Lease Renewal. What is the standard rent increase rate (1%, 3%, 5%, etc)?

Question

Hello,
I have a rental in New Haven, CT (3 Beds/1bad). It's currently renting for $2095 and the tenants are going to complete their first year in the property and intend to do a lease renewal. According to my property manager, the market rent is $2,100 at this current moment. They suggested an increase to $2,125 which is approximately a 1% increase.

Greg M. · Answer

If you're getting $2,095 and market rent is $2,100, why are you doing anything other than renewing as is?

Stop stepping over dollars to pick up pennies.

Bill B. · Answer

You’ve got to trust your PM or find a new one. Maybe they were really pushing the market when they signed the original lease? I would be worried if the market is really only offering 1% rent increases. Maybe reach out to a couple other PM’s? Ask them how much rent they would charge and how long they think it would take to find a tennant. There are plenty of markets trying to pass 5% rent caps. They wouldn’t bother if rents were only going up 1%. After a decade of 5-10% increases we were closer to 10-20% for the last 5 years.

Samuel Eddinger · Answer

Hey Alex.  I own and run a PM company in central CT.  I'd be happy to give you my opinion of what market rent would be for your property.  As a company, we like to keep rents slightly under market for great tenants and over market for bad tenants (encouraging them to leave on their own without being evicted).

DM me if interested in connecting.

Chris Davidson · Answer

@Alex Molina tons of great responses here. There is no standard it depends on the market and where current terms are. Verify what the PM is saying and work on building trust. You can't make tenants pay what they aren't willing to pay.

Best of luck!

Samuel Eddinger · Answer

That's not what I said or do.  We were referring to renewing a tenant, not putting in a bad tenant.  On a renewal, we give the owner the option to not renew or recommend them to really increase the rent considerably.  It's about psychology.  We manage C class rentals.  Many owners would prefer to not have the vacancy.  Many tenants will stop paying rent if you tell them they have to leave (this is C class remember).  If you increase the rent, they are more likely to leave willingly without stiffing you on rent.  If they stay at a higher rent, they are justifying them being a bad tenant with an increase in rent to cover that added expense.

As a company we reject 70% of applicants right now for new tenants.  We'd rather keep a property vacant because our state is extremely tenant friendly and evictions regularly take in excess of 3 months.  However, we inherit a lot of bad properties with bad tenants.  This is the cost of doing business if I want to make my property management company of predominantly C class properties make any money.

Does that make sense?

Bryce Jamison · Answer

@Laurie Watkins you @ed the wrong person.

The internet has enough places where people will bash and ridicule you if you accidentally type the wrong "there". I try to keep BP a positive place where we can help each other and keep my sassy comments to myself.

James Hamling · Answer

Nope.... well, for lazy PM company who's scared of dealing with tenants, sure, makes perfect sense, but makes zero sense for running a GOOD PM system/company.

Here your doubling down on your statement of renting to bad tenants, yet again saying you WILL rent to bad tenants if you get more $. That a NOVICE action. An experience Pro PM like myself knows that Bad Tenants are NEVER WORTH IT, because what damages they can do to property far exceed any additional rents possible. PROPERTY DAMAGE is far more costly.

And your whole thing that your too scared to deal with tenants so you instead hide from the confrontation by hiking rents to an insane point so they move. Well, that kind of disrespect will entice tenants to get pist and do bad actions actually.

C-class, which is more known as "affordable housing" has a tenant grouping that has a social norm that greatly values RESPECT. There NOT dumb, your acting inn arrogance that they are dumb and your oh-so-smart that you can scam them and there none-the-wiser. They know, and they think your a dirt-bag for it, and it's why you have the issues with them that you do.    What do I do differently, I am not a coward, I face it head on. I reach out and speak with them, I let them know the truth of it, that they are NOT getting renewed and here is why. I tell them that we could just jerk them around, like others do, give a bunch of BS, but I am giving them the RESPECT of being honest, and I expect the same in return.

I am in one of the toughest regulated markets in the nation, so that's no excuse. Every lease has 2 mechanisms in it, property hold and FINANCIAL, do the work of learning how to use the other to help the first. During covid moratorium when couldn't do evictions AT-ALL I had 0% non-payment, ZERO. Know why, because I know contract law like a champ! I negotiated 38 property "surrenders", I got 100% payment including on back rents. I had an atty generals office look into what I was doing and say they were not fans but, couldn't do anything about it, 100% legal. My clients lost $0.00 from moratorium, THAT's what a GOOD PM is supposed to do, make solutions, be a Master of the art of tenancy, NOT hide from tenants.

