Should I Raise Rent?

Raising the rent is something I struggle with. I think there is a trade off between making a larger profit and maintaining good tenants. Overall, we have great tenants and I wouldn’t want to lose them over a rent increase. So, what is reasonable?

When Should I Increase the Rent?

There’s a balance between making a profit from your rental property and keeping your property leased. Increasing rent at the right time is necessary to maintain a profitable business. As your expenses go up (including taxes, maintenance, utilities or repairs) a small increase in rent may be necessary to help cover rising costs and maintain the same quality apartment. On average, a 2%-4% increase (depending upon where you live) is reasonable. It’s better to make small increases over time, than one large increase at once to try and recoup low rent margins. Overall, look at your expenses-especially your taxes and see what the true increases are. If there was no increase, I personally wouldn’t raise the rent. I would rather maintain good tenants who care for the property, than push people to go elsewhere.

The Pros and Cons of Rent Increases

Obviously, the plus side of rent increases is the increased profit. A rent increase will help you stay up with inflation and rising costs, while keeping your profit margin. When raising the rent, it is important to do this in writing AND at a lease renewal. If a tenant is on a one-year lease, a rent increase could occur when they sign for another year. Keep in mind, you may receive some pushback when asking for an increase. If you haven’t reinvested into the property lately or experienced an increase in expenses, it may be hard to justify to a tenant if they question the increase.

If you would rather not deal with asking for a rent increase, increase the rate when a tenant leaves. The new tenant will pay your rate and not know any different. Although this may not be the best strategy if you have many long-term tenants, as it will take years to get your rates up to current market value.  

For us, I struggle with a rent increase every year. Our current rents are right around $800/month. At a 3% increase each year despite the improvements we have done, that would put our rents over $900 a month. For the area our rentals are in, and the economy of Williamsport I feel like that is pushing it. I would rather have long term tenants who take care of the property and pay their rent consistently than have people struggle to pay or have turnover. In my opinion, an increase every couple of years is fair for Williamsport. Our taxes do go up; therefore, our payments go up.

Our mentality with rent is to keep it fair. As a realtor, I know the housing prices. We try to keep our rents slightly below what a mortgage would be for a similar size home. We don’t want renting to be more expensive than buying.

What are your thoughts on rental rates?