Raising Rent Responsibly: A Guide to Balancing Market Rates and Tenant Satisfaction

The rental market is clearly undergoing profound changes. For landlords, navigating the delicate balance between competitive rental prices and tenant expectations is more important than ever. With a significant percentage of U.S. households living in rentals, keeping abreast of market trends is essential.

Recent data released by NerdWallet highlights that asking rents in the U.S. have reached an average of $2,036, marking a 3.4% increase from the previous year. Furthermore, the rapid growth in rental costs observed since 2020 can be attributed to diverse factors such as inflation, housing shortages, and the repercussions of the pandemic on the rental landscape.

Faced with these dynamic market conditions, many landlords must adjust rental rates to safeguard their profitability. The challenge is to determine rental prices strategically that align with the current market and ensure the retention of loyal tenants.

Read on to explore the legal framework and best practices for raising rent while balancing profitability and tenant satisfaction.

Understanding the legal framework for rent increases

Navigating the intricacies of property rental management involves more than just determining the right rent price. It also requires a foundational understanding of the legal landscape that shapes how, when, and by how much landlords can adjust rental amounts. 

Here’s a more focused breakdown of the legal aspects of raising rent:

Local, state, and national compliance

Every level of governance, from local to national, can impose specific regulations around rent adjustments. You might be asking yourself, why is adhering to these so crucial? Well...

1. Tenant-landlord relations: By following these regulations, both landlords and tenants are ensured their rights are protected. For example, if your state requires you to notify your tenants before increasing their rent, and you fail to adhere to those rules, tenants may have a right to contest the increase.

This compliance fosters mutual respect and understanding, maintaining a harmonious living environment.

2. Legal protection: Not adhering to regulations can lead to severe repercussions. These include penalties, potential legal action, and a damaged reputation within the rental market. Being compliant is a proactive step in preventing these pitfalls.

3. Setting the standard: Consistent adherence to these regulations serves as a benchmark, showcasing best practices in the rental community and promoting fair and ethical rental practices.

Notice periods and percentage increases

Before increasing rent, landlords are often legally obligated to notify tenants.

Notice requirements

Before increasing rent, landlords are typically legally obligated to notify tenants. Most jurisdictions require a notice period—usually 30, 60, or 90 days—to ensure tenants have ample time to prepare for the change. This notice period helps tenants adapt by allowing them to adjust their budgets or consider other housing options if necessary.

In Texas, the situation slightly differs. Although there is no statutory requirement for a specific notice period before a rent increase, the common practice is to provide at least 30 days' notice. This aligns with general expectations and helps maintain good landlord-tenant relationships.

Capped Increases

Many regions enforce laws that cap the allowable percentage increase in rent over a certain period, ensuring that rent hikes align with economic trends and not arbitrary. 

Unlike these areas, Texas does not have statewide rent control laws, meaning there is no legal limit on the amount by which landlords can increase rent. However, landlords should be mindful that significant increases could prompt tenants to negotiate or even decide not to renew their leases. 

It’s also worth noting that Texas permits local rent control regulations under specific conditions, such as a declared state of disaster that leads to a housing emergency, but only with the governor's approval.

This approach integrates the Texas specifics smoothly, keeping the primary focus on general practices while detailing how Texas stands out regarding these regulations.

Navigating rent control laws

Certain regions have rent control regulations to stabilize the rental market and ensure housing affordability. These laws often aim to preserve a city or region's demographic diversity, which aids in maintaining the economic viability of property ownership.

While rent control can sometimes limit the potential income from a rental property, understanding and respecting these rules is essential for legal and ethical operations. Incurring a fine or penalty for not adhering to local regulations can result in severe financial implications.

Rent control laws often contain exceptions or specific nuances, such as properties built after a certain date or those that meet specific criteria. Landlords should be acutely aware of where their properties stand in relation to these rules.

While the motivation to increase the current tenants' rent might stem from various valid financial reasons, implementing these increases is heavily governed by law. A landlord's best approach is always to be informed, prepared, and, above all, compliant with the legal expectations of their jurisdiction.

Reasons for raising rent

Now that we’ve reviewed the legal framework for rent increases let’s explore why landlords might adjust rental rates. These decisions are influenced by various economic, local, and property-specific factors and are a fundamental part of property management.

