Real Estate

How to Raise Rents: The Annoying Rise in Rents

All landlords are faced with the question: should I raise the rent? And if so, how much and how often? I like to employ what we call an annoying augmentation.

If you raise the rent too much, you risk the tenant moving out. An increase of $50-$100 or more will likely make your tenant think of another place to call home. Now, if for some reason you haven’t raised your rent in many years and your current market rent is actually $150 above what you’re charging now, you have two options.

First, you can raise the rent by the full amount, explaining to your tenant that it is the going rate and that they will have to pay that amount elsewhere for comparable housing. However, there’s still a good chance they’ll move because they’re probably not prepared to take such a big hit to their budget.

The other alternative is to start using the nuisance raising strategy by raising your rent each year when your lease is renewed by about $20-$25 until you reach the current market rent. This amount will generally not cause a tenant to move; It should seem like a minor hassle to him, but it’s easier for him to pay $20 more per month than go through the hassle of finding a new place and moving all of his stuff.

Ideally, you should employ the annoyance-increase strategy early on with all of its properties. But, there is an upper limit to what you can charge for a given property. You don’t want to price your unit out of the current rental market; stop raising the rent before you get to this point. Instead, reassess every year and only raise your rent when prices go up again.

The nuisance increase works well because tenants can understand that their costs to maintain the property increase over time. Every year, you typically see a small increase in your property taxes and insurance, and over time your repair costs increase as well. The tenants agree to this. They are usually not okay with being surprised with a huge rent increase.

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