How Much Should I Increase the Rent Each Year? A Guide for Landlords

Determining the right amount to increase rent each year is a crucial decision for landlords, balancing the need to stay competitive with the market while ensuring a fair return on your investment. Equally important is maintaining the satisfaction of your tenants, especially those who are reliable and take good care of your property.

In this Redfin article, we’ll provide you with essential insights and strategies to make informed decisions about rent adjustments, keeping both your tenants and your bottom line in mind.. Whether you’re a landlord renting your home in Nashville or a property manager leasing apartments in Minneapolis, here’s how to navigate increasing your tenant’s rent.

How much should rent increase per year?

The amount rent should increase per year depends on various factors, including the local rental market, inflation rates, and the condition of your property. The standard annual rent increase is somewhere between 3-5 percent of the total rent. However, it’s essential to consider the competitiveness of your property in the market and the potential impact on tenant retention. In some cases, smaller increases may be preferable to retain quality tenants, while in a hot market, a slightly higher increase might be appropriate.

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When can the rent be raised? 

There are only certain times when you can raise the rent. For example, you can’t raise the rent in the middle of a lease term, unless your tenant has signed a month-to-month lease. 

With year-long leases or fixed-term leases, the best time for an annual rent increase is when you offer a lease renewal. For month-to-month leases, rent increases can often be implemented with a 30 to 60 days’ notice. Always ensure that any increase complies with local rent control laws and is communicated clearly and respectfully to your tenants.

Reasons to raise the rent

General expenses associated with owning a property change from year to year. Based on property value, taxes, and the interest rates on your mortgage, what you owe each year isn’t always the same. Raising the rent is often necessary to keep pace with rising costs associated with property ownership.

Here are some key reasons why you might consider increasing the rent:

• Covering rising costs: Increases in property taxes, insurance premiums, maintenance, and utilities can erode profitability, making rent adjustments necessary.
• Keeping up with market value: Regular rent increases help ensure your property remains aligned with local market rates, preventing it from becoming undervalued.
• Funding property improvements: Raising rent can provide the necessary funds for upgrades or renovations that enhance the property’s appeal and value, benefiting both current and future tenants.
• Maintaining property quality: By reinvesting in the property, you ensure it stays well-maintained, which can lead to higher tenant satisfaction and retention.

How to tell your tenant about a rent increase

The best way to tell your tenant about a rent increase is through a letter. In most states, it’s required. As their year-long lease comes to its end, you should already be preparing a letter asking them what their plans are. Are they going to move? Would they like to stay? Will they sign another full-year lease or go month-to-month?

As you’re getting answers to these questions, you should also mention how much rent will increase for the following lease terms. Break it down by month, so the increase is more manageable for the tenant. For example, if rent is $2,000 per month and you’re raising it by three percent, inform the tenant that monthly rent will now be $2,060. Sixty dollars is much easier to budget for than seeing the total increase over an entire year.

The rent increase notice detailing all this information should be sent to tenants well in advance of the day the lease expires. Most landlords require 30-60 days’ notice from tenants as to whether they’re moving out or renewing, so you don’t want to cut it too close to that deadline. Since your rent increase could impact their choice, you want to provide plenty of notice. 

Notifying them around 90 days in advance is ideal. However, you need to check with local and state laws. For example, in Seattle, WA, landlords must notify their tenants at least 180 days in advance if they plan to raise the rent in a lease renewal. Familiarize yourself with these laws, as there may also be stipulations as to how much you can raise the rent.

Be prepared to explain why

When informing tenants about a rent increase, it’s important to be ready to explain the reasons behind the decision in a clear and compassionate manner. Start by detailing any rising costs that have influenced the need for an increase, such as higher property taxes, insurance premiums, or maintenance expenses. 

If you’ve invested in property improvements, highlight these upgrades as they directly enhance the tenants’ living experience. Referencing local market rates can also help tenants understand that the new rent is in line with the broader rental market.

In your explanation, be sure to express empathy and acknowledge the impact this change may have on their budget. Let your tenants know that the decision wasn’t made lightly and that you’ve considered their situation. Showing understanding and appreciation for their tenancy can help maintain a positive relationship, even during potentially challenging conversations like a rent increase

What if your renter negotiates

If your renter negotiates the rent increase, it’s important to approach the conversation with an open mind and a willingness to listen. Here’s how to handle the situation:

• Hear them out: Allow your tenant to explain their concerns and reasoning behind the request to negotiate. Understanding their perspective can help you find common ground and shows that you respect their viewpoint.
• Evaluate the request: Consider the tenant’s history—if they’ve been reliable, paid rent on time, and taken good care of the property, it may be worth compromising to retain a quality tenant. Weigh the potential cost of finding a new tenant against adjusting the increase.
• Offer a lower increase for early renewal: For example, if they renew within 60 days, rent will go up 2.5 percent, but if they wait until 30 days to renew, the increase will be three percent.
• Meet them in the middle: If you’ve increased the rent by $100, and they negotiate back down to their original rent price, consider raising the rent by only $50.
• Keep the relationship positive: Regardless of the outcome, aim to maintain a positive and respectful relationship with your tenant. A successful negotiation should leave both parties feeling heard and fairly treated, which is key to a long-term, mutually beneficial rental relationship.

Situations where you can’t raise the rent

There are certain situations where raising the rent is either restricted or entirely prohibited. Being aware of these circumstances is crucial to staying compliant with local laws and maintaining a fair relationship with your tenants. Here are some common scenarios where you may not be able to raise the rent:

• Local laws may set limits on rent increases, from how often you can raise the rent to how much. They may even specify the number of days of notice you must provide. Most states also require the rent increase notification to come to the tenant in writing, so don’t forget to send your letter.
• If your tenant’s lease states that the rent is on a fixed-term, such as a year, you can’t raise the rent within that period. You must wait until the end of the lease term.
• When a tenant has gone to a month-to-month lease, you can technically raise the rent at any point. However, you must provide appropriate notice of the change, typically at least 30 days in advance.
• You also can’t raise the rent as a retaliatory act. Rent increases are not a tool to force a tenant out simply because you don’t like them. This itself is illegal, but you can also cross the line and end up in violation of the Fair Housing Act.

To stay safe when you raise the rent, check your local laws, use landlord resources, and try to only make this type of change at the conclusion of a leasing period. 

A final note on raising the rent

Determining how much to increase rent each year requires balancing market conditions, property costs, and tenant relationships. By staying informed, being transparent, and justifying increases thoughtfully, you can protect your investment while maintaining positive tenant relations.