Why Do Landlords Raise Rent Annually?
Annual rent increases feel like a given, but it doesn’t make receiving that notice any less frustrating for tenants. That’s especially true when you live on a property where the owner doesn’t put any of the money they receive all year round towards upgrades and maintenance. As a result, it’s pretty common for many renters to feel like their landlord is just being greedy. Continue reading below as we’re here to examine the reasons why landlords raise rent annually, along with the valid factors that they need to consider regularly before proceeding with the increase.
Why Is Annual Rent Increase Common Across the Rental Market?
General Inflation
For starters, general inflation is the most fundamental driver behind annual rent increases. As time goes on, money loses value, and landlords have to cough up more to afford repairs, maintenance, and property taxes. Unfortunately, this means a reduction in their profit, and to keep their margins equal, a rent increase is necessary. If you’re a property owner and apprehensive about raising your rent, hiring a rental property management in Texas can help discuss affordability options or concerns with tenants on your behalf.
Economic Trends
Another factor that justifies a rent increase is economic trends. For instance, if you own property in a neighborhood that’s experiencing demand, chances are high that your neighbors are going to raise their rent too. The more renters want to buy into a particular area, the higher the price because houses in those areas are worth more to the market. In other words, raising the rent is not really about profit, but it’s about maximizing the property’s potential return. Also, such neighborhoods often pay more in property taxes and utilities, so you need to offset that cost by charging competitively.
Increased Operational Costs
Owning a rental business means patronizing multiple other businesses, from the exterminator who can ensure your house is pest-free to the cleaning company that keeps your house organized between tenants. As a result, when these businesses raise their rates, you also have to act accordingly. That’s because when your operational costs go up, your net profit reduces, and adjusting your rent in the coming year helps you cover these losses. After all, running a property isn’t cheap, and these expenses will quickly eat into your income.
How Can Tenants Prepare for Rent Increases?
Track Local Market Trends
Monitoring rental property finances can help answer the question, “Why do landlords raise rent?” For instance, if there’s a new tax landlords have to pay, you can expect a renewal notice with a slight increase in the coming year. However, it’s also essential to know the value of the property you’re in by doing cross-comparison with similar units. Focus on properties with the same number of bedrooms, baths, and other amenities, such as in-unit laundry or parking, to find out what they charge. Keeping track of these trends will help you know if your landlord’s hike is justified or if you can get a better deal elsewhere.
Review Your Lease and Local Regulations
Not all rental increases are justified, especially when they go against your current lease agreement or local regulations. If you live in a city with strict rent control laws that prevent rent increases beyond 5%, your landlord would be in the wrong if they sent you a notice with a 7.5% hike. In other words, it would be in your best interest to get familiar with your lease agreement and local laws so you don’t get cheated.
Negotiate with Your Landlord
That brings us to the next point, which is to negotiate with your landlord. You don’t always have to take every rent increase notice as something set in stone, especially if you’ve been a tenant for a long time. Don’t be shy to leverage your existing relationship with your landlord to either reduce the hike or put it off by a couple of months while you figure out your finances. You can do this by highlighting your tenant value through a track record of punctual payments, being a low-maintenance resident, or a long history of staying on the property. Most property owners would be inclined to reach a compromise to accommodate a good tenant, rather than go through the hassle and cost of finding a new one. Also, you can make the negotiation appealing to your landlord by proposing a longer lease or asking for an upgrade to offset the increase.
Conclusion
Landlords typically raise rent because of market conditions and inflation every year. They also have to consider the increase in operational costs and local economic trends that can increase the demand. As a result, these factors keep rent on a steady upward path.
On the other hand, if you’re a tenant, you don’t have to be blindsided by rent increases as long as you keep up with local market trends. Remember to check your lease and local regulations to ensure you’re not being taken advantage of, and remember that you can still negotiate.