When Is The Best Time to Raise Rents?
Neither tenants nor landlords look forward to when the time comes around for a rent increase. But with the cost of living increasing year by year, landlords can choose to cover their higher costs for property taxes, utilities, maintenance, and property improvements by raising rents.
Landlords often ask these questions – and tenants too are interested in the answers.
- When can I raise rents?
- How do I notify my tenants about an upcoming rent increase, and how much advance notice do I need to give them?
- By how much can I raise rents?
- How do I know how much to raise rents?
- What happens if a tenant moves as a result of a rent increase?
Most states have laws in place to regulate the landlord-tenant relationship. These regulations cover when a landlord can raise rents and specify how the increase needs to be communicated to the tenant.
These 5 questions will help you decide on the best time to raise rents.
When can I raise rents?
It’s a smart business practice to increase rents on your properties to keep up with market rates; it’s important to know, however, that you can’t just raise rents whenever you please. The lease you have with your tenant is a legal and binding agreement for both parties. The lease explains the tenancy’s length, and the tenant’s rental amount agrees to pay each month for that term. During the lease term, the landlord can’t raise the rent, so it is most common to raise rents when the lease comes due for renewal.
If you have a month-to-month lease with your tenant, you can increase rent more frequently as long as you provide proper notice, which will be spelled out in the lease.
How do I notify my tenants?
Typically, a landlord must notify their tenants in writing about a rent increase at least 30 to 60 days before their lease expiration. This time frame varies by state. For a month-to-month tenant, you would inform the tenant now about an increase that takes effect one to two months from now.
How much can I raise rents?
Many states have rent control regulation in place that sets out how much you can increase rent – for specific guidance on amounts; you’ll need to see what the rental caps are for your area. Caps typically range between 1.7% and 5% annually.
If your property is not rent-controlled, you can increase rents by any amount. However, there are factors to keep in mind before you decide on a significant increase.
You will always want to balance rental rates for your property with current market rents to maintain a competitive price point and attract the best tenants.
When you set an appropriate rent rate, you improve the likelihood that you will keep the unit occupied by qualified, responsible tenants.
- If you charge too much, your property may sit vacant for longer.
- If you charge too little, you could attract a pool of tenants who do not respect the property or lease.
What if the lease has expired? Can I still raise the rent?
Yes, because you are still following the terms of your lease. Most lease agreements have a boilerplate statement that says if a lease is not renewed for a new term, it defaults to a month-to-month lease. As a landlord, you need to follow the correct notification rules for a month-to-month lease when you plan to raise rents.
How do I know how much to raise rents?
Before you raise rents, you’ll want to understand what current rental rates look like in your market. Using a rental evaluation tool like Rentometer can help. For example, here is Rentometer’s Quickview evaluation for an apartment in Escondido, CA. The asking rent for this 2-bed, 2-bath unit is $1,850 plus pet fees and parking fees. Looking at the Quickview evaluation, $1,850 is a very reasonable asking price for this unit. Unless the property is in poor condition, the landlord could raise the rent for this unit, based on rents quoted for similar nearby properties.
You can use a tool like Rentometer to evaluate your property. Compare the condition and amenities at your property with other properties in your neighborhood to determine an appropriate increase for your rental.
What happens if a tenant moves as a result of a rent increase?
The goal of every landlord and the property manager is to have happy tenants and full units. You know all too well, however, that it’s impossible to please everyone all of the time. If you need to charge more rent to cover increases to your costs for maintenance, taxes, utilities, and mortgage payment – or just to earn more, it is entirely within your rights as the owner to do so.
If the rent goes up and a tenant can no longer afford the unit, it is also within their rights to find a rental they can afford. The landlord’s responsibility is to provide safe and functional housing and honor the lease agreement. If raising the rent causes a tenant to give notice, you now have the opportunity to evaluate the property. From there, you can decide how much you’ll increase rents when you advertise the newly available property.
Tenants who decide to move after a rent increase are your best case. By moving out, they eliminate any issues you might face if you had to chase down late rent or issue an eviction notice because they can’t (or refuse to) pay the new rent amount.
It’s a given in the rental property business that to keep up with the housing market over time, landlords will periodically have to raise rents. Landlords can help their tenants understand and anticipate rent increases by including a schedule for rate increases in their lease agreements. When you set up a schedule that raises rent by a small percentage each year, you will consistently track with rising market trends and – importantly – not surprise your tenants or present them with an undue burden.
To wrap up, the advice offered above is sound in times of normal housing ebbs and flows. The COVID-19 pandemic in 2020 has thrown both landlords and tenants a curveball. As you are aware, many states have issued moratoriums on rent increases and evictions. While everyone hopes fervently for more normal times so that businesses can get back to regular practices and activity levels, landlords need to be extra careful to double-check any amendments made to their state’s landlord-tenant laws before taking action.
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