With a bad c-class tenant I tell em, things are not working out, we need to part ways. They get all jazzy and say how they are gonna do this or that, I tell em, I get it, there angry, but they need to focus on improving their situation and not going this road. I say, sure, you can not pay rents, you can mess up the property, and here is what will happen. We WILL file charges, and if do enough damage with intent, it's criminal, so next thing they will go to jail. And our clients will sue them, and they will loose, because our lease is rock-solid. Then there will be judgements, motion for discovery, garnish wages, garnish bank accounts, maybe their auto. I tell them, we can do this decent together, keep it cheaper on them, or we can do it real easy and do it TO them, because this will be financial herpes, NEVER gonna go away, ever, it will only cost them MORE.

They see I am not scared, that I mean what I say. That I am legit trying to help them AND I hear it all the time, they don't like what I am saying but they respect me for being honest, for saying it to their face, for facing them on it. And that respect leads to good endings 99% of time.

If your gonna work in C-class, you need to up your game to get-with-it.

Your not serving your clients, your playing with other peoples $ and properties. Your obviously scared, you have said enough to make that clear pointing out C-class like were all supposed to say "oh, yeah, that's ok then". No, if your scared get-out. I did F-class, lol. On property tours I had people with vests and carrying, I had neither. They asked me why, I said, because I am not scared. The moment one is scared, they better get out, tenants can smell the fear, it oozes from a person.

Your not gonna get me to say it's ok to hand out client $ or to fear tenants.

James Hamling · Answer

Ugh.... really.... Ok, so by this, you rent to bad tenants, WHY? You said it here, you will rent to a BAD tenant as long as your getting higher rents. That's dumb and it's NOT in the clients best interest. And, your whole approach is just bleed your client a bit "to get a good tenant" which is just code-word for "I am a lazy PM so instead of having a good marketing system, being on-the-ball, I will just give-away your $ Mr/mrs Landlord so it's easier for me to lease a property". Hey, here's a weird idea, how about getting a good tenant, at market rate rents? If it's fair market rent's IT'S FAIR MARKET RENTS, so no discount needed to get a good tenant, just putting in the work of it vs handing out the clients $. But I get it, it's THERE $, not yours, right. It's called a race-to-the-bottom, the hallmark of bad/poor/lazy PM's, that's simply the un-polished TRUTH of it. If an agent on my team ever mutters such words as this, there FIRED, on-the-spot, done. I consider it THEFT. As PM's we have a fiduciary duty to our clients and pressing them to do under-market rents so we can easier, quicker, more simply lease a property is a violation, COMPLETE violation of that duty. It's theft of clients revenue. And a core-source of why PM's have a general sleazy perception. PRICE does not dictate good vs bad tenant, MARKETING efforts, professionalism, system of operations, these do. Good PM systems get good tenants, full-stop. @Alex Molina for annual rent increase, forward looking, take into account your cost increases; what is rate of increase in property insurance, vendor services, tax's, operational expenses. Now those % don't necessarily translate exactly over. Next consider market rent increase "vectoring (direction with magnitude)" and than affordability index. What % of median incomes is rents? If your in that 50% zone, that's a danger zone, 40% range is yellow-light, 30% range green-light. There is a science to it that takes into account a dozen too several dozen factors.     Currently we are doing on average 4.5%-5.5% for forward looking annual automatic rent increase.     At any new lease listing, we are doing rental comp's.     Make sense?

NEVER keep a rent static on a multi-year lease, NEVER. That's building a future problem. Your costs will not remain fixed.

Bryce Jamison · Answer

I'll use Zillow to do a market analysis or what similar properties in the area are renting for and align my rent to that range. Of course, you'll have to make sure you're in compliance with local rent increase laws.

But also if I have a dream tenant I may not increase rent too much because the cost of getting a unit ready to rent again and the rent loss from vacancy can easily outweigh an extra ~$100 a month.

Ultimately the price at which you want to rent your unit for is your decision. Sure, you can listen to what your PM thinks, but the final decision is yours. They're not going to care about your properties and business anywhere close to as much as you do, so ensure your managing your property manager.

Hamlet J. · Answer

Hello @Alex Molina

I believe that Connecticut does not have a standard rent increase rate established by state law. Usually, the rent increases are typically determined by the landlord and tenant agreement or governed by local ordinances and rental regulations in specific municipalities.

I personally like to increase it to %3.4, but for my loyal tenant, I go %2 every year. But this is dependent on the market. I invest in Waterbury, CT and it is lower income population.

Use your judgement.

Hamlet

Waterbury investor.

Lease Renewal. What is the standard rent increase rate (1%, 3%, 5%, etc)?

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