Crunching the Numbers: How to Calculate Rental Increases Like a Pro

Crunching the Numbers: How to Calculate Rental Increases Like a Pro

Last year it was reported that rent costs for new tenants increased by 12.2%. Most tenants know that rental costs regularly rise each year. However, if you're a landlord, you still need to walk a fine line when calculating these rental increases.

If you raise it too much, you'll scare away both old and prospective tenants. If you raise it too little, it might not be enough to keep up with inflation and property tax increases.

That's why we made this landlord advice guide. In it, we'll break down everything you should consider when calculating an increase in your rent - from the reasons to do it to the formulas you'll need.

What Are Some Reasons for Increasing Rent?

There are a lot of reasons you might want to consider increasing rent. Typically, the most cited explanation is annual inflation. However, you can say it has to do with real estate market changes, neighborhood modifications, and maintenance costs.

Just make sure you're doing the research in terms of official inspections and records. You don't want to give arbitrary reasons for raising the rent.

How to Calculate Rental Increases

The formula for calculating a rental income increase is fairly straightforward. Let's say you want to increase the amount of rent by 5%.

You're currently charging $900 for rent. So to calculate an increase, you would do the following: $900 + 0.05 x $900. So, in this situation, a 5% rent increase would equal $945.

Is There a Limit on Rental Increases?

Ultimately, this depends on where you live and the type of rental property you're dealing with. Here in Colorado, landlords and property management companies have the right to increase the rent by any amount that they want.

However, there is a limit to how often they can do this. According to law, they cannot increase the rent more than once within twelve months.

How Can a Property Management Company Help You With Rental Increases?

Calculating and asking your tenants to accept a rent increase can be stressful. It often involves inspections and confrontations from your current renters.

That's why a property management company can make your life a lot easier. Here at PMI Northern Colorado, we'll assess your property's condition and analyze the current real estate market.

From there, we'll update any rental price for your property. If your current tenants reject increased rent, we'll begin a screening process to find new tenants. Not only does it optimize your real estate investment, but it also makes your life a lot easier.

Ready for the Property Management You Deserve? Contact PMI Northern Colorado

We hope this guide helped you learn more about calculating rental increases. If the idea of crunching a bunch of numbers and asking your tenants if they're okay with higher rent sounds like a nightmare, PMI Northern Colorado is here to help.

We're a full-service property management company that can help with every aspect of preparing your property and selecting tenants. So if you want to find out how we can make your property rental experience simpler, contact us today.