The housing market isn’t always stable. Sometimes, rent increases are both fair and sensible. However, there are regulations that you must follow.

You can only increase the rent at certain times and by certain amounts. Beyond that, you also need to keep in mind what a good tenant will consider acceptable. Even if you’re following the law, there are common-sense rules you should apply to yourself.

So, let’s start with the basic rules then go onto how you can plan your rent increases.

When Can I Increase The Rent?

The first rule is that you can only ever increase the rent at the beginning of a lease term. The rent you charge a tenant is set from the beginning to the end of the lease term you sign for. That’s why rent is typically increased when the lease is renewed.

If you have a month-by-month rental arrangement, you can increase the rent whenever you want. But the caveat is that you’ll need to provide adequate notice.

The exact notice you must give your tenants depends on local landlord-tenant law. Most of the time, you must provide at least 30 days’ notice. In some states, you must provide 60 days’ notice.

How Much Can I Increase The Rent By?

You can legally increase the rent according to what local rent controls allow for. Rent controls provide legal limits on rent increases, maximum rent charges, or both. They are typically instituted by local municipalities to ensure affordable housing. So, you’ll need to look into your municipality’s regulations.

In some cases, state-wide rent controls are enacted. For example, in 2019, Oregon launched a state-wide bill to place a cap on annual rent increases. Make sure any rent increases you’re planning to follow local and (if applicable) state regulations.

Rent increase restrictions are typically in line with inflation rates and a municipality’s consumer price index. In some cases, municipalities just use a more generalized price cap that doesn’t take any other metrics into account.

Your local and state regulations determine the legal limits of your rent increases. But there are always common-sense rules you can apply to yourself to ensure you keep your good tenants and avoid drama.

Incremental Increases

This is the most important piece of advice you will read on the topic of rent increases. You can ignore a lot of advice, but ignoring this will always produce bad results.

The biggest mistake that a beginner landlord makes is holding off rent increases for a long time. Even if you’re satisfied with a property’s current income, you should increase the rent by a small amount each year. The exact amount should take local regulations and market changes into account.

If you wait too long to increase the rent, then suddenly make a dramatic increase to balance your budget, your tenant will likely be shocked. By shocking their budget, you are likely to lose them. This is a problem that arises when you fail to manage expectations. Not increasing the rent for years on end sets the expectation that you won’t do so at any time.

You can retain good tenants by setting a regular rent increase. This can normally be 2% to 5% per year, depending on the location and other circumstances. Even if you don’t think you need to hike the rent regularly, this achieves 2 things:

1. You’re far less likely to be financially shocked into needing to increase the rent if something comes up
2. Your tenant will always expect small rent increases and come to see them as just another fact of life, meaning less drama for you both

Limit Increases

It’s always better to keep increases as regular and small as you reasonably can. Even if you feel it’s justified, a large increase will often cost more time and money than it’s worth if it makes a tenant want to move out. A good rule of thumb is to never increase the rent by more than 8% at once. Even the best tenants will consider suddenly leaving if you do.

More Than Written Notice

You’re typically required to provide written notice of rent increases with 30 to 90 days’ notice. But simple, cold notice will seem impersonal. You can also send an email, text, or phone call on the day you write out your notice. You can be friendly and warm, as long as you’re still firm and professional.

Strong Relationships

Personal relationships supersede everything else when it comes to decision-making. We’re all emotional creatures.

If you have a good relationship with your tenants and remain polite and friendly, rent increases will be an easier topic to bring up.

Half the battle is landing the right tenants in the first place. Whenever possible, don’t rush into signing a lease with a new tenant. Take the time to screen and make sure you’re getting into a good arrangement.

When you do have good tenants, let them know you appreciate them. Always stay positive in your communications and if they offer some resistance, just calmly and sympathetically remind them why you need to increase the rent. Expenses increase, it’s a fact of life that can’t be avoided.

Provide Alternatives To Good Tenants

Rent increases aren’t the only way for you to cover your expenses. There are alternatives you can take that will suit you well, while not angering your tenants.

One option you have is to offer your good tenants a longer lease agreement in exchange for a lower rent. Vacancies will always cost you time and money. So, come to a middle ground option that is suitable for everyone and leads to higher average returns in the long run.