Rent is on the rise in Maryland and the rest of the United States. Government data shows the average rent payment increased by 12% in just 6 months.
This is no surprise to landlords and real estate experts who closely follow the market. Home prices are still near record highs and operating costs are increasing rapidly.
As a landlord, you have no choice but to increase rents in parallel with the economy. Read on for a comprehensive guide on how to calculate rental increases and explore landlord advice to help maintain a healthy level of rental income.
Why Is Rent Increasing?
Before starting your calculations, it is important to understand why rents need to increase. As a landlord, your primary objective is to maximize rental income. This is the amount you earn after the deduction of operating expenses.
Operating expenses are increasing across the board. For landlords who pay for heat or electricity, utility bills add up significantly. Other expenses seeing an increase include property maintenance, home insurance, marketing campaigns, and more.
In some cases, rents increase based on property improvements. Renovations or the addition of a new amenity may also cause a rental increase.
Landlords also need their income to keep up with inflation. The cost of living is up, and landlords need to adjust accordingly.
Lastly, there is a supply and demand element to increasing rents. Limited supply and heavy demand are moving the price curve in landlords' favor.
How to Calculate Rental Increases?
There are several ways to raise rent in a reasonable manner consistent with state law. Before taking any action, it is critical to research local laws and regulations.
You cannot raise rent too quickly and without cause and you should provide ample notice to your tenants. Also, discrimination or retaliatory increases cannot be the basis of a rent increase.
Using comparative data is one of the easiest ways to raise the rent. You can see how much other landlords raise the rent.
The internet gives you a wealth of information for comparative data. You can filter the available rental properties to find apple-to-apple comparisons. You will want to look for properties with similar square footage, number of bedrooms, and amenities.
Another method is to look at how much your operating expenses have increased. The percentage increase in monthly expenses is a good basis for a rent increase.
If you renovate the property or add a new amenity, you can spread the cost of the improvement over a duration of time. Larger and more expensive projects can be spread over a longer period. This sets the path for gradual rent increases that remain reasonable.
Your Guide to Increasing the Rent
You are now ready to increase the rent. Regardless of the calculation method, you need to do your homework. Market research or a detailed accounting of cost increases is necessary to justify the higher rent.
If you are looking for help calculating rental increases, contact us today at PMI Chevy Chase to speak with an experienced professional.