As a landlord, how often should you raise rent? Setting the right rent amount for your rental property can be tricky. You want to earn as much as possible, but you also want to attract tenants who will be responsible and pay on time.
In general, we recommend raising rents annually at the rate of inflation. In the United States, that means around 2% or 3% per year. However, if you live in an area with a particularly hot rental market, you may be able to charge more than that.
Other factors that may impact the amount you charge for rent include:
- Supply and demand
- Overall market conditions
- Property condition
- Value of your renters
- Local laws and limits
It’s not always clear how often you should raise rent and by how much, but there are some general guidelines to follow. Keep reading to learn the basics of how often you should raise rent and why it’s so important your tenants pay a fair market rate for their units.
Reasons for Rent Increases
There are several reasons why you should raise your tenants’ rent on a regular basis. First, inflation and real estate market trends mean that homes lose value over time, even though maintenance costs increase. As such, you can charge more for each unit over time without making your tenants unhappy.
Perhaps more importantly, however, is that you then have more money available for maintenance and improvements. Upgrading your properties can help attract new tenants or keep current tenants happy, so it’s probably a good idea to raise the rent from time to time even if inflation doesn’t demand it.
Things to Consider Before Raising Rent
There’s no set time when you should raise the rent on a unit. Many landlords have a regular schedule for raising the rent each year. Others prefer to wait for specific circumstances that warrant it, such as when a tenant’s lease is about to expire.
To keep your investment property profitable, you might want to raise the rent periodically. But there are several factors to consider when asking yourself the question “How often should you raise rent?” including local laws that minimize how much you can increase rent each year.
Consider the following as you decide if you should raise the rent, as having the right strategy is key to keeping your current tenants while attracting future paying occupants.
Do Market Research
The first thing you need to do before raising the rent is to see what other properties in your area are charging for similar homes. You can’t just pull a number out of the air, because if you charge too much, you’ll drive away potential tenants and have a hard time finding new ones.
In general, market conditions will play a major role in determining how often and by how much it makes sense to raise your rents. If the market is hot and demand for rentals is high, you may be able to increase rents more frequently than if demand is low.
Evaluate the Tenant’s Payment History
The best renters pay their rent on time every month, take good care of your property, and cause little trouble for you or other tenants. These are the tenants you want to keep in your rental unit for a long time.
If you have a tenant like this, then you may want to avoid increasing their rent unless there’s a good reason to do so. For example, if your mortgage rate increases significantly because of rising interest rates, you may need to increase the tenant’s rent so you can still make a profit from your rental property.
Alternatively, if your tenant regularly pays bills late, you might want to consider increasing the rent in order to cover the costs of collecting late fees and returned check fees. A moderate increase in your tenant’s rent should cover the costs of a few late fees and bank charges for returned checks each year.
Consider the Last Time You Raised Rent
In an ideal world, you’d be able to raise your rent every year without any problems. However, sometimes it takes a few years before you can safely raise rents again. For example, if you raised the rent last year and lost several tenants because of it, then you might have to wait a few more years before doing it again.
Research Local Laws and Regulations for Raising Rent
Check with your city or county to see if there are any laws limiting how much or how often you can raise the rent. In some cities, when rents rise above a certain point, there are restrictions on evictions so tenants have more security. In other cities, there are limits on how high rents can go in certain areas.
You’ll need to consider notification periods before raising the rent as well. Most states require at least 30 days notice before landlords may raise their rents.
For landlords, making sure that rent is keeping up with—or exceeding—the rate of inflation is crucial. Of course, you don’t want to price yourself out of your target market, but if you’re not at least keeping pace with the rest of the economy, you’re not making as much money as you could be.