6 Tips for Raising the Rent Painlessly (Without Losing a Single Tenant!)

by | dolinsksite.ru

Like most pieces of the property management puzzle, raising the rent is part art, part science.

There’s a human element to it—that’s where the “art” comes into play. Fortunately, even that can be systematized.

Far too many landlords hesitate and fear raising the rent. But it’s a part of the business, as raising prices is a part of any business. Inflation waters down the value of your rents each year, all while expenses ranging from taxes to insurance to repairs continue to rise and cost landlords more money.

Here are six (and a half) tricks to avoid falling behind other rents in the neighborhood—and earn your best possible returns on your rentals.

6 Tips for Raising the Rent Painlessly (Without Losing a Single Tenant!)

1. Raise the rent incrementally every year.

If there’s no other piece of advice you follow in this article, follow this one.

Where so many landlords run afoul of rent hikes is that they wait. They let the rent fall far behind market level, and then try to raise the rent to normal market pricing all at once. But by that point, it’s such a large leap that it jars the renter’s budget, and they end up either leaving or resenting the landlord thereafter.

Instead, raise the rent by 2-4% every single year like clockwork. It will keep the rent competitive at market levels, and it’s a manageable increase for your renters.

Perhaps most important of all, it sets expectations among your renters. They’ll come to accept annual rent hikes as a fact of life, like paying taxes or politician sex scandals.

Bonus “half tip”: Schedule your lease terms to end in April or May, regardless of when the renters first move in. When the day finally comes when your renters non-renew and move out, it will be much easier to find replacement renters in late spring/early summer than other times of year!

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2.  Never raise the rent by more than 8%.

Raising the rent by 2-4% won’t scare off your renters. At 5-7%, they may start considering whether to move. Above an 8% rent hike, many tenants will move on principle, if not because you’ve busted their budget.

Again, don’t put yourself in a position where you’re $200 below market rents! It’s not fair to you, and it’s not fair to your renters when you raise the rent by so much at once.

Raise the rent incrementally every year to avoid this position.

Related: The Ultimate Guide on Raising Rent

3. Consider offering another option.

If you do raise the rent significantly, consider offering your renters an alternative to avoid the hefty hike: locking in a longer lease.

Imagine the following scenario: The rent is $1,500, and you’re raising it to $1,590. Your tenants aren’t happy.

But you offer a way out, you’ll lock in the rent at $1,550 for them if they sign a two- (or three!) year lease renewal.

Why would you make such a sacrifice? Because turnovers are where landlords lose the most money, and the most time in labor and headaches. The longer you can keep each tenant, the lower your turnover rate, and the higher your average returns.

4. Remember that better relations with your renters = higher renewal rates.

Maintaining warm relationships with your renters is easier than you think.

First, follow the best practices we outlined in this article about boosting your renter retention rate.

Here’s a quick and easy one: Whenever you call your renters about anything, spend 60 seconds warming them up first by asking about their personal lives. Keep a brief file on each tenant—their children’s names and ages, their interests, their jobs, and what was going on in their lives the last time you talked to them.

These files take only 30 seconds to keep updated each time you speak with your renters. It takes attention, not hard work.

Example: “Hi Betty, how are you doing? The last time we talked, little Bobbie was in the playoffs in his little league. How’d he and the team end up doing?” or “I know you’d been worried about that merger at work. How’d that go?”

You get the idea.

It’s amazing how big of an impression these small gestures make on your renters. They shift the context from an adversarial “money-grubbing landlord” relationship to a collaborative human relationship.

When you deliver the bad news that the rent is going up, they’ll take it much better knowing it comes from someone who bothers to ask about their lives and their children, rather than a faceless, soul-less check-casher.

5. Implement dual communication: phone and written notice.

By law, you must send written notice of rent increases. It must also be delivered within a certain timetable, usually 30, 60, or 90 days before the lease expires.

But that shouldn’t be the only form of notice. No one likes receiving bad news by letter; it’s impersonal and bureaucratic.

Related: Why Landlords Can’t Afford Not to Raise the Rent

Call your renters to deliver the news the same day you mail the written notice. Be friendly, professional, and polite but firm.

After investing a minute or two in the small talk we discussed earlier, present the news like this: “Betty, I wanted to reach out and give you the courtesy of a phone call before sending off the renewal form. This year, the rent is going up by $40. You’ve obviously been a great tenant, and we’d love to have you stay on. You should be receiving the renewal form over the next few days, and we’ll email you an electronic version as well since that’s easier for most people to check off, e-sign, and reply back with.”

If they push back against the rent hike, just respond with, “I understand, Betty. But rents go up alongside our expenses; it’s just a part of life. We’d love for you stick around, and we may be willing to negotiate a lower rent increase if you’re willing to sign a longer-term lease. But if you decide to move on, we understand, and we’ll work together for a smooth move-out process.”

See? Nothing to be afraid of.

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6. Poll about property upgrades—and sometimes make them.

Want your tenants to keep renewing year after year?

Another way to build trust and human connection—and to improve the value of your property—is to ask them what upgrades they’d like to see. Then, implement them sometimes (but not always).

Once or twice a year, when you talk to your renters, tell them, “Hey, Betty. I wanted to check in and see what kind of changes you’d love to see around the property. I can’t promise anything, but we value you as a renter and want to do what we can to keep you with us for the long haul.”

The ideas and suggestions you get will run the gamut, of course. Some will be outlandish, while others will be great ideas. Look for ideas that are affordable to implement but that will improve the value and marketability of the property long-term.

In other words, look for improvements that will justify higher rents for future tenancies, not just help you keep this one renter happy.

For example, many smart home upgrades are inexpensive to implement, but fun and exciting for tenants, and in some markets, they justify significantly higher rents.

No one likes hearing that their bills are going up, but renters won’t think twice about it if they can see tangible improvements around the property—especially improvements based on their own ideas!

Be a Friendly-But-Firm Professional

In all your communications with tenants, be professional, friendly, and firm.

Never argue. You do not negotiate with terrorists.

Build a human relationship with your tenants. Set expectations by raising the rent every year. It’s not just taxes and death that are inevitable, but also that your rents will rise every year!

But not by much. You’re not looking to bust your renter’s budget. You’re simply keeping pace with market rents in your neighborhood (and your ever-rising expenses).

If raising the rents is uncomfortable for you at first, write out a script similar to the examples outlined above.

You are not your tenants’ adversary. You are a service provider, they are a customer, and you want to work with them in a friendly and professional way, while still enforcing the rules and defending your boundaries.

What have your experiences been in raising rents?

Share your stories!

About Author

Brian Davis

Brian is a landlord and long-time rental industry expert, who teaches a free mini-course on passive income from rentals at SnapLandlord.com. He's also preparing to launch a revolutionary rent deduction from payroll service. Swing by his website, SparkRental.com, for free resources and education for landlords, rental investors, and property managers.

19 Comments

  1. Christopher Smith

    I would agree with this basic strategy. I generally shoot for 3% per year, and only vary that if local market comps have moved pretty dramatically in one direction or the other (which is uncommon). To my knowledge, I have not experienced any tenant losses by raising rents using this sound methodical approach.

    I have also heard the refrain that you should never raise the rent on a great tenant, and I totally disagree with it. If I have a great tenant I might discount the rent by $100 per month from the local market comps (e.g., on a $2,500 per month rental), but its even more important at that point that I raise that rent number by at least 3% in each and every subsequent year. In other words, the discount is maintained, but the rent continues to rise.

    Not too raise the rent annually puts you in the dilemma (which you note above) of losing out on several annual rent increases (which compound the error over time), plus it puts you in the very unenviable position down the road of having to do one massive rent increase in a belated attempt to catch up (which always makes you look like a total jerk). Alternatively, you can continue to mark time again losing rent each and every year until a tenant turnover event occurs (which could be many years), and then raise the rent, but presumably that is what you were wanting to avoid in the first place.

  2. karen rittenhouse

    Hi Brian:
    Our contracts spell out that we WILL raise rents by 10 percent annually. Interestingly, no one balks when signing the initial agreement.

    At renewal time, we send a letter stating, “As stated in your rental agreement, it is time for your annual 10 percent rent increase. However, because you have paid your rent on time every month, we will be raising your rent by only 3 percent.”

    Or something to that effect, depending upon the tenant. If we want the tenant out, their rent goes up by 10 percent!

    This gives us tons of flexibility and the tenant realizes they got a special deal. This makes the increase painless.

    Thanks for your post.

  3. Lots of good ideas, here is one more. I send a copy of the Zillow rent estimate when I raise rents. My increases are always below the estimate. I am letting them know that I value their tenancy enough to charge less than the Zillow value but making them aware of my knowledge of the market as well. Many of my tenant’s are getting $100 increases this year, (7-9%), however the Tacoma market is one of the strongest in the country. I never raise rents more than once in 12 months. Some property managers are raising rents every 6 months and adding new fees as well. When units come available they go to the top of the market.

  4. Edward C.

    Great article. Agree on the ~8% as a decent benchmark at which point an increase could cause turnover. It just so happens that 8% equates to about a month of rent for a given tenant.

    So assuming a tenant would have to pay a listing broker’s commission, paying an 8% increase in rent is economically equivalent to paying a broker when moving into a new place (am purposefully ignoring switching costs).

    From a purely financial perspective, I’d imagine 8-10% really is the upper bound of what you could pass through in a given year. And given the compounding effect of percentage increases, I’d be surprised if a tenant would stay through multiple years of 8-10% increases.

    I am also personally in the boat of 3-5% annual increases (depending on the tenant). Enough to stay in line with / outpace inflation, but not so much that the alternative of moving to a new place is an economically neutral decision.

  5. Anna M.

    This could not have come at a better time. I have been struggling with this issue but I know that I am definitely below market rents, yet have been going back and forth on what I need to do. Thank you Brian for this article. It illustrates in a very easy to follow way on how to go about raising rents and I will certainly be applying your suggestions. I am going to be following you on snaplandlord.com as well as sparkrental.com as I feel that there is a lot I could learn from you. Thanks again.

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