The Effects of Inflation on Rent: When do you increase Rent?

1. What is Inflation?

Simply put, inflation is the decline of a currency’s purchasing power over time. The inflation rate is the rate at which that purchasing power declines on an annual or monthly basis. Inflation means your dollar buys less than it used to over time, and, as a consequence, the price of goods and services goes up over the years.

What does this mean as a property owner? The governing tenant boards allow landlords to legally raise rent to keep in pace with inflation.

2. How Does Inflation Affect Rent?

Under normal circumstances, Inflation typically has a positive impact on rent for property owners because it means that they can increase rent and therefore, the income they bring keeps in pace with the rising price of goods. Inflation also benefits property owners because the price of construction and goods goes up also.

Of course, inflation isn’t all positive for landlords because even though their rental income will go up, so will their expenses. At the same time, rental rates tend to remain consistently on an upward trajectory during harsh economic times, which is why investing in property is seen as a good investment. Investing in real estate means you’ll always be able to keep pace with these costs.

As a nice bonus for rental property owners, inflation also increases the cost of housing, which means fewer people can afford to buy a home, which increases demand for rental housing as a consequence- supply and demand.

With increased demand and little supply, property owners are more likely to get the rental rates they’re asking for even if they’re a little high because even though goods and services may be more expensive, everyone needs a roof over their head, and renting housing is generally still cheaper than buying housing, even with inflation accounted for in both scenarios.

3. When to Increase Your Property’s Rent?

It would be nice as a property owner if you could just raise rents and therefore increase your gross income whenever it suited you, but there are strict rules as to when you can increase your rent that apply both nationwide and statewide.

Right off the bat, you cannot increase the rent until the current lease agreement you signed with the tenant expires, so you are locked in at whatever rental rate you agreed to until that happens. 

That being said, if your agreement is month-to-month, you cannot raise the rent until the end of the month.

Also, to keep everything fair for your tenants, in most states you have to give at least 30 days’ notice before you can increase rent. 

In states like California, you must give 60 days’ notice if the increase is more than 10% of the rent. Even if you’re running a rooming house, where rent is often collected weekly, you still need to give 30 days’ notice for rent increases.In terms of how much you can increase rent by, anything goes unless you own a rent-controlled or rent-stabilized apartment. In that case, the state and the city governments set strict rules as to how much and how often rent can be increased.

Here are some things to consider regarding an increase of rent to your tenants:

• Market rates have increased
• Property maintenance expenses that need to be covered 
• Property taxes have increased
• Insurance premiums have gotten higher
• Homeowner’s association or condo fees have gotten higher