In our last blog, we talked about the important and inevitable challenge of raising rent. While no tenant is ever happy about paying increased rent, landlords occasionally need to boost rent to ensure their own financial security and livelihoods, not to mention making the kind of changes and improvements that tenants expect from a high-quality property. As we discussed though, the tenant-landlord relationship doesn’t need to be a game of winners and losers: if landlords are reasonable in their approach and mindful of what their tenants can pay, they can achieve an outcome that works for both parties.
However, to get tenants on board with a potential rent increase, you need to know how much you should increase the rent. After all, raising rent is useless if the tenants cannot or will not pay the new price.1 There are a number of different factors that a landlord must keep in mind when considering a rent increase, as they will help them determine how much they can reasonably charge without losing tenants.
Factors for Determining How Much to Raise Rent
First and foremost, if you are going to increase rent, you will need to look at current market values and vacancy rates. Before increasing anything, you need to know the value of the property and where it stands in comparison to your local real estate market.2 Do some research and compile a list of the rent from available units within your property’s neighborhood and use those prices to guide how much to increase your rent.3 People aren’t going to flock to your property if vacancies in the area are high and other properties are more affordable.
Other factors to consider are whether or not you have stayed on top your maintenance needs.4 You can’t reasonably increase rent if your property is poorly maintained. On the opposite end though, if you’re made significant upgrades to your rental properties while your current tenants are living in it, you may have a good reason to adjust your rent price to reflect those upgrades. Increased quality the rental unit can translate to increased quantity of rent. Tenants might also ask for specific upgrades before agreeing to a lease renewal and rent increase, so keep this in mind too.5 Also, don’t forget to consider how timing and seasonality can impact rent price. Just like any price in our economy, rent price is subject to the laws of supply and demand, and rental properties are often more desirable during specific times of year.6
Along with various market-related factors, you also need to consider the simple question of whether your tenants can afford to pay more than they already do.7 Of course, landlords have their own expenses to worry about: mortgage payments, taxes, insurance premiums, higher utility costs, HOA dues, repairs, and more.8 But none of that means that you can ignore tenants’ expenses. It’s one thing if you’re looking for new tenants, as you could potentially draw new people to property even as the rent goes up, but no current tenant is going to accept a dramatic rent increase without good reason.9 Plus, you need to factor in security deposits, as rent increases often trigger increases to security deposits as well.10
Check the Local Rental Laws
Both state and local laws can vary greatly in terms of raising rent when renewing a lease, so it is vital for landlords to go over both before making any changes.11 In most areas without rent control, there is no limit on the amount a landlord can increase the rent, though they still cannot increase rent on a whim.12 The timing of a rent increase and the way a landlord communicates it are governed by statute in most states, mainly to prevent landlords from increasing rent in retaliation against their tenants and to prevent discrimination.13
Some areas prohibit rent increases altogether, while others have rental caps that stop landlords from raising rent past a certain percentage or dollar amount.14 With the exception of cities without rent control, a landlord’s legal right to raise the rent depends on whether there is a lease or a month-to-month rental agreement, with landlords only being able to raise the rent at the end of a lease period (outside of special agreements between tenants and landlords). Landlords must also give tenants a written notice informing them about incoming rent increases, usually 30 days in advance (though in some cases it should be done 45 to 60 days before the lease termination date).15 16
Ultimately, any changes to the rent should be based around the specific legal and economic environment of your area. Certain parts of the country are more landlord friendly than others (Indiana and Michigan are considered landlord friendly, while Illinois usually favors tenants), and some states have additional requirements that landlords must meet when considering major changes.17 The easiest way to avoid potential issues is to be up to date on your state and local laws, along with making rent increase an aspect of your lease. This avoids certain legal conflicts and avoids blindsiding tenants, ensuring a more understanding and mutually beneficial transition from one lease with one rental price to a renewed lease with a reasonably increased rental price.18
If you are still struggling to determine how much you should increase your rent, talk to real estate agents and property managers who handle similar properties. Additionally, be sure to check out “Rentometer”, an online tool used for searching rental price comparisons in various areas.19 And of course, if you have any legal questions, contact the professionals at CCSK Law, LLC!
1. Manolas, K. (2021, April 21). Best Tips and Tricks For Setting an Effective Rent Price. Avail. https://www.avail.co/education/guides/complete-guide-to-finding-tenants/best-tips-and-tricks-for-setting-an-effective-rent-price.
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8. Collatz, A. (2017, March 7). How to Raise Rent Without Complaints. SmartMove. https://www.mysmartmove.com/SmartMove/blog/how-raise-rent-with-no-complaints.page.
9. Manolas, K.
10. Stewart, M. (2017, April 20). Rent Increases. NOLO. https://www.nolo.com/legal-encyclopedia/free-books/renters-rights-book/chapter3-8.html.
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12. Stewart, M.
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15. Stewart, M.
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19. Collatz, A. (2017, March 7). How to Raise Rent Without Complaints. SmartMove. https://www.mysmartmove.com/SmartMove/blog/how-raise-rent-with-no-complaints.page.