Raising Investment Property Rent

Here is a great question that I received today: “Obviously this can only be done when the lease renews, but how do you decide when and how much to raise the rent on your tenants?”

As you imagine, that can be a touchy subject. I think raising the rent depends upon a couple items:

If the tenant decides to leave, can you re-lease the property for minimal cost and no vacant months? Losing a month of rent at $1200 is not worth the extra $20 you were going after.
Do you feel like the tenant is paying a fair market rent? If it is low or average, the tenant may not be able to find anything better and so they may be fine with an increase.
If you are leasing in the spring, you can be more aggressive because it will be easier to re-rent that property than in December.
Hopefully you are talking with the tenant 60-90 days prior to the lease renewal about their plans and the rent increase, to give you time to release the place if they decide not to renew.
Work with the tenant to see if they will let you set the lease renewal to 18 months (locking their rent) in exchange for the rent increase (you actually get a benefit of locking them in longer).
I would have the conversation with them verbally or in person so you can read their response. Also, it is tougher for them to say no to your face.
Use your best sales techniques to show them why they should both stay and accept the rent increase. At the end of the day, be honest.
Lastly, if they are a great tenant and I am nervous about replacing them, I may just leave it alone.

3 comments

#1scholarshipadvice.orgApril 5, 2008, 10:28 pm

I strongly agree that if the contract is far from renewal date, the property owner should not impose an increase in the lease unless the said raise is supported with acceptable reason. As a tenant, I would not mind the slight increase if my rent has not been increased for more than 2 years or if the increase is inevitable because of sudden inflation or changes in taxes. On the other side, property owners should clearly state such increase in the contract and its basis, say 10% annually or inflation rate whichever is higher.

#2Investment PropertyApril 7, 2008, 12:39 am

#3Ned CareyApril 11, 2008, 11:17 pm

One thing I think many new landlords forget is that it is a real inconvienence to move. The hassle of looking for a new place to rent, packing up everything and the actual move is strong motivation to stay put if there is a modest rent increase.

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