What is a fair annual rent increase based on inflation alone?

Question

Just looking for some feedback on rules of thumb for annual rent increases. Is 2-3% fair?

Kenneth Garrett · Answer

@Thomas Whittlesey

You always need to look at your local market rent.  Example if your market rent is 1300 and your property is rented for $1325 or $1350 you might want to not have an increase even though there is inflation.  Everything we do is a math equation.  If I raise rent from $1350 in this example by 2% that would be $27 for a total of $1377.  That is way above the market and the tenant may move out.  What is the cost of them moving out; repairs, paint, vacancy, etc could be $3000. Leaving the rent as is no increase saved you $3000.  Even a reduction in rent by $25 is $300 or even $50 is $600 versus $3000.  Keeping long term tenants even if its somewhat below market rent is how you have profitable cash flow.  Tenant change is expensive.

Account Closed · Answer

@Thomas Whittlesey keep an eye on the market and you can raise/lower in ratio to the current market.

In my opinion, There’s no X number that you can plug in and be right all the time. That being said there’s a thread on here talking about whether to always raise the rents annually or to keep someone in there for longer periods of time (if that works or not is up for debt).

Lately I have moved rent 25 dollars up a month which is around 3.5% for previous rents.  No one moved out so it worked for me.

Bjorn Ahlblad · Answer

@Thomas Whittlesey It more than inflation for LL. Taxes have shot up like crazy, as have utilities and services. If you are not raising by 5% you are falling behind.

Account Closed · Answer

Just want to chime in - you need to be sure you know your local laws - is there a rent cap where your property is?  This is something to keep in mind.  But, tenants aren't ATMs.  If you raise the rent, the first thing they will do is check Zillow or Craiglist, etc.  Your mission is to already know what they will find, and know that they will discover that they are better off to stay put - unless, of course, you would rather they left.

But, point being you should know all of the above.

John Teachout · Answer

We usually will raise rent at a lease renewal. Sometimes a small amount. In the past several months we raised an $800 rent by $20 to go on a month to month. No increase the previous period. Another property we raised by $20 on a 2 year lease. This property is rented at about $200 under market at $890. (the tenant can't afford more and we don't want her to leave as it's going to be an expensive turn over)Another property we just renewed on a 1 year lease for a $20 increase. It's probably at market. Don't care if they stay or go.One property we have on a month to month and we haven't raised their rent for a long time. They never call us for repairs so we just leave them be. They pay rent on time every month. That property is badly damaged by termites and would need a complete rebuild to make it "nice". They're making do with cheap rent in a desirable area with nearly no rental options. So it's a win/win.We have other properties with inherited tenants paying under market and we're trying to jack their rent up in small increments. Again, we want them to stay but not at the current rent. If we raised it up to market, they'd leave and we'd have a costly turnover which doesn't fit our situation right now.To summarize, every property needs to be assessed as to whether the rent should be increased and if so, how much. There's not really a formula that fits all situations. Turnovers are costly but also allow the opportunity to raise rents all the way to market (assuming you don't live in an area with rent control)

Brett Baginski · Answer

I would base it on the rental comps in your area instead of a set percentage.  My property rents for $1,875 per month so a 5% increase is $94 and even a 3% is $56, which is a pretty substantial hit to their monthly bills.  If someone told me my rent was going up that much, I would look elsewhere.  Check to see what the local properties are renting for and what shape are they in.  Do they offer granite/quartz counter tops and updated appliances?  Does your unit support your 2-3% increase?

Thomas Whittlesey · Answer

Thank you for the feedback everyone -- much appreciated!!

Pat L. · Answer

Annually we're conservative but on a vacancy we push for the max based on what the demand our immediate market is.

Examples after each vacancy over the last 4 years

Unit 1 vacant for 3 years did some rehab rent $750, $825, now $995

Unit 2 $500, $650, $675, $2000 rehab now $825 going up to $850

Unit 3 $475, $3000 in rehab $825, going up to $875

Unit 4 $520,  kitchen cabinets (from another rental we upgraded) & bath tub, $825, $875 going to $900 (they just gave notice).

Unit 5 $225, rehab $2000, $475, $500 but is our live-in maintenance guy.

Unit 6 $ vacant for 3 years, $3,000 rehab $775, $875, $975 going to $995.

An upper quasi rehabbed 2 bed 1 bath near us just went for $1400/month in A WEEK & its above a 7 day a week daycare center!!!

We just had a 47 yr old professional lady contact us about any vacancies we may have. No children, doesn't smoke, no pets but she wants to stay in the immediate area but can only afford $800/month. She can't find anything & she is the perfect tenant with references etc etc.

Michael King · Answer

https://www.rentjungle.com/average-rent-in-athens-county-rent-trends/

Google tells me 6.92%.

I feel like 3.5% rounded up to the nearest $5 is not terrible for you, nor is it terrible for the tenant. I just sent a renewal letter with a $25 or 3.6% increase to one of my inherited tenants. Who, incidentally, are only paying $700 when market is $850. It'll be a while til I get them to market rent, or the door whichever comes first. But like others have said, I'm not ready for a vacancy and reno. Yet.

Craig Jeppesen · Answer

There are no rule of thumbs. Your local market and economy will decide that not you.

What is a fair annual rent increase based on inflation alone?

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