How Much Can A Landlord Raise The Rent?

Whilst increasing the monthly rent to match the current fair market rate is a great way to increase ROI, it’s not always the right choice, and there are a few rules that landlords need to follow. 

In this article, we take a closer look at when and how much a landlord can increase the rent and we detail the process for creating a formal rent increase letter for your tenants. 

Key takeaways

• Raising the rent will increase cash flow and help you counter rising operating costs.
• The rent generally cannot be increased during the lease term unless stipulated in the signed lease agreement.
• Landlords should consult their lease agreement when planning rent increases. 
• Before raising the rent, a tenant must be given proper notice to avoid potential conflicts and ensure a smooth transition to the new rent.

What do landlords need to consider when raising the rent?

Several factors influence when and how much the rent can be raised. These include the lease length, the condition of the rental property, market factors, and rent control.

Lease length

Let’s start with the lease length. Generally speaking, a landlord can’t raise the rent during the term of an existing lease. There are exceptions to this rule. However, under normal circumstances, both you and the tenant have signed a year-long legal agreement with fixed conditions, one of those conditions is the rent amount.

However, should the lease be coming to an end, it is well within the landlord's right to notify the tenant of a planned rent increase. Landlords should generally give at least 30 days' notice before increasing the rent.

Property condition

A second factor to consider is the condition of the property. If the property is run down, has an outdated kitchen and appliances, and no maintenance works have been undertaken, then it could be difficult to justify increasing the rent and doing so could lead to unnecessary vacancies.

Market factors

If rents in your area have been steadily increasing then it might be time to increase your rents to match. On the other hand, if rents have been steadily declining then you will likely want to keep your rents as they are, or if you’re having trouble filling the property, lower your rent rates to match.

Rent control

There are several states and counties across the US with rent control laws in place, including California, New York, and Oregon. 

Rent control ordinances typically impose limits on the amount by which landlords can increase rent each year. These limits may be tied to inflation rates or set percentages, restricting landlords from raising rents beyond a certain threshold but the specifics vary from location to location.

If your rental is in a location with rent control laws then you will need to read up on the specifics before enacting any rent increases.

How much can a landlord raise the rent?

Setting the appropriate rental price for a property is essential. Overpricing may lead to vacancies, while underpricing could result in missed income opportunities. Conduct thorough research to determine the market rate by examining comparable properties.

Begin by consulting with a local real estate agent who possesses insights into the market and can furnish a list of similar properties. Online listing sites can also provide valuable pricing insights for the area.

Additionally, factor in any distinctive features or amenities your property offers. By diligently researching, you can ensure you're pricing your rental property appropriately.

Resources for researching rental property fair market rent

Here are some online resources for finding the fair market rent for your property:

• Rent Zestimate from Zillow
• Rentometer
• Live rental listings on Craigslist

How much can a landlord raise rent prices in any given year or month?

In the United States, landlords typically have the freedom to establish their rental rates, with no federal restrictions on annual rent increases. 

Generally, landlords can adjust rents as they deem appropriate, provided they give tenants adequate notice of any planned rent increases, typically around 30 days. 

However, as mentioned above various state and local regulations may impose limitations on rent hikes, especially in regions characterized by high rental costs or with limited housing availability.

Month-to-month lease

Month-to-month leases provide landlords and tenants with flexibility. However, this more open ended contract also present some complications. When considering raising rent for month-to-month tenants you will want to do so following specific rules and guidelines.

Firstly, you will need to furnish your tenant with written rent increase notice of at least 30 days. This allows them time to seek alternative accommodations if unable to afford the increased rent.

Secondly, ensure a valid reason justifies the rent hike. Permissible reasons may include adjusting to market rates or offsetting rising expenses such as property taxes or utilities, provided the lease permits such adjustments.

Lastly, be reasonable. Excessively steep rent hikes are likely to deter tenants. Adhering to these rules can mitigate potential issues and maintain satisfaction among month-to-month tenants.

Long-term lease

Raising the rent on a tenant on a long-term lease can be tricky for landlords. On the one hand, you don’t want to lose a great tenant and go through the expensive and time-consuming process of finding a new tenant. On the other hand, you don’t want to be charging below the market rate.

On top of this, unless specifically stipulated in the lease agreement you won’t be able to increase rent during the lease term. If you rent during a slow period and sign an annual lease, you will find yourself renting again during the next slow period. With a reduced number of tenants during the renting period, you may find you’re unable to charge as much as other landlords in the area.

You need to find a balance between competitiveness with other landlords and ensuring an enticing price for prospective tenants. So, how does one determine when and how much to raise the rent?

The initial step involves checking state laws regarding rent increases, as some states impose annual limits as mentioned above. Next, assess the local rental market. Analyze rates charged by other landlords for comparable properties and aim to align with those figures. If you find you’re currently significantly below the market average, a larger rent increase might be necessary compared to a slight deviation.

