Your rental units are investments, but your expenses are starting to outpace income. Raising the rent seems like the obvious solution, but in many cases, your hands are somewhat tied when it comes to increasing your tenant’s monthly payment. Much depends on state and local law and the terms of the lease.
If your tenant has a lease, you must both abide by its terms. Generally, the rent cannot increase during the term of the lease unless the agreement specifically allows it. Multi-year leases may include an annual rent increase based on a specific percentage or the federal Consumer Price Index. There is an exception — you could ask the tenant to voluntarily agree to a rent increase and amend the lease. It is unlikely that most tenants will agree, unless you offer some other benefit.
At the end of the lease term, you can raise the rent as much as you want, unless your property is subject to rent stabilization. In hot cities such as San Francisco, New York, Seattle and Denver, rents have risen astronomically in recent years. Even St. Louis renters saw increases of more than 22 percent from 2009 to 2015.
If your property isn’t located in a thriving metropolitan area with lots of job opportunities, the sky is not the limit in rent increases. Look at the amount of available rental stock in the area and how they compare to your buildings. If you own a single-family rental with three bedrooms and quite a few are on the market at competitive rents, notching up the rent too high is a good way to lose your tenant. That’s another story If you have one of the few such units in the town or school district.
Good Tenant vs. Bad Tenant
There’s more to the definition of good tenant than a person who pays their rent on time, although that’s the crucial aspect. If you have a first-rate tenant who takes care of your property, you may want to go easy on the rent increases. Great tenants are hard to find. On the other hand, if you have a difficult tenant, raising the rent substantially may cause them to leave, or, at the least, it could make dealing with them more worthwhile. Just be careful that the raise in rent can not be viewed in court as a retaliatory action against the tenant for say filing a complaint against you or based on discriminatory reasons.
In many states, landlords may increase the rent on a month-to-month rental by notifying the tenant in writing at least 30 days before. In California, that holds true if the rent increase is 10 percent or less, but an increase above 10 percent requires 60 days’ notice. In some states, this requires notice by certified mail.
Get the Facts
Besides any state law regarding rent increases, check out local statutes with your municipality. If it still isn’t clear to you how often or how much you can raise the rent — or your property falls into a gray area — bring your leases to a local real estate attorney for advice. It’s worth spending a few hundred dollars to have a lawyer give you proper advice rather than make a mistake and have a tenant sue you. For the most part, though, unless you violate the lease, the ball is in the landlord’s court in terms of rent increases.
About The Author
Jane M.’s work has appeared in dozens of publications, including USA Today, Legal Zoom, Zack's and The Motley Fool. In addition to writing for cultural, business and financial journals, she worked for a dozen years as a staff reporter for a major New Jersey newspaper chain, and still contributes regularly to nj.com. She has written thousands of articles on various subjects. Her expertise includes personal finance, real estate, business and pets.
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