Are you preparing to raise the rent on your South County rental home? Remember that rental increases in California are largely driven by the statewide rent control laws, and your increase will largely depend on whether your property is included in those laws or exempt from them.
Determining what a rental increase should be depends on the legal limits that may be imposed and a number of other things, including market conditions, competing properties, and the value of your own rental property within a competitive market.
Most residents expect an increase in rent when it’s time to renew the lease agreement, even with statewide rent control provisions in place. There’s no reason to shy away from raising your rents, unless the market has dropped considerably.
Here are some of the ways we determine what a rental increase should be as professional property managers.
Rent Control and Its Impact on Rental Increases
If your rental property is included in the rent control measures enacted under The Tenant Protection Act of 2019, rent increases are limited to 5% of the current rent plus the local rate of inflation, which is established by the Consumer Price Index (CPI), or 10% of the current rent, whichever is lower.
Make sure your property is covered before applying these rules when it’s time to raise the rent.
We always want to make sure to calculate carefully. Use the correct CPI and document your math in case of a dispute. It’s also important to stay informed of the latest CPI numbers, which are updated annually. Revisit that allowable increase every year, and if you’re not sure what it is, a local property manager can be your best resource.
Deciding How Much to Raise the Rent
It can be a challenge to determine how much to raise the rent. You don’t want to chase good residents out of your property with an increase that’s higher than what they’d pay elsewhere. And, you don’t want to fall too far below market rents by offering a renewal at a rate that’s too low.
Here’s a practical guide to determining a fair and effective rental increase when it’s time to renew the lease.
- Review the Local Rental Market
Start by comparing your property’s current rent to similar rentals in the area. Use online platforms to start your research, but always consult with local property managers. We have access to data that’s far more reliable than what you’ll find online. Consider what similar-sized homes are renting for and whether the amenities you offer are competitive. Look at location-specific factors, such as access to schools and shops. Tenants are comparing where they currently live to other rental homes, too. You want to see what they see so you know what you’re up against when you’re trying to keep them in place.
- Consider Inflation and Operating Costs
You cannot price your property based on your own personal budget. While rent increases should keep pace with inflation and rising costs, you cannot increase rent by a large amount just because your insurance premiums jumped by 20 percent. It’s fair to reflect those increases in the new rent, but don’t be unreasonable.
In California, we’ve found that a 3–5% annual rent increase is typical and often aligns with inflation trends. However, always consider market forces and your rent control laws.
- Evaluate the Tenant Relationship
A long-term tenant who pays on time, maintains the property, and causes no trouble can be more valuable than squeezing out a few extra dollars per month. So, we encourage rental property owners to ask themselves how interested they are in keeping their resident. Are they reliable and low-maintenance? Would a modest increase keep them in place? In some cases, you’ll want to guarantee the lease renewal and so it makes sense to offer a slightly lower increase. This is a better financial move in the long-term than risking a pricey turnover and a potential vacancy.
- Consider Timing and Vacancy Risks
Market dynamics matter, and homes tend to rent faster in certain times of the year than in others. Is it peak rental season during lease renewal time? Are there a lot of available rental homes nearby? When you’re offering a lease renewal with a new rental rate, consider how easy or how difficult it will be to find a new tenant. If we’re in the early spring, you’re in a pretty strong position; a lot of tenants move in spring and summer. If we are approaching the holidays or the end of the year, finding a new tenant might be a bit more difficult, and you may want to consider that when establishing your new rental amount.
Communicate Increases Clearly and Professionally
If you do raise the rent, explain why, and remain professional.
Provide details in writing so that residents have documentation and a justification. We recommend that you’re friendly, but concise and straightforward. In detail, communicate the reasons for the rental increase and what your residents can expect in their new lease. Be open to answering any questions they may have and use this as an opportunity to strengthen your relationship with your residents.
Responsiveness will be crucial. If your residents request a meeting or need clarification, be available and accessible.
Rent increases are a natural part of owning a rental property, but they should be approached with a blend of business sense and tenant sensitivity. A well-researched, reasonably timed, and respectfully communicated increase can help you maintain a profitable rental and a stable tenant relationship.
We spend a lot of time studying the market, establishing fair and competitive rental values that are still profitable for our owners, and communicating with tenants. If you need any help establishing a rental increase that is smart, fair, and stress-free, we can provide all the support and resources you require.
Contact us at South County Property Management. We serve Santa Clara County and South County, including San Jose, Campbell, Saratoga, Cupertino, Sunnyvale, Los Gatos, Milpitas, Morgan Hill, Gilroy, and neighboring areas.