Once the rent increase amount is decided the change needs to be clearly communicated with the tenant. Providing at least 30 days' notice before the rent hike is advisable.

Related: Tenant Screening For DIY Landlords: The Ultimate Guide

Best practices for raising the rent

There are a few general best practices that landlords can follow to make raising the rent go more smoothly. These include:

• Understand local and state laws around rent control and limitations.
• Be careful to avoid discriminatory behavior (sometimes raising the rent can be viewed as a way to get a certain tenant to move out).
• Regularly research fair market rent rates in your area.
• Avoid large rent increases, instead opt for small incremental increases each year.
• Always give your tenants adequate notice of any planned or upcoming rent increases.

Benefits of raising the rent to fair market value

Whilst raising the rent certainly has its risks and challenges, it is also a necessary part of being a landlord.

Your rental properties are an investment and they need to cover the operating costs and turn a profit - but equally, you don’t want to price yourself out of the market and end up with drawn-out vacancies. 

Raising the rent will increase your cash flow. This is especially important in the current climate with the rapid rise in the cost of living. And can be essential for dealing with unexpected maintenance costs. 

You’re also more like to recoup your investment faster when you raise the rent, which will allow you to expand your portfolio and increase your financial stability. 

What is the risk of raising the rent?

Raising the rent carries several potential risks for landlords as well. 

Rent hikes can lead to dissatisfaction among tenants, potentially causing strained landlord-tenant relationships. This dissatisfaction may result in an otherwise excellent tenant leaving, meaning you need to go through the expensive and time-consuming process of finding a new tenant. It could even lead to legal disputes. 

Plus, if your rent increases outpace market rates you’ll likely find it hard to fill your vacancy. And, even though no income is coming in, all of your expenses stay in place. Drawn-out vacancies can cost a landlord thousands of dollars.

Finally, as a landlord, you must adhere to local rental regulations and laws regarding rent increases. Failing to comply with these regulations can result in legal consequences, fines, or penalties.

What restrictions are there around how much landlords can charge for rent?

In the United States, there is no federal law governing how much landlords can raise the rent. However, some states and cities have implemented rent control measures. For instance, in cities like New York City and San Francisco, landlords are constrained by guidelines established by the Rent Guidelines Board and Rent Board, respectively. Similarly, in Los Angeles, landlords adhere to annual increase limits dictated by the Rent Stabilization Ordinance (RSO).

These regulations serve to safeguard tenants from sudden and substantial rent hikes, yet they may also pose challenges for landlords in managing escalating expenses. Conversely, states with landlord-friendly policies typically impose fewer restrictions on rent adjustments. 

In this on demand webinar, we teamed up with industry experts to explore how to effectively do a market comparison and set the right rent for your rental property.

Hosted by Logan Ransley from Landlord Studio, with special guest, Jonas Bordo, Co-founder of Dwellsy.

How to notify a tenant the rent will be increased

When it comes to informing tenants about a rent increase, landlords and property managers must prioritize effective communication to avoid potential conflicts or misunderstandings. While there are various approaches, adhering to certain best practices is essential.

Firstly, providing tenants with ample notice is crucial. Depending on the lease agreement, this notice period may range from 30 to 90 days. Granting sufficient time allows tenants to prepare for the increase and adjust their budgets accordingly.

Secondly, focus on clarity and conciseness in communication. Clearly state the amount of the increase, its effective date, and any other pertinent details.

Lastly, demonstrate empathy and flexibility. Recognize that rent hikes can be stressful for tenants, and try to accommodate their circumstances. Offering payment plans or alternative arrangements can help ease the burden of the increase.

By following these best practices, landlords and property managers can facilitate a smooth transition for both themselves and their tenants.

What to include in your rent increase letter?

Your rent increase letter should contain the following details:

• Today’s date.
• The name and information of the tenant and the landlord.
• the property address and if applicable the unit number.
• The current lease end date.
• The current rent amount.
• The rent increase amount.
• The date the rent increase will be implemented.
• The date the first payment of the increased rent is expected.
• And details on how the tenant can accept or decline this rent increase.

Some landlords also include a quick summary as to why they are increasing the rent. Being open about the market comparison you undertook can help with tenant retention.

Learn more about writing your rent increase letter and download a free rent increase letter template here →

Final thoughts: How much can a landlord raise rent?

Alongside adherence to state and local regulations, landlords need to understand the rental market and consider the impact on tenants. While raising rent to fair market value can enhance cash flow and return on investment, it's essential to anticipate potential challenges like tenant turnover.

Leveraging software solutions like Landlord Studio can help you streamline rent collection and enhance tenant communication. Features such as centralized tenant communications and online rent collection can facilitate efficient tenant management, while rental listings, listing syndication, and tenant screening will help you find the best possible tenants fast. 

By integrating software like this into your operations and adhering to best practices, landlords can navigate rent increases smoothly and maintain positive landlord-tenant relationships.

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