Money / Financial Planning
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Many renters across the United States are experiencing skyrocketing rental prices. While an annual increase at a reasonable rate is usually expected, all bets are off in the current housing market.
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What can tenants do about it? GOBankingRates spoke with Amy Mueller, Vice President of Communications at ApartmentAdvisor, who shares next steps renters can take to prepare for and negotiate a rent increase and considerations to consider before finding a new living situation.
How much should a reasonable rental cost increase?
In a stable market, Mueller said a reasonable annual rent increase would be in the 3% to 6% range.
Rental prices in the current housing market continue to rise rather than decline. Findings from Zillow’s July 2021 Real Estate Market Report revealed that US rents grew 9.2% year-over-year in July 2021. Small affordability gains by renters during the early days of the COVID-19 pandemic as discounted landlords ended their rents .
Now, rents continue to exceed expectations, and many of the increases, in an economic period characterized by inflation, appear to be extreme by comparison. “Demand is back in many urban markets compared to the early days of the pandemic, and landlords are more confident in their ability to fill their units at these high prices, both with existing and new tenants,” Mueller said.
How do you prepare for a rent increase?
If your rent is increasing and you want to stay where you are, Mueller recommends taking the following steps.
Check your rental contract
The first step that tenants should take when faced with a rent increase is to read the lease agreement. Check to make sure the rent increase is legal.
Mueller uses the example of tenants who have signed a one-year lease. The landlord cannot raise your rent before the term expires. They must also provide written notice to tenants unless otherwise stated.
For tenants who live in a rent-controlled apartment, Mueller said a landlord cannot increase your rent more than what local law sets.
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“Your landlord should tell you what is required about the rent increase as per the lease agreement,” Mueller said.
Do not panic about the situation. If you live alone, live with a partner, or have roommates, you can start exploring the pros and cons of accommodation or whether you should find a new apartment. Tenants who live with other people, such as roommates, should collectively conduct this discussion together for consensus when making their final decision.
Search the market
One of the best ways to prepare for a rent increase is to research and learn about current local market values. “Not only will this help you assess whether the rent increase is reasonable, but it will also give you a better idea of what is available — and at what price — if you decide to find somewhere else,” Mueller said.
Reevaluate your budget
What percentage of the rent increase can you afford? Muller recommends doing the math about whether you can afford the increase or simply what you can afford.
Remember: the general rule of thumb is to keep your share of the rent at 30% or less of your income. Calculate the increase you might be able to afford using the rent calculator. Tenants who live with roommates need to discuss the increase together. Make sure everyone is comfortable with the extra expenses. If not, ask if you plan to stay together if you decide to move to a new place.
What if the rent increase is not reasonable?
There are some actions that tenants can take if they receive a rent increase that is unreasonable or not feasible for their budgets. Tenants may reach out to their landlord and try to negotiate an increase. Some landlords may be willing to offer accommodations, especially to good tenants who don’t want to lose them.
In other cases, negotiating a rent increase may require more preparation. Mueller recommends that you ask to meet with your landlord for a discussion. Here are some of the strategic areas to focus on during rent increase negotiations.
Do your price duty
Gather your market research and show it to your landlord. Share examples of asking rents for similar units in your area if those units are less than what was suggested in the rent increase.
Don’t let any emotions get the best of you during this meeting. Tenants must be polite and professional when communicating with landlords.
It is also important to treat the conversation as a discussion, not a confrontation. Mueller said tenants may acknowledge the position of the landlord, then suggest a price point backed by tenant market research data.
Related: The 25 Worst Rental Markets in the US Right Now
Highlight your value
What makes you the type of tenant that the landlord wants to keep rather than lose? Use this discussion to remind the landlord of the value you bring as a tenant.
“Landlords love tenants who pay rent on time, take good care of their apartment and common areas and don’t cause problems with other neighbors in the building,” Mueller said.
Ask about other things
The discussion the tenant has with the landlord may mean asking for other things. The owner or property manager may have more flexibility in providing accommodations in other areas.
Tenants who plan to stay in their apartments for the long-term may inquire about signing a longer lease at a lower rate as part of their negotiations. If you pay extra fees for pet rentals or parking, Mueller recommends asking for discounts on those fees.
What if you love where you live but don’t like the rent increase?
There are a few options that renters may consider. The first surrounds the cost of transportation. These factors in physical transportation costs, such as broker fees, potential transportation or parking expenses, time off from work, and emotional costs associated with relocation. If those costs exceed or come close to the monthly increase over next year, Mueller said tenants may decide it’s not worth moving in.
Another aspect to consider is the current tight housing market. Tenants may find that getting a new place that fits budgets better may require moving to a different neighborhood in your city or living in a smaller place with fewer amenities. There is another aspect where tenants may find something that works better than your current location, Mueller said, so it’s a good idea to stay open. But, tenants will also need to find a place that meets their needs and determine if they are willing to make any necessary compromises.
“If you really love where you live, it’s probably worth fighting for where you are, whether it’s trying to negotiate with your landlord, or making the new budget work,” Mueller said.
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