How to Calculate Rent Increases and Why You Shouldn’t Be Afraid to Increase Them

How to Calculate Rent Increases and Why You Shouldn't Be Afraid to Increase Theme
07/28/2022

How to Calculate Rent Increases and Why You Shouldn’t Be Afraid to Increase Them

Rents tend to be fairly stable. They don’t fluctuate daily, weekly or monthly. Most people lease their properties on a year-to-year basis, so they only have a small window to increase rent once a year. It’s a scary proposition for most landlords, but an inevitable one too. Unless you’ve signed an extended lease with your tenant (which is something you should consider doing if possible), you will have to increase rent at some point. However, you might be afraid of what this might do to your tenants and the reputation of your property. After all, no one wants to drive away tenants by making them feel like they can find cheaper rent somewhere else. So how do you know if it’s the right time? And how do you calculate the amount? Let’s take a closer look…

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How to Calculate Rent Increases and Why You Shouldn’t Be Afraid to Increase Them

How to Determine When it’s the Right Time to Increase Rent

First and foremost – how do you determine when it’s the right time to increase the rent? Well, there are a few factors to consider here: – Your property’s market value – What is your property worth currently? Have you seen any changes in property values in your area? If so, has your property’s value increased or decreased? First, you need to know what your property is worth so that you have a baseline for what to charge for rent. – Your property’s expenses – How much does it cost you to maintain your property? Have your expenses increased or decreased? You don’t want to increase rent if your expenses have gone up and you can’t cover them with the amount you charge for rent.

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How to Calculate Rent Increases and Why You Shouldn’t Be Afraid to Increase Them

Calculating the Amount of Your Rent Increase

If you’ve decided to increase your rent, you’re probably wondering how to calculate the amount. It’s not a simple thing to do, but there are formulas you can use to make it easier. First, you’ll want to look at rental rates in your area. If you haven’t done this in a while, you may want to do a quick survey of the area to get an idea of what the norm is now. Then, you’ll want to consider the current state of your property. Have there been any repairs or improvements recently? You may want to factor these into your increase. Finally, you may want to consider how long your tenants have lived on the property. If their lease is up, it makes sense to increase the rent so you can get a more fair price for the property.

 

Don’t Be Afraid to Increase Rent

The only time you should be afraid to increase your rent is if your expenses have increased significantly. Otherwise, you should be prepared to increase your rent at least once every year. Ideally, you should increase it twice a year – once in the spring, and again in the fall. It’s a good idea to give tenants a small increase every year so that it’s not a huge jump each time. You should also consider increasing your rent if a tenant has been living on your property for several years and their lease is almost up. You’ll want to make sure they are aware of the increase and what it means.

 

What If My Tenant Doesn’t Agree?

Ideally, you want to discuss your plans to increase rent with your tenants before you actually do it. If you have a good relationship with your tenants, this is a good idea. Think of it as giving them a heads up so they are aware of the change. Plus, it’s a good way to make sure that your tenants know why the increase is happening and what it will mean for them. If your tenants don’t agree with your increase and aren’t willing to pay it. You’ll have to decide what to do next. Ideally, you want tenants who are happy with living on your property and are willing to pay what you are charging for rent. If a tenant is unwilling to pay more than they currently pay, try to negotiate.

 

What If I Don’t Increase Rent?

If you choose not to increase your rent, you risk losing money overall. Let’s look at a scenario in which you have a tenant who has been living in your property for two years and their lease is almost up. If you decide not to increase their rent, you risk losing them. You may even have them break their lease early because they can find cheaper rent elsewhere. If you increase the rent. However, you have some wiggle room. For example, if you increase it by 5% every year. You can always reduce it the next year if the economy goes down or something happens that causes rent to go down overall. So while you don’t want to increase rent without cause, you would be in a better position if you do.

 

Conclusion

Rents tend to be fairly stable. They don’t fluctuate daily, weekly or monthly. Most people lease their properties on a year-to-year basis. So they only have a small window to increase rent once a year. It’s a scary proposition for most landlords, but an inevitable one too. Unless you’ve signed an extended lease with your tenant (which is something you should consider doing if possible), you will have to increase rent at some point. What you do before that point – like understanding your market and expenses, and calculating the amount of the rent increase – will help you make the process smoother for both you and your tenants.

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