Rent increases might be difficult for landlords to predict. On the one hand, you need to pay for costs like mortgage interest, utilities, property taxes, and upkeep. Additionally, you must generate income from your rental property. On the other hand, a rent rise may result in the eviction of a good tenant who is unable or unwilling to pay the higher rent. Additionally, regional landlord-tenant regulations may establish yearly rent increase caps.

It frequently becomes vital to consider increasing rent rates for tenants when your expenses rise. For instance, annual inflation has an impact on the price of utilities and property upkeep. Additionally, rising property taxes or loan interest rates could make it harder for you to make mortgage payments. The current rent is less than the median rent in your area, despite the fact that local market rent rates have increased.

Sadly, a precise formula for an acceptable annual rent increase percentage does not exist. Therefore, when you send a rent increase letter to a renter, you must take into account a number of factors, including rent increase rules.

What is a fair rent increase in your neighborhood? How do you make sure your tenants receive the required notice of rent increases? What restrictions do landlords have on rent increases?

This post seeks to address your concerns about how to raise rental rates annually.

Reasons why landlords raise rent

Every year, landlords often increase rent fees for two main causes. The first is that the price of owning and maintaining a rental property rises every year. After all, to pay your bills and maintain a profitable business, you need rental money. Second, you could be able to charge tenants more because there might be a higher demand for rentals in the area.

You as a landlord have no control over some costs. Therefore, you must either reduce your profit margin or increase the rent. Here are some typical expenses that rent payments must cover but that you cannot control:

• Property taxes
• Landlord insurance
• Homeowners Association fees (HOA)
• Monthly mortgage fees with an Adjustable-Rate Mortgage (ARM)
• Property management fees
• Depending on the current lease terms, you may also pay for certain utilities
• Emergency repairs

You do, however, have some control over some costs. Here are a few illustrations:

• Maintenance
• General repairs
• Replacing kitchen appliances
• Vacancy costs

Usually, landlords have some control over these costs. Consider the possibility that the lawn care business raises its prices. Then, switching to a new firm or altering the treatment schedule can result in lower costs. For routine repairs and maintenance, take into account seeking for less expensive contractors. It’s important to keep in mind that any increase in your expenses without corresponding increases in your rent will reduce your profits.

What Is the Average Annual Rent Increase?

The majority of landlords choose to increase rent by three to four percent yearly with the purpose of doing so on a regular basis, either to keep up with inflation or as part of the lease renewal process. Of course, you are free to raise the rate when the lease is renewed. Making modest annual rent increases as opposed to big rent hikes every few years makes sense, though. This strategy makes it possible for rent costs to change more gradually and offers a more consistent and predictable experience for both tenants and landlords.

Consider the following scenario: You have a long-term tenant and decide to present a “raise-the-rent notice” with a $250 increase despite not raising the price for five or six years. In that instance, they might elect to vacate because they believe the unexpected rent rise to be too high. However, a $40 annual rent increase is more tolerable.

The good news is that even good tenants expect a modest rent rise annually. However, you must take into account a number of things before determining how much to raise the rent.

• legislation governing rent control: Verify the applicable national, state, and local legislation. A city with rent control, for instance, places restrictions on rent increases. The amount of notice you must provide renters before raising rents may be regulated, even in jurisdictions that prohibit rent control or lack statewide rent control laws. Additionally, there can be different rules for annual leases or month-to-month leases.
• Before sending a lease renewal letter with a rent increase, it is advisable to research the average rent price in your area. If you raise rent more than usual, the renter can decide to vacate and not have the lease renewed.

Naturally, if a new renter signs the contract, you can raise the rent dramatically. Statistics show that between 2021 and 2022, average rent increases nationwide ranged from 4.4% to 29.01%.

Ways to Increase Rent

Sending a rent increase letter is the most typical method of raising rental rates. The lease agreement, however, holds the key to annual or monthly rent increases. As a result, you must review the lease terms to ascertain the following:

• When can you give a rent increase notice
• The allowable rent increase

You might, for instance, have a lease term that permits a rent increase mid-lease. You can increase your rent in this situation at any moment if it is acceptable. Alternately, the lease conditions can stipulate that the rent price might rise if the lease is renewed. As a result, a notification of rent increase need to be an option for renewal.

Generally speaking, if rent hikes are included in the rental agreement, it always facilitates communication with tenants.

You should examine local rules about how much notice you must provide tenants and how frequently you can pay the rent before notifying the tenant of an annual rent increase.

How to Let Tenants Know You’re Increasing the Rent

When you raise the rent, you must be very clear with your tenants. Most regulations mandate that landlords provide written notice to tenants at least 30 days in advance. To a tenant, though, you might have to justify your reasons for raising the rent. It will be easier to keep decent tenants if you make sure their rent is low while still paying your costs.

Here are some pointers for informing a renter of an upcoming rent increase:

• Send a formal rent notice two to three months in advance
• Explain to the tenant that the increase in rent will help you maintain the property
• Mention the average rent prices or growths in the local neighborhood
• Be courteous and firm when discussing the rent increase percentage
• Include a rent increase clause in the renewed rental contract if necessary

Being a successful landlord requires maintaining positive relationships with dependable tenants. According to the National Association of Realtors, 69 percent of tenants make accommodations in order to pay their rent. In addition, 23% of men work a side job to pay their rent on time.

How far in advance must you give tenants notice?

Landlord-tenant rules in your state, city, or municipality govern how long you must wait before giving a notice of an impending rent increase. Tenants often need to give at least 30 days’ notice. However, you could be required by some city rules to notify renters 90 days in advance of a rent increase.

A landlord-tenant lawyer should normally be consulted before sending out notice of a rent increase.

When a Landlord Unable to Raise the Rent

If the landlord follows local legislation, they are permitted to raise the rent. A successful rental business and well-maintained rental properties are frequently only possible with annual increases in rental income. But under what conditions can a landlord not increase the rent?

• Lease conditions: If the current lease agreement does not permit it, you may not increase the rental prices. For instance, you cannot raise the rent while the lease is still on its fixed term or if the lease renewal choices did not provide for a rent increase notice.
• Rent control laws: Rent-controlled apartment residents are shielded from some rent increases. Some localities also have additional rent restrictions with severe limits on rent increases.
• Retaliation: You are not permitted to raise the rent amount in response to a tenant’s behavior. Take the scenario where the renter accused you of breaking the terms of the lease. In that instance, increasing the monthly rent won’t be able to get back at them.
• The rent increase is unlawful since it appears to be discriminatory, regardless of where your rental property is located, according to the Fair Housing Act. When renting or purchasing a property, discrimination is prohibited nationwide under the Fair Housing Act. You cannot, for instance, raise the rent if your tenant has a child, changes their religion, or gets sick.

Is There a Maximum Rent Increase a Landlord Can Make?

The highest rent increase that landlords may enact often depends on three variables.

First and foremost, it’s crucial to make sure that a rent increase does not go over the limit set by municipal rent control legislation. Second, the conditions of the lease agreement can impose a cap on the rent increase. Cost is the third consideration. It makes sensible to increase rents by a reasonable percentage that benefits both you and your tenants.

How much does a typical rent increase cost? Although there isn’t a single number that can be used to define a typical rent increase, it normally falls between 3 and 5 percent per year. However, this may differ based on elements including location, market conditions, and regional laws. It’s crucial to take these into account and make sure that any rent increase stays acceptable and within the legal bounds.

What Should the Rent Increase Be?

More factors than only local rent control laws determine how much rent you decide to increase. It’s important to take into account elements like location, seasonal demand, general rental demand, and local rental comps. The cost of inflation and other outside variables, however, may have an impact on your choice of how much to raise rent each year.