Tennessee Rent Increases

[Steve Bruza]

Interested to hear how many of you handle rent increases. Here is what I do currently. All of my leases are 12 months and are renewed if someone chooses to stay. I contact them 60 days out from the expiration of the lease. I increase the rent every other year and usually I try to keep it modest, around 5-6%, if they have been a good tenant. But with rising CLI (cost of living index), property taxes and insurance, I have fallen behind the FMR (Fair Market Rent). I am a pretty active landlord and probably have higher expenses than some landlords as it has been my policy to take care of my properties to get good tenants. I have a very low vacancy rate and I like to keep my tenants. More than half of my units have tenants that have been with me for more than three years. I have a 3BR/1Bath unit that is currently getting $900 per month on an inherited lease. I know it needs to go up and the tenants know as well. The IRS is saying that FMR is $1,328 but that would mean a near 50% increase in rent. It still needs some additional work and the tenant owns all of the appliances. My debt service is about $540 per month.

Any thoughts?  I appreciate any input.

[Steve Bruza]

Nicholas,

I have found that waiting on improvements to increase rent works better.  Tenants know the area they are looking in and if you try to charge too much they will pass on your property.  I noticed you are from O'Fallon.  My wife and I met while in the Air Force.  She spent seven years at Scott AFB many, many years ago.

Paul,

Tennessee doesn't have any statutes from the Tennessee Uniform Residential Landlord and Tenant Act regarding rent increases.  I keep a PDF on my desktop of this statute for reference.  Its pretty easy to find, but the two parts I spend the most time with are 66-28-201 and 401.

As for this conversation, the IRS asks if you are charging fair market rent. If you are not, then you cannot claim a loss on that specific property. Your expenses and depreciation are limited to your income on that property. So if you only collect $5000 in rent and you remodel the unit or making significant repairs, you will be limited to that $5000 and your net income will be zero. We use those "losses" to help reduce our taxable income as rental income is considered passive income. In the past, the FMR has usually been lower than local rents, but with the spike in residents and the popularity of Nashville, sales, rents and property values have skyrocketed, as I am sure you are aware.