How to increase the rent on a tenant?

Question

Hello good investors,

What's the best way to increase the rent? probably an accurate rent estimator based on the rental property. Do you know think giving a holiday gift will soften the tenant to go the increase without giving trouble finding a new one?

Thank you in advance!

Charles Carillo · Answer

Yes, your expenses are going up; taxes, insurance, utilities, labor and materials. There is nothing wrong with a rent increase (tenants actually expect them). The problem happens when landlords want a 10%, 15%, 20% increase and they lose the good tenant. Now you have a vacant unit paying no rent. You need to invest money to make repairs/updates, re-rent it and then wait for them to move-in. This could take 2 months. Unless you are making major updates and raising rents dramatically for the new tenant; you are losing money.

If this is a large complex; you can be more aggressive since one down unit does not really affect your cashflow and you probably have a handyman that will do the work and possibly have a list of people waiting to move it. However, for smaller complexes, you need to be more realistic.

Erin Dreher · Answer

I agree I would not give the tenant a gift. It seems like a very nice gesture but it may blur the line between landlord and tenant. You don't want that line blurred.

Be reasonable about the increase. I worked in property management for 15 years. We would always try to increase enough that the tenant would not want to leave over it. It does depend how under market the rental is at now. Also has there been any increases in the past few years? If not you may can get by with $50-100. If you are going to go gradual I would just do $25.

Charles Carillo · Answer

This is a business relationship. You want to keep it that way. When it moves more to personal; that is when you start having trouble collecting rent.

My point is; if you want them to stay; don't jack the rents. I understand everyone wants to get their apartments to market rent but, what is more important is keeping good tenants in your units; even if they are paying slightly under market rents. When they move out, that is when you review rent comps and make necessary updates and repairs to fully capture market rents.

Leo R. · Answer

@Feras Saffar the best way to increase rent is to provide a higher level of value to tenants than your competitors. For instance, by offering a larger or nicer space at the same price as other landlords. At the end of the day, no holiday gift will save you if your rent is not at least in-line with the market, or better than the market.

To know the market, you have to collect and analyze comp data--including rent prices, property grade, neighborhood grade, amenities, etc., etc...if you're trying to rent a 3 br 2 ba B house in a B neighborhood, then you need to know what dozens of other 3 br 2 ba B houses in B neighborhoods are renting for, and then go from there.

Good luck out there!

Tommy Parker · Answer

Reviewing rental comps is a good way. Also, a gift won't soften it. Gotta make sure you're not increasing rent drastically and if you are make sure the place looks upgraded.

Charles Carillo · Answer

@Feras Saffar

You can determine the actual market rent by reviewing rental comps in your area. Look online through different apartment websites and find similar units near where your property is located and in similar condition. You can then send them a letter explaining the rent increase and to contact you with any questions. You want to put a deadline in the letter of when they need to let you know if they are resigning a new lease or moving out.

I would not give a tenant a holiday gift. If you want the tenant to stay, make the rent increase a reasonable one.

Drew Sygit · Answer

@Feras Saffar

We’ve found the best way to raise rent is:

• Determine market rent
• Share the proof with the tenant
• Tell the tenant, given your rent is $x and market rent is $y, what do you think if a fair increase?
• Their answer will tell you your chances of getting the accept a reasonable increase.
• ALWAYS get an increase or something of value annually or tenants will start thinking they don’t deserve an increase and become difficult.

Eliott Elias · Answer

Depends on what kind of operation you're running. If you like long term security I would price a little bit under market. If you want top dollar and can justify it with upgrades and updates expect higher vacancy.

Feras Saffar · Answer

@Erin Dreher

If you don’t increase the rent, wouldn’t lose profit if the property tax increasing?

One more thing, tenant and landlord. How should it be done? And if there is good discussion or blog that would greatly appreciated to share.

Thank you

Feras Saffar · Answer

@Charles Carillo

Why you wouldn't give the tenant a gift, is there a reason?

I have been a real estate investor for a year, I am still learning.

How to increase the rent on a tenant?

Most Popular Reply