Rent Increasing and Negotiation

[Joshua Hanson]

I have a house in Las Vegas that is managed.  I've been slowly raising rents, but am far below market rents.  They are currently at $1370/month.  They moved in four years ago at $1265.  Market rent is at least $1800 now.  When I told manager to raise to $1525, they came back with $1450.  I countered at $1490 and have been countered again at $1475.  I didn't anchor at a higher price to be able to come down to where I wanted it and am not sure I've set a good precedent with negotiating rent increases.  They have been decent tenants and even though rental market is strong, I don't want a vacancy right now as renovation costs are high right now.  I'd love to hear some feedback about how others have handled these situations.  Thanks in advance!

[Bill B.]

There shouldn’t be a “negotiation” on the rent you want to charge between you and your PM. OTH, they should know what market rate is and should provide a reason they think it’s much lower than you do, or why they don’t want to charge it. 

If they are a good PM that doesn’t make more money churning tenants and doing rehabs they may want to avoid the the vacancy like you do. That’s a point in their favor, many PM’s would want the vacancy to make more in fees. 

There is maximum you can raise rent and have any hope to keep the tennant. (If the market rent was suddenly $3,000 the current tenant probably wouldn’t stay at $2700.). That being said, $100 increase in our market is a non-increase. In the last 3 months I’ve had 3 renewals and the least increase was $200, ($1295 to $1495) and the highest was $455 ($1395 to $1850). At the end of March I have a renewal that I offered a $1995 increase to $2125 for a year. They wanted two years and I said only possible at $2,225. They signed instantly. 

I would at least contact a couple, other local PM’s and ask what they would charge for rent in you were to move your property to them. If it’s above $1,575 I would either tell current PM I want $1575 or move and let new PM do the renewal, but make sure they don’t make most of their money on tenant churn.)