how much can a landlord raise the rent per year

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As a landlord, you want to make the most return on your investment property, and in most cases, you have a right to charge as you see fit. But to raise your rent, you have to follow proper procedures.

Keep in mind that there may be limits to how much you can charge and when you can change your rates. Here are general guidelines for raising your rent each year.

Know Your Local Laws

local rent laws

First, check the laws in your property’s state, county, and city to acknowledge existing rent regulations. While average rent increases tended to hover around 3 percent per year, this can vary. There may even be rent control ordinances in your area preventing any increases at all, with regards to specific types and ages of properties.

Rent gauging has spurred a series of legislation that prevents landlords from raising rent during times of crisis, such as a natural disaster. Stagnant incomes and the shortage of affordable housing across the nation have also prompted rent caps to slow the rates of homelessness. Violating these safety measures could be a moral dilemma, but it most certainly would be a legal one.

Know what laws you’re up against in your area, and what are the market conditions that might affect how your rent increase is received by current and potential tenants.

Know the Ripple Effects

property price ripple effect

Many states only allow you to raise your property’s rent up to a certain percentage, and only once within a calendar year. In some states, the notice time is also affected by the percentage increase that you charge.

For example, some regions require 30 days to notify a tenant of a rent increase of 10 percent or lower, and 60 days for any higher than 10 percent.

Check whether there are also limits on how much you can charge for a security deposit. For example, if you typically charge twice your property’s rent for a deposit, you would often be able to charge twice the new rent when the current lease expires. Consider raising the rent an additional percentage point for each utility that you cover.

Know Precautions

Generally, as a landlord, you can’t increase your rent without providing tenants due notice, or at any time during the terms of their present lease. The only amendment would be a month-to-month lease when you can raise the rent within as much of 30 days of sending written notification to your residents that you intend to do so. Otherwise, you must wait until the end of the current lease to raise your rates.

It’s also a general Fair Housing law that raising your property’s rent can’t be an act of discrimination or retaliation to punish your tenant. Take precautions to ensure that your rent increase is lawful, i.e. you’re not raising the rent because the tenant reported a maintenance issue or because they’re a certain race or religion.

fair housing laws

Extensive documentation of all tenant interactions will help your case, should one be filed. Otherwise, how much you raise your rent is up to you.

Know Best Practices

As you consider raising your prices, it’s also important to look at rent trends. The rent rate in your property’s zip code, for example, should indicate whether you should charge more or less, based on the condition of your property. How does your unit compare to others?

You should also look at how long properties sit on the market in your area. Be realistic. If you raise your rent, will it affect the likelihood of your property sitting vacant? If properties have a long turnover in your area, raising your rent can end up costing you. Remember: property management is rarely about the immediate payoff.

Keep an eye on your property expenses: property taxes, utilities, insurance, maintenance, repairs, vacancies, etc. You’ll obviously consider raising rent with your property expenses so that you can keep up your return. But if this causes your rent to exceed your property’s true value compared to surrounding units, your property might not be worth the investment.

Know Your Tenants

Sometimes the decision to increase your rental rates comes down to your relationships rather than your profit. As your property expenses fluctuate, somebody has to cover the cost. But if you value your relationship with a tenant, consider the true value of their reliable rent checks and well-maintained property.

Would you rather encourage a renewal than risk turnover because of a rent raise? Or are you confident in finding equally quality tenants? Decide whether you’re willing to be the one who foots the initial bill.

In Conclusion

Written notification of a rent increase is not only legally required but ensures you don’t alter the new agreed-upon rate. It also means your tenant can’t deny the new amount they either signed for or that they’re vacating to avoid paying. A property manager can research competitive market rates, handle tenant relationships, and draw up a new lease when you decide on a rent increase.