As a landlord, there are a few important things to be considered when deciding on a rent increase. First, there’s the legality of doing so; is it lawful for you, as the proprietor, to increase the tenant’s rent? Then, there’s the examination of the potential benefits of doing so and the possible harms. While increasing rent can lead to more profit, it may also potentially drive your tenants out. Furthermore, you must also figure out how much rent can be increased.

So, let’s take a closer look at the process of rent increase, and determine how best to go about it.

What does the law say?

The first thing to understand about raising rent is that it cannot be sudden or out of the blue. You almost always have to notify your tenants well before time.  How often, and when, the rent can be increased depends entirely on the contract.

Raising the rent on a leased property is rarely possible until the least expires. Once it has, only then can you offer your tenant a new lease with an updated payment. The exception to this is if the original lease has certain conditions written down that allows you to raise the rent. An example would be if your tenant has a new roommate move in.

Properties under a rental agreement, i.e that aren’t leased, follow a different process. With a rental agreement, you must give the tenant a formal notice before raising the rent. In most states, if it is a month-to-month rental agreement, then you must notify your tenant 30 days in advance. The length can vary, however, under certain circumstances.

What should you consider before raising the rent?

At first glance, it may seem like a straightforward process. If you raise the rent, the tenant will pay more, and your profits will go up. However, it is slightly more complicated than that.

One issue with increasing the rent is that it may drive out your current tenant and scare away future ones. Rather than making money, you’ll end up losing it. Furthermore, if your tenant feels a rent increase is unjustified, an even worse scenario may present itself. That is, your tenant may appeal to a tribunal. In such a scenario, defending yourself in front of a tribunal poses the threat of losing more money.

Another factor that you should always consider is the taxes. A rise in rent can increase your tax returns and consequently harm your profits.

Of course, a rent increase is often justified, and even wise. If the market itself is growing, then you have good reason for raising the rent. In this case, it’s completely justified as properties in the vicinity will have experienced a raise too.

Furthermore, a rent increase is also justified if you have recently renovated the property and have installed new amenities. This is because, as your property is now worth more, you have the right to earn more off of it. We at work hard to help you find the right kind of tenants for your property.

How much should you raise the rent by?

The subject matter essentially boils down to this: what is a reasonable amount to raise the rent by?

For most states, annual rent increase is somewhere between 2 to 5 per cent. In 2019, the average across the United States was at a 2%. However, the exact amount by which you will want to increase the rent depends on your circumstances. A few things you should consider are:

• annual inflation,
• increased expenditure on utilities,
• higher insurance rates, and
• raised taxes.

Here at Padleads, we always advise our clients to keep an eye on the market prices to make a more accurate calculation.

In the end, the most important thing is to make sure the rent increase is justified. Don’t be greedy but also make sure you’re getting what your property is worth. Moreover, try to be fair – so that you and your tenants can try and come to a mutually beneficial agreement.