Here are some primary reasons why landlords might consider raising rent:

Inflation and cost of living

Impact of inflation on property costs

Inflation diminishes money's purchasing power over time. As a result, the real costs associated with maintaining a property—such as repairs, utility bills, and services—tend to rise. What once cost $100 might now cost $110 or more, even if the property hasn't changed.

Adjusting rents for inflation

To ensure that the rental income maintains its real value over time and to cover property-related expenses, landlords often need to adjust rents. This adjustment helps to keep pace with the general increase in the price of goods and services, ensuring that property ownership remains financially viable.

Property improvements

Investing in the property

Landlords may renovate or upgrade their properties. This could include new appliances, structural improvements, landscaping, or other amenities that enhance the tenant's living experience.

Rent increases for value addition

Such investments increase the property's value and offer tenants a better living standard. As a result, landlords may increase rents to reflect this added value and recoup their investments' costs over time.

Rising property taxes and insurance

Correlation with local finances

Property taxes can rise due to various factors, such as local government budgetary needs or increased property assessments. Similarly, insurance premiums can surge based on regional risk assessments or increased claims in an area.

Passing on the increase

While these costs are external to the property, they significantly impact the overall cost of property ownership. As such, landlords may raise rent to compensate for these heightened expenses, ensuring their rental business remains sustainable.

Market demand

Assessing local rental trends

Like any market, the rental market is subject to the laws of supply and demand. A surge in demand for rentals in a particular area, perhaps due to a new business hub or improved local amenities, can increase rental prices.

For instance, Austin, Texas, is a popular destination for those seeking a higher quality of life in the United States. However, newcomers to Austin will not find relief in the cost of living. From May 2021 to May 2022, rents in Austin, along with other cities in Texas, surged by 48%. In comparison, cities like Temple and Waco experienced a 30% increase in rents during the same period.

Curious about rent increases in other cities? According to SmartAsset, these 10 cities have the highest rent increases from May 2022 to May 2023.

Source: SmartAsset.

Aligning with market rates

Landlords must monitor local rental trends to ensure they're not undervaluing their properties. If comparable properties in the area are renting for more, this might indicate that the market can sustain a rent increase. However, this should always be done reasonably, considering long-term tenant relationships and occupancy rates.

Pro tip: To get a precise estimate of what you should be charging for your rental property, check out our Rent estimate calculator. Just provide a few details about your property, and we’ll send you a free, comprehensive rent report based on similar properties in your area. This report will help you make informed decisions by showing you the high, median, and low rental rates nearby.

While rent increases might be contentious, they're often necessary for property management. Understanding the underlying reasons can foster transparency and mutual respect between landlords and tenants.

6 best practices for raising rent

Remaining profitable in a competitive market requires a sound investment strategy — not to mention sensitivity to the market conditions your tenants are facing. If you're wondering how to raise rent on a tenant, here are six proactive practices to keep tenants feeling informed and supported:

1. Provide advance rent increase notice

Your tenants shouldn't be blindsided by an increase in monthly rent. They must have enough time to consider their finances, adjust their budget, or prepare to find new housing long before their lease ends. 

Giving them a chance to plan demonstrates that you care about their living situation and don't want to put them in a challenging position.

2. Offer clear written communication

It's imperative that tenants receive written notification about a rent increase; it may even be required by local law or your lease agreement. Be clear, concise, and firm about communicating the new cost of rent and when it goes into effect — this way, tenants won't feel confused or uncertain about the future of their housing.

3. Be consistent with market conditions

It’s no secret that inflation hit an all-time high in 2022. Even though inflation is declining from its peak, as a landlord, you must stay attuned to market conditions, ensuring your rent remains competitive with similar units while still being affordable for tenants. Regularly evaluate your rent prices and adjust them according to the market and neighborhood rates. 

4. Make a reasonable rent increase consistently

Consider small, consistent increases over time rather than sudden, large hikes. For example, some landlords raise the rent by 2% or 3% each year. This is more financially feasible for tenants than a sudden 10% increase.

5. Include terms in your lease to avoid surprises

Specify the potential for rent increases in the lease agreement to manage tenant expectations. When creating your lease, be clear about your expectations and the possibility of a rent increase. That way, tenants won't be surprised if something changes when preparing to renew.

Pro tip: For fast, customized lease agreements that reflect local legal requirements, consider using Azibo. In just minutes, you can enter tenant details and generate a state-specific, legally binding lease complete with eSign capabilities.

6. Make upgrades or repairs to your rental property

Improve the property to justify the rent increase and enhance the tenant’s living experience. If you’re going to raise rent, making upgrades or repairs to the property demonstrates you care about delivering a great tenant experience — while also increasing the value of your rental property.

Pro tip: Utilizing tools like Azibo Maintenance and Messaging can streamline this process by allowing tenants to easily report issues. This centralized platform helps you track maintenance requests and communicate efficiently, ensuring that repairs are handled promptly and effectively, thus maintaining tenant satisfaction and supporting the rationale for a rent adjustment.

Understanding and managing rising rent concerns

With rent prices continuing to rise, tenants are understandably concerned about the impact on their finances. Here are some strategies tenants can consider to manage rent increases:

1. Open communicationsome text
   • Communicate with your landlord: Initiate a constructive conversation with your landlord to understand the rationale behind any rent increase. Often, landlords appreciate open dialogue and may consider a more modest increase for tenants with a strong rental history.
   • Seek a longer lease: Propose signing a longer-term lease at a slightly reduced rate increase. This can provide stability for both parties.
2. Financial assistance and budgeting:some text
   • Explore financial aid: Look for local government or nonprofit programs that offer rental assistance to tenants struggling with rising rents.
   • Adjust your budget: Review your monthly expenses and identify areas where you can cut back to accommodate the higher rent.

The don'ts of raising the rent

Raising the rent is a nuanced task for property managers and landlords. While there are many best practices to consider, there are also pitfalls to avoid. 

Here are some don'ts of raising rent:

1. Neglecting tenant feedback: Overlooking tenant feedback can lead to misunderstandings and conflicts.
2. Inconsistency and inflexibility: Avoid raising rent too often or arbitrarily. Be flexible with loyal and consistent tenants.
3. Overlooking property issues: Address maintenance issues before raising rent to ensure a positive living experience.
4. Failing to monitor the market: Keep an eye on competitor pricing and offerings to stay competitive.

In essence, while rent increases might be essential from a business perspective, how it's done can make all the difference in tenant retention and overall satisfaction.

Community discussions on rent increases

Participating in community discussions can provide valuable insights and support for both tenants and landlords. Here are some platforms where you can engage with others on the topic of rent increases:

• Reddit: Subreddits like r/Renting and r/Landlord offer spaces for tenants and landlords to share their experiences and advice.
• Facebook Groups: Search for local tenant or landlord groups in your area where you can participate in discussions about rent increases.
• City or Neighborhood Forums: Many cities have forums where residents discuss housing issues, including monthly rent increases.

How to raise rent on a tenant with confidence using Azibo

Navigating the complexities of rental business decisions, such as raising rents, demands understanding current market rates, property values, tenant turnover, and overall property management dynamics. Landlords should also stay informed about local laws, including rent control regulations, and keep abreast of property taxes and insurance costs. 

Successful landlords balance satisfying tenants and aligning rental income with market trends. Open communication about the reasons for rent increases—whether due to inflation or property upgrades—helps manage tenant expectations and prevent disputes.

In this challenging environment, partnering with Azibo can transform your approach. Azibo provides essential tools that help landlords make informed decisions and streamline the rent collection process. 

Discover how Azibo can enhance your property management strategy and streamline your rental business. Start using Azibo today.

Reasonable rent increase FAQs

What is the most a landlord can raise rent?

While there is no specific monetary amount to reference, the maximum amount a landlord can raise rent typically depends on local laws and any rent control laws that might be in place. In areas with rent control, strict regulations often govern rent increases, ensuring they align with a fair market rent value per rental unit. 

Landlords must also consider factors like market demand, the average rent in the local market, and any recent property improvements or amenities they've added. Furthermore, it's essential to notify tenants with a rent increase notice well in advance, as stipulated by lease agreements or state law.

How often can a landlord raise rent in Oregon?

In Oregon, landlords can usually raise the rent once every 12 months for month-to-month tenants. Recent state law changes have resulted in the implementation of rent increase regulations to ensure they remain reasonable. 

Oregon has specific restrictions on the percentage by which the rent can be increased annually, ensuring that it aligns with local market values and fair market rent considerations. Before raising the rent, landlords need to provide a rent increase notice in line with the state's regulations, keeping the tenant's rights and the lease or rental agreement terms in mind.