The Psychology of Increasing Rent/ Suggestions?

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The Psychology of Increasing Rent/ Suggestions?

Mike Terranova
Real Estate Agent · Hockessin, DE · Member since 2017 · 4 posts · 2 votes

Hello fellow BP members!

I’ve got a tenant who is finishing their 2nd year living in the property. They’ve been amazing with very minimal problems. The landlord/ tenant relationship has been great and they even message me on holidays wishing us well. I’ve got approximately 60 days before their renewal.

I have two questions:

1) Rent is currently $1375/ month with yearly lease renewals. I’d like to increase rent and am considering $1400. The psychology of seeing $1300 vs $1400 could look massive….maybe…thoughts? I’m considering $1395 for this reason.

2) What are you tactics for rent increase?

-Certified mail

-text message

-phone call

-email

-notifying tenants when they first sign of a timeline and % the rent will increase before they even move in

-not increasing rent with amazing tenants

Much appreciated and all the best in 2022!

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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y

@Mike Terranova given the highly inflationary environment, people are seeing groceries and other things increase 6-18%. You are proposing a 1.8% rent increase which is far below historic average inflation of 3%. I wouldn't even spend one more second worrying about how this will be received, but I would question if you should be increasing it more. My landlord insurance is going up 25% and most cities will increase taxes to match escalating property values. Make sure $25 is enough.

As far as how to send it, I would send via email and regular mail. I would follow it up with a text. Just notify them, don't ask if it is ok or approved. They have the option to give notice and move out. 

Just to be very clear NOBODY will move out over a $25 rent increase. The cost and time involved in moving would be more expensive than that. If they do move, they were planning to move anyways. Generally speaking people do not move when rent increases. They move for a nicer property, better location or because they are buying a home. Keeping rent low will not stop people from moving, unless you jack it up above fair market.

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    4y

    @Mike Terranova given the highly inflationary environment, people are seeing groceries and other things increase 6-18%. You are proposing a 1.8% rent increase which is far below historic average inflation of 3%. I wouldn't even spend one more second worrying about how this will be received, but I would question if you should be increasing it more. My landlord insurance is going up 25% and most cities will increase taxes to match escalating property values. Make sure $25 is enough.

    As far as how to send it, I would send via email and regular mail. I would follow it up with a text. Just notify them, don't ask if it is ok or approved. They have the option to give notice and move out. 

    Just to be very clear NOBODY will move out over a $25 rent increase. The cost and time involved in moving would be more expensive than that. If they do move, they were planning to move anyways. Generally speaking people do not move when rent increases. They move for a nicer property, better location or because they are buying a home. Keeping rent low will not stop people from moving, unless you jack it up above fair market.

    4Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Regardless of whether they are an awesome tenant or not, they are not going to move out over a $25 a month increase. If they squawk about it, then they are unbelievably cheap......

    2Reply
  • Patrick M.
    Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
    4y

    My market had rent control tide to CPI. The rent could only be raised by the amount of yearly CPI (from 4 months before lease expiration). The 12 month CPI in Delaware from December is 6.6%. That would call for a conservative increase of $90.75. 

    I am on great "terms" with all of my tenants, but that doesn't matter, I send them out a yearly lease renewal with a letter informing them of the rent increase. You should cite this figure if it makes you more comfortable.

    Trust me- tenants know the scarcity of units and if they decide to leave it is not going to be over $25.

    2Reply
  • Eric Armstrong
    Investor · Wilmington, DE · Member since 2013 · 394 posts · 123 votes
    4y

    @Mike Terranova definitely put it in writing and certified mail/proof of mailing. You could mention in text also in addition to the mailing. $25 should be fine.

    1Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    4y

    How you do it will partially depend on local laws. What is required by law?

    It depends on the tenant, but I generally just do a text. "As you know your lease is ending on [DATE]. I assume you wish to renew. Please let me know ASAP, no later than [30 Days Before End of Lease] if you would like to renew and I'll get the new lease over to you. I do have to adjust the rent to $1400".

    My biggest question about what you are doing is where you're getting your numbers from. What is market rent for the unit? This is your starting point for figuring out how much rent will be upon renewal.

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    I'm confused and wondering if you have a typo? You're talking about a $25 increase, which is nothing. If you want to stay close to market, your increases should be at least 3% every year. I believe the average rent rates in Deleware increased by 8-9% last year and probably close to that in 2020. You can expect an even higher increase in 2022. 3% increase, at a minimum.

    I give notice by sending a letter offering them three choices:

    1. Renew for an additional year at a rent rate of $XXXX
    2. Continue on a month-to-month lease with a rate of $XXXX (I usually increase the rent 20-25% for a M2M lease)
    3. Give notice of intent to terminate at the end of the current lease (provide instructions on how they should give you notice)

    I set a deadline for them to respond so this isn't hanging out there for weeks. I also let them know that if they fail to provide me a response by [DATE] then their lease will automatically convert to a M2M lease at the rate listed in Paragraph 2.
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  • Mike Terranova
    OP
    Real Estate Agent · Hockessin, DE · Member since 2017 · 4 posts · 2 votes
    4y

    @Nathan G. It definitely wasn’t a typo :)

    I guess I was focused on the psychology of the increase with the potential of losing an awesome tenant. A 20% increase would price myself out of the market, but certainty not a 5% increase. Your reply along with everyone else tells me that I should focus on the numbers. After all that’s the big part of why we all do this. I really appreciate everyone’s responses! All the best in 2022!!

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Originally posted by @Mike Terranova:

    I guess I was focused on the psychology of the increase with the potential of losing an awesome tenant.

    Remember that for every great tenant out there, there are plenty more...of course if we can keep the ones we have and make a fair rate for our landlord services, then it's a big win/win for everyone. But we're running a business here after all.....

    1Reply
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