Should I Increase My Tenant’s Monthly Rent?

One of the biggest questions landlords have is “Should I increase my tenant’s monthly rent?” and the answer is maybe. There are several factors that landlords need to take into consideration before making this big decision because making the wrong decision can be costly.

So “Should I increase my tenant’s monthly rent?”Here are three questions that will help a landlord determine if they should or shouldn’t increase their tenant’s rent.

1. What is the Current Rental Value for Your Home?

Before a landlord can even begin to answer the question “Should I increase my tenant’s monthly rent” they need to determine what their home would rent for in today’s real estate market based on the competition and current condition. If the rental value has gone down, then increasing the rent is probably a sure-fire way to lose their current tenant and they could have a hard time finding a new one. However, if the rental amount has significantly increased then they need to ask additional questions to make an informed decision.

2. Do You Currently Have a Good Tenant?

Finding a good tenant isn’t always easy and most seasoned landlords know what it’s like to have a bad tenant. So if their current tenant pays rent on time, maintains the property, and is easy to deal with keeping them in place is probably a no-brainer.

However, before keeping the rent the same or increasing it there is another question to determine “Should I increase my tenant’s monthly rent?”

3. How Much Will It Cost to Find a New Tenant?

Now that the current market value has been determined it’s time to make a few calculations. By doing so a landlord will be able to decide if increasing their tenant’s rent is worth the risk of losing them.

Now, it will cost the tenant money to move so they may be willing to pay a little more in rent. However, it will also cost the landlord time and money to find a new tenant. It’s always wise to plan for the worst-case scenario. Let’s crunch the numbers and finally answer the question “Should I increase my tenant’s monthly rent?”

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Crunching the Numbers

1. What is the monthly overhead? This amount should include any mortgage payments, homeowners insurance, property taxes, electric/gas, and water. If the property belongs to an HOA that monthly, quarterly, or annual fee needs to be included as well. Don’t forget about the exterior maintenance. Are there additional fees for lawn care or is that included in the HOA fee? Is there a private swimming pool, if so what is the cost to service it? Once all of these numbers are added up that will be the monthly overhead.
2. How long will it take to find a new tenant? This answer can vary greatly based on the current market conditions, inventory, and pricing. However, there should be a best and worst-case scenario. Landlords should always be prepared for the worst-case scenario.
3. Will the home need work? Once the current tenant moves out will the house need any repairs? Will it need to be painted? Will the carpet need to be replaced?
4. How much will the real estate commission be? There will always be costs with finding a new tenant even if a landlord decides to go at it alone without a licensed real estate agent. However, a majority of landlords know time is money and hiring a rental agent is well worth the cost, but what will that cost be?

Once all of these numbers are determined they need to be added up, divided by 12, and added to the current rental amount. This is the minimum amount of rent a landlord will need to charge just to break even with a new tenant. Does the market value exceed this number? Let’s take a look at a real-life example:

Example

Current Tenant Pays: $2,500
Current Market Value: $2,900
Monthly Overhead: $2,200
House Preparation: $1,000
Real Estate Fees: $2,900
1 Month Vacancy: $2,200

It will cost $6,100 to find a new tenant, which broken down over the course of 12 months is $508.33 a month. So the landlord would have to rent their home for $3,008.33 to break even (Current rent $2,500 + Cost to find a new tenant $508.33). However, the current market value of their home is only $2,900, so they will lose approximately $108.33 a month, which equals $1,300 over the course of a year.

So in this case the landlord will lose money if their current tenant leaves. So if the current tenant is willing to stay it doesn’t make financial sense to increase their rent but it does cost money for tenants to move. Plus, if rental rates have increased throughout the area the tenant may have to downgrade in order to keep their monthly rent the same. Therefore, the current tenant may be willing to pay a little more each month to stay put. So if I was the landlord I’d have a conversation with the tenant to see if they can comfortable afford to pay more.

Final Thoughts

So as you can see answering the question, “Should I Increase My Tenant’s Monthly Rent?” will vary. Every landlord wants to get the maximum amount of money for their rental. Although oftentimes some landlords don’t weigh all of their options. Instead, they just raise the rent, not realizing if they have to find a new tenant it is going to cost them more money. So before making a knee-jerk reaction they really need to analyze their situation, crunch the numbers, and decide what the best course of action is. Sometimes trying to get $100-$200 more a month in rent will cost a landlord thousands!

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Popular Rental Questions

Now that we went over some considerations to make when landlords ask “Should I increase my tenant’s monthly rent” let’s answer other popular questions.

Can my landlord raise my rent $300 dollars? Whether or not a landlord can increase a tenant’s rent depends on the lease. Most leases have a set rental rate and it cannot be changed mid-lease. However, once the lease is up landlords can usually increase it.

Is raising rent on existing tenants smart? Increasing a tenant’s rent could be a smart decision, but it could also be very costly. It ultimately depends on the numbers. How much money will it cost to find a new tenant? How much more money can a landlord obtain if they find a new tenant? How much is the landlord’s monthly overhead? All of these numbers need to be taken into consideration before the landlord tries increasing a tenant’s rent.

Is buying a vacation home and renting it out wise? When it comes to renting a vacation home there are so many variables. One, does the city and/or community allow short-term rentals, if so what are the terms? Who will manage the vacation rental and at what cost? What happens if the tenant trashes the property? What happens if the tenant doesn’t leave? Owning a vacation property is a luxury and is supposed to be a place to escape but if an owner decides they want to make a few bucks renting it out while they’re not there it could be costly.

Unsure if you should sell your home or rent it out? There are many things to take into consideration when deciding if you should sell your rent your home and there is no easy answer, everyone’s circumstances are different. So it’s important to weigh the pros and cons of each and then decide which option is best for you.

Can you rent an extra room in your home? This could be an untapped revenue opportunity, it could also be a complete nightmare. When trying to decide if you should rent an empty room in your home you need to consider who the person would be. How long it will be for? How often will they be in the home? Will they have access to the entire home? Do they have any pets coming with them? How much are they willing to pay? Sometimes trying to make extra money can end up costing homeowners/landlords a lot more money.

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About the Author

Top Wellington Realtor, Michelle Gibson, wrote: “Should I Increase My Tenant’s Monthly Rent?”

Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.

Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.

Should I Increase My Tenant’s Monthly Rent?