trusted real estate professional to guide you through the home selling process.