How Much Should Rent Increase Per Year?
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.
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