How Often Should You Raise Rent?
Deciding when to raise the rent, how to implement the new rate, and how much to raise it by can be challenging decisions for a landlord.
This is a guide to help landlords decide those things for their specific properties, markets and investment strategies.
Know Your Local Laws
Laws vary from state to state regarding how landlords can set rental rates for their tenants. So step one in deciding if you should raise rent or how much to raise it by is to know the local laws where your investment property operates.
Raising Rent Before Lease Renews
Unless the lease itself stipulates terms for raising rent before the lease renews (such as increased property taxes, for example), landlords may not increase rent while the lease is still active. The amount was agreed upon by both landlord and tenant at the moment of signing, for the period of time outlined, so it cannot be changed unless both parties agree.
When a lease expires, however, the landlord may increase the rent amount in a new lease, which the tenant may agree to or choose not to renew.
Raising Rent for Section 8 Housing
Landlords in the Section 8 housing program provide living space to renters that are not charged more in rent than what is deemed “fair market standard” as established by the Department of Housing and Urban Development (HUD).
As participants in a federal program, landlords that rent property as part of the program are subject to strict regulations when it comes to raising rent. Section 8 landlords can only increase rent one time per year. To do so, they must have the rent increase approved by the housing authority.
A local Section 8 office will review the request to raise rent and approve, adjust, or deny based on their calculations of what would be considered fair market for your local area. Once approved, the local office will send notice of the rent amount increase to your Section 8 program tenants. Rent must be collected through the program in order for tenants and landlords to maintain their eligibility to participate.
Reasons You Might NOT Be Allowed to Raise Rent
- Lease is still active
Until the terms of an active lease have expired, property owners cannot change the rent amount outlined in the lease.
- Rent controlled property
Some states and municipalities allow for governmental rent control. If you own rental property in a place that is subject to rent control, you won’t be able to increase rent amounts beyond what local laws allow.
- Rent stabilized property
Similar to rent controlled property, areas of the U.S. where rent stabilization laws are in effect have regulations on the frequency and amount by which rents can be increased.
- The rent increase constitutes discrimination
If the reasoning, timing, or specific application of a rent increase can be viewed legally as an act of discrimination under the Fair Housing Act, then the increase could be illegal.
- The rent increase is an attempt to force a tenant to leave
This would also be considered illegal under the federal Fair Housing Act.
- Rent increase as retaliation against tenant
If this case can be made by the tenant, the landlord may be held accountable for unlawful treatment of the tenant.
Know Your Local Market
When it comes down to it, the best place to start when considering whether or not your should raise rent is to take a look at your local market.
Do some research into the average increases in your area, and any differences between single family and multifamily property, property class, neighborhood, etc. Understanding these details can help you determine when to increase and by how much.
Zillow offers a helpful tool for estimating how much you should be charging for rent in your area.
Rent Increases Might Be Necessary
While the amount you charge for rent will be largely determined by your overhead expenses and investment strategy, you also need to remain competitive in your local market.
You may need to increase rent in order to cover taxes, rising utility rates, HOA fees, or adjust in response to increased vacancies. Find the sweet spot where you are remaining profitable while also being competitive within the local rental market.
Communicate With Renters
If you have decided that a rent increase is necessary, you’ll need to clearly communicate the rent increase with your tenants. Here are a few tips for properly communicating rent changes.
Notify In Advance
You should notify current renters in advance. Most states require advanced, written notice 30 to 60 days before the current lease is up for renewal. We recommend working with an attorney to make sure you are following the laws for your particular area.
Explain Reasons for Raising Rent
It is NOT required that landlords disclose every reason that they might be choosing to increase rent. However, if you can be honest about the economic factors that contributed to your need to raise the rent, tenants may appreciate having that communicated to them.
It’s up to you how much detail you will provide when communicating the change.
Try To Be Consistent
While tenants shouldn’t be surprised by normal rent increases over time, you’ll get a much better response if you are as consistent as you can be.
This means implementing rent increases at regular intervals or on a predictable cycle so that long-term tenants can plan ahead. You could even lay out the plan in the lease in advance: a 1.5% increase at the end of each leasing period, renewed annually, for example.
Download Our Rent Increase Notification Template
To help streamline your communication with renters regarding rent increases, feel free to download our free Rent Increase Notification Letter Template PDF.
Joseph Thomas Property Management has many years of experience managing tenants of our own while also serving real estate investors throughout Utah.
If you own Utah rental property and are ready to make your investing much more streamlined and profitable, give us a call or send us an email. We’re eager to show you how we can make your life easier!
Is it normal to increase rent every year?
It depends on your investment strategy and long-term goals. For some property owners, increasing rent every year is a normal and routine policy. For others, they choose to only do so when the local market requires it, or they have more overhead to cover.
There are pros and cons to increasing rent vs. keeping it steady. The Joseph Thomas team helps clients make decisions like this one!
How much should I increase my rent by?
This depends on your reason for increasing rent in the first place. You should increase it enough to cover costs and be profitable, but not so much that you can’t find or keep the kind of tenants you want from your local market.
Can I set different rent rates for different tenants living in the same property?
Yes, but landlords need to be careful with this.
As long as landlord and tenant agree to a rental amount in the lease, then different tenants living in identical rental units can be charged different amounts in rent. However, the different amounts charged cannot be based on discriminatory factors such as race, religion, sex, national origin, or any other factor covered in federal anti-discrimination law.