How Much Can and Should You Raise the Rent?

By Alicia Geigel on September 25, 2023

As a landlord or property manager, it can be uncomfortable not knowing whether or not your tenants always have the financial ability to pay rent, and whether or not you will have the ability to earn an income off of your property. If you are a landlord/property manager seeking advice regarding raising the rent to make up for a loss of income and help gain control of your finances, this guide will give you the insight you need to make a decision on raising your rent.

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The Case for Raising the Rent

Since the lease between you and your tenants is a legal, binding agreement that entails the length of the rental agreement, as well as the price of the rental, you (as well as your tenant) are locked into that price until it comes time for the lease to be renewed. Only after the current lease expires can you then draw up a new lease with a higher price. To figure out the best timing when your lease allows it, pay attention to market trends, but also keep an eye on your taxes and interest rate.

General expenses, including local/state taxes, insurance premiums, and your interest rate (if not fixed) can change from year to year. Per, you should look closely at the following factors when considering a rent increase:

  • Property taxes

  • Mortgage payments

  • Management fees and insurance

  • Maintenance and repairs

Weigh the increase of these expenses as you look into raising the rent. You’ll want the increase to cover the cost of the taxes, insurance premiums, and maintenance.

How Much Should You Raise the Rent?

There are a lot of elements that can be factored in when determining how much to raise the rent on your rental property. Market trends on a broad and local scale are one aspect, while another is your tenants themselves. Consider their history as a tenant with you, your landlord/tenant relationship, and their financial situation. Would you like to keep your current tenants in your property? Perhaps a price increase could make them wary of wanting to stay. Additionally, your rental caps regulate how much you can raise the rent, so research the rental caps in your area to ensure you follow proper laws.

The national percentage increase is also a number to keep in mind. Though this number can fluctuate from year to year, the national average between the years 2017 and 2022 was 5.77%, according to Credit Karma. With the nationwide average being around 6%, it would be reasonable to raise the rent around that number.

Questions to Ask Yourself Before You Raise the Rent

Before diving in and immediately raising the rent on your tenants, be mindful, and ask yourself these four questions to help you in your decision-making.

  1. Have I attempted to compromise with my tenants? It’s important to show your tenants and residents that you care. No one wants to be viewed as simply a commodity, but rather, a person first. Regardless of any external factors, valuing and showing compassion toward your residents and their financial situation means a lot. Reach out to them, whether it be through an email, a video call, or a letter, and ask them how they are doing. Ask them what you can do as a property manager/landlord to make their life easier.

  2. Have I exhausted all possible options prior to a rent increase? If you’re a landlord or property manager who cares about your tenants and wants as good of an outcome for them as you do yourself, you will want to ensure that you’ve exhausted all possible options prior to increasing the rent on your property. Have you tried partial payments? Have you looked into rental assistance programs to help your tenants financially? Have you considered using a security deposit? All of these options are worth looking into, as long as your personal situation allows for it.

  3. How should I judge how much to raise the rent? As stated earlier, paying attention to market trends can be a good first step in determining how much to raise the rent. Additionally, looking into the price fluctuations and trends within your local area and its market can be another factor that can give you insight into the pricing of your own property.

  4. What if the tenant moves? There will always be circumstances that force a tenant to leave your property and move elsewhere. If a tenant moving is due to a rent increase, they are entitled to do so. This experience can help you determine your price point and perhaps work around price negotiation with future tenants.

Though it can be a stressful decision, raising the rent can help you keep up with your property and stay afloat if you are struggling financially. Remember to be respectful and courteous of your tenants and do what is best for you!

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