Recently, the US Labor Department reported that the annual rate of inflation was 5.4% as measured year over year. Let’s face it, the costs of everything are going up. That includes food, energy, taxes, insurance, household goods, etc. Basically, anything you can buy is getting more expensive by the day what leads to raising the rent.
Rents are also going up. From January through September of 2021, the national increase in rental rate has been 16.4%. Rents were already going up prior to 2020, but the Covid 19 pandemic hastened that increase.
It is reported that rental housing prices have increased 7% in the OKC metro area year over year.
Landlords Guidelines to Raising the Rent
As an owner, your rental property is an excellent hedge against inflation. When rents go up, it’s up to you to insist that, if it’s possible, the rents in your rental properties keep pace with the market. After all, you can count on all of the costs of operating your rental property (property tax, insurance, maintenance, and utilities) to go up.
Some of those, like property insurance, have some constraints on them (they can only increase a certain percentage per year). But other costs, like maintenance, are unconstrained. Labor costs and especially the cost of materials have gone up dramatically in some cases. These can be blamed on the spike in energy and labor prices and other supply chain issues that have resulted in supply and demand issues.
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When is it appropriate to Raise Rents on Your OKC Rental Properties?
When your tenant is within the timeframe of a lease agreement, the rent is established. It cannot be changed with notice. Rent can be raised at these times during the occupancy:
- While a tenant is month-to-month.
- Upon expiration of a lease term.
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More information to Raising the Rent
- The OKC rental market, like that of other areas of the country, is tight, and rents are increasing. But during times in which the market is flat (i.e., supply of rental outstrips demand), rents should not be increased.
- An annual increase is appropriate. I would not advise rental increases of a more frequent nature.
What is the Appropriate Amount to Raise Rents?
Some leases establish the amount in which rents will be increased. That is, a lease could state that upon expiration of the lease, the rent will increase a certain percentage to account for inflation. That percentage should be around 3% since that is the well-accepted figure for inflation.
If there is no increase established by the terms of the lease, your property manager should provide rental comps for the neighborhood. Rental comps are a good starting point in which to establish a rental increase.
I generally will try to keep the amount of the increase within a range that will not drive off a tenant.
For example, if there is a property that is under rented because rents haven’t been raised in some years, increasing the rent by $300 abruptly may cause the tenant to move. Do you really want a vacancy?
Keep in mind that the cost of vacancy outweighs the increase in rent in most cases. For example, as the owner, you will have the cost of vacancy, make ready, and any leasing fees that will be due to the property management company.
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How are Rents Increased?
Your property management company must provide notice to the tenant. I like to provide as much notice as possible to the tenant. Here are some guidelines on how to raise the rent:
- The property manager should provide an email or text notification as soon as possible (at least 45 days from the effective date of the increase is ideal). Give them an appropriate heads up.
- You are legally required to provide a written notice to the tenant 30 days prior to the effective date of the rental increase. This notice is to be posted on the property on the first of the month in which the rent is to be increased.
- The property management company should be sure to change the rental amount in their accounting system to make sure everyone in the office is aware of the new rental amount.
- If the tenant does not pay the correct amount, your property management company needs to contact the tenant to let them know.
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Frequently Asked Questions on Raising the Rent
Is there a legal limit to the amount in which the rent for a tenant can be raised in Oklahoma?
If the increase in rental amount is not established in a lease agreement, there is no limit. However, that amount should be reasonable so as not to cause the tenant to move as turnover is expensive.
Can you increase the rent of a section 8 tenant?
Yes, as long as it is not during a current lease term. And, the housing authority will need to approve the rental increase.
Does the notice of rent increase to the tenant need to state a reason for the rental increase?
It does not.
Is it advisable to always increase rent at the expiration of a lease term?
Generally yes, unless the rental market is in a condition of falling rents.