Rent increases are something that many renters dread. That may even be a question that you ask before signing, while considering a rental. It’s a good question, but we must warn against not choosing a potential home based on the answer to that question. Even if a landlord advises no rent increases or offers a tentative schedule of increases, there will likely be some legal language in their lease that will allow for increase as their fiscal needs change.
Why the Increase?
A property owner rents for several different reasons. They may have bought the property specifically as an income property, wanted to sell but could not, or inherited the property with no desire to live in it. Regardless of choice or circumstance, they are now in the investment property business. And, that’s just what it is a business. Yes, for you it’s “home” but you must not lose sight of the fact that for your landlord it is a part of their business and they must make decisions accordingly. A prudent landlord will decide on things like rent increases with his bottom line in mind, but also, with thoughts of retaining his current residents.
Inescapable Reasons
Many landlords will only defer costs to their tenants that arise with a direct connection to the property. In other words, it’s not good business to raise a tenant’s rent because little Susie needs braces. A more plausible, ethical reason would be a homeowner’s insurance rate increase. Others might be:
- Property tax increase
- Improvements to the property
- Tax/Legal action against the property
- Cost of living
- The market/industry dictates
The last two may not seem like good enough reasons for your landlord to raise your rent, regardless of notice given or the language provided in your initial lease agreement. It makes perfect sense once you remove the personal angle. Every other business, including your employer, makes fiscal changes based on changes in the economy. As gas prices rise, so is the cost for landscaping. As the cost of anything that impacts a company rises, they defray their costs by changing their prices. So, as the cost of owning and maintaining an investment property rises, owners will have to make tough decisions regarding rental rates.
A landlord that never increases rent may do so because they are already priced higher than the market dictates and they know it. Some are able to do so because the demand is higher than the supply. When people are desperate to find a place, with little to choose from the landlord can set prices as they see fit. When the market does not favor the investor, rent prices reflect: the features of the rental (# of bedrooms, square footage, etc.), what is needed to make the venture profitable for the investor (mortgage payment – rent received = profit), and what is being charged for comparable properties in the same geographic area.
Before you make the impetuous and emotional decision to move/terminate your lease because the landlord gave notice of a pending rent increase, consider all of the factors. The landlord’s decision was most likely not made lightly. Flipping a property for a potential future rental is not as cost-effective as retaining occupancy of a current renter. Also, establishing a home is not the simplest of tasks. You don’t want to start all over because you’ve lost sight of the “why” in the scenario of a rent increase. Think about it and maybe just set aside a few extra dollars each month to budget for the possibility of a rate increase. Push comes to shove, you’ll be well on your way to the deposit for your next home. And, the cost of changing all of your utilities. And, moving costs. And… See?
