How to calculate the rent increase by the CPI

Renting a second apartment or house is one of the most used operations worldwide to obtain a stable monthly income. Although owning properties is in itself a protection against inflation, when they are unoccupied they originate maintenance expenses that can only be avoided by renting the property to a third party.

In this way, the property will pay off month by month and you will get an extra income while the property appreciates in the market. However, you must take inflation into account, since if the rental fee is not adjusted periodically, you could receive less money than you need, thus reducing your purchasing power.

When to update the rent

Although it is true that the cost of living rises every day – especially in countries with annual inflation above 3% – you cannot increase the rental fee on a daily basis because this would represent a violation of the tenant’s rights. The best way to do this is at the end of the year and using a reliable economic indicator with which both parties agree.

Before signing the contract in the Public Property Registry, review the rules that regulate the rent of real estate in Mexico. Although there is no specific regulatory body, there are laws that include some principles, such as the Federal Civil Code and the Civil Code enacted in each entity.

It is important that you include in the lease a clause that refers to the periodic adjustment of the rent for inflation. Thus, you will protect your assets and certify that the tenant agrees with the future modification.

How to calculate the rent increase according to the INPC

The National Consumer Price Index (INPC) is a common economic indicator worldwide. Nations such as Spain, the United States and Mexico use the INPC as a reference to adjust the prices of the products or services they sell, the value of their work as an independent and the amount of rent in housing rentals.

In the Mexican case, this indicator is calculated by the National Institute of Statistics and Geography ( INEGI ), which adjusts for variations in the rental of houses and apartments on a semi-annual basis.

Take into account all regulatory aspects before adjusting the canon. For example, the Federal Civil Code establishes that:

  • The canon can only be increased annually
  • The price must always be stipulated in national currency (Mexican pesos)
  • In the case of lease contracts whose fee does not exceed 150 UMAS ( Unit of Measure and Update, known in other countries as the Tax Unit), the adjustment may not be greater than 10% unless both parties agree to it.

Formula for calculating the increase in rent

Calculating the rent increase with the INPC is quite simple. To do this, you will need to include the lease amount set in the last signed contract and the variation or rate of the INPC corresponding to the item of real estate leases of housing in the following formula:

Updated rent = (rent canon – INPC rate) + rent canon

For example, if you have a small apartment rented in Mexico City for 1,300 pesos per month and the INPC variation rate is 8%, then the new annual rent for the next contract will be 1,404 pesos.

Updated income = (1,300 x 8%) + 1,300 = 1,404 pesos

Are there other ways to update the rent?

Yes. One of the most used in areas like Pedregal, Guerrero or Lomas de Chapultec, is based on the supply and demand market.

But as there is a legal update limit according to the Civil Code, you can only obtain a higher price for the rent of your property in those locations if you choose not to renew the lease and are looking for another tenant who agrees with the new rate.