Part II - When to raise the rent
As a general rule its recommended to
NEVER increase a new tenant the first year. Reason for this is that it's a sign of good faith showing the tenant that it's not just about money.
If you have a very good tenant always keep them a little below the market to give them a good reason to stay with you.
You should always check with your local tenancy office to ensure that you follow all applicable laws. Some states/countries have rent control which you would be wise to follow.
So when is it appropriate to increase the rent?
There is only one reason where a rent increase is a good idea:
The market is able to bear a rent increase
You need to know your market hands down. Check out other article
How to determine the optimal market rental rate on how to do that.
Typically its recommended to only increase an
apartment every second year or so. It is largely dependent on how the market behaves. If there is a sudden increase in the rental rate you might choose to increase every year.
There are other situations where it's a good idea to do rent increases every single year.
One of them is if you bought the
apartment with a current
tenant and the old property manager did not follow the market thereby resulting in a rent that is too low. In a situation like that you should increase the rent as much as legally possible until you have it at the current market rate. You might want to tell the tenant of your plans so that they are informed of what will happen.
Often if you buy an apartment where the old
landlord did not keep up with the market, there is also a very good chance that the tenant might not be of the best standard. Letting the tenant know that you will be increasing the rent every year as much as legally possible might also give him a reason to move out solving two problems at once.
Quick tip
Never forget that people generally do not like to move. If you do small rent increases once year or every second year and keep it fair tenants will not move out simply because of the hassle of doing so. If you do large increases you will drive any tenant out.
Save to del.icio.us