Rent increases are the mainstay of profitable rentals.
For the largest rental markets — like New York City or Los Angeles, raising rent may not be an option. In rent control cities, landlords must follow the letter of the law when it comes to increasing rent. With long-term tenants, that likely means only nominal increases.
In other areas, the only limitation on a rent increase is the rental market. However, there are still some rules that must be followed:
1. The lease governs. That usually means you will have to wait until the end of a fixed lease term before raising rent. If the lease does provide for regular increases, watch for notice periods and be sure to send a notice in writing.
2. Once a lease comes up for renewal, it’s time to renegotiate the rent. Avoid automatic renewal clauses in leases — that muddies the waters if a rent increase does not coincide with renewal. If the lease reverts to a month-to-month without a rent increase, you may have to provide additional notice before raising the rent.
3. It may be better to have infrequent, modest increases rather than several nominal increases. The money may be the same, but the cumulative effect of numerous rent increase notices may be poor tenant retention.
4. Keep the rent at market or a little below. While it seems a wise idea to charge as much as possible for the rental, if the rent is too high, you will scare away the best applicants. That means the bad ones will seek you out because they can’t qualify anywhere else. The dollars gained on the front end could be lost to damage or unpaid rent later on.
Existing tenants like to see something in return for the rent hike. It’s not a bad time to replace carpeting, upgrade appliances, or make other improvements. Think in terms of perceived value over actual cost.
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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.
