How to negotiate big rent increase with tenants

Question

Hi all,

2 years ago I've become a landlord and am renting out my old apt (during the height of covid discounts in cities like NYC and Jersey City). Since then, most discounts are gone and rents seemed to have increase quite a lot. I sent my tenants a renewal lease to increase the rent by 16% which seems to be in line and still slightly under market but obviously were shocked. We've scheduled a phone call to talk about it. I do want to keep them as tenants as turnover is expensive and they're fairly good tenants. Can anyone give good negotiation tips? Aka, I would love to get the 16% increase, need at least 10%, but fear that I'll cave too quickly to 10%. Would love to hear some stories / experiences with similar cases! thanks a lot

Patricia Steiner · Answer

This isn't going to go well for you on the course it is on.  What you 'need' for rent is one thing; what the market rent is - is quite another.  How does your 'needed rent' compare to that for a comparable property in your market?  If you want to keep your tenants, then price to the market.  It maybe that the rent would be even greater than the 16% you referenced.  Then you simply advised that effective whenever, the rent will go to $xxxx which is reflective of current rents in the market.  If they decide to move, they move - but you'll be priced right for acquring quality tenants.

And, remember: you're running a business.  Customers don't set prices - the market does.  Don't negotiate rent - it is what it is and it is what you're entitled to for the goods/services provided.  If you don't position the rent increase in a confident and market driven manner, why should your tenants respond in kind.  Take the time to understand the market rent and demand and then price/communicate accordingly.  This is everyday stuff in the business world.  Best...

Matthew Kwan · Answer

I would check in and confirm what your city rent increase limit would be. Some states would have to require sufficient notice like 6months over in Seattle, WA in order to increase the tenants rent. However, you can always incentives them to make your tenants why increasing their rent is justifiable, I usually would give them more access to a storage room or do a minor touchup paint for the unit just to bring in that new/fresh vibe. @Albert Bui @Carlos Valencia

Eric Gerakos · Answer

I always charge slightly under market rent and never negotiate. I never feel the need to have any discussion about it. I always buy in very desirable areas and have no problem finding another tenant if necessary.

Theresa Harris · Answer

While you want to increase it 16%, what is that in dollar amounts?  $100 a month, $200 a month?  How much will a vacancy cost you?

If they are good tenants, I wouldn't have increased it 16% in one go. Do an increase this year and another next year. Having good tenants makes a big difference. You should have increases every year to keep up with market value and for the tenants to know that each year the rent will increase.

David Sandvig · Answer

I do the same thing.  I usually rent my properties out at market value, and then raise rent to slightly less than market value (assuming rent goes up; I don't increase rent if the market hasn't changed).  It should be a good deal for them since it's cheaper than market value, and they don't have to deal with the stress of moving.  It's a good deal for me because I don't have to deal with the effort of turning over the unit or finding new tenants.

I don't negotiate.  There are quality tenants out there that are willing to pay market value and also deserve a decent place to live.  The difference between what I charge tenants and market value would cover the cost of vacancy.

Nathan Gesner · Answer

I do not recommend incremental increases. It's more likely to cause confusion or animosity, and the tenant may eventually be unable to afford the unit.

If they are excellent (always pay on time or early, communicate well, and inspections show they take excellent care of the rental) then I will raise rent 5% below market. That would be an 11% raise for you. If that's too much for them, terminate the lease and find a new renter that will pay what it's worth.

Jill F. · Answer

I wouldn't send tenants a rent increase notice that I was willing to negotiate but since you already have, I think my position would be that the timing might be negotiable but not the ultimate amount. Perhaps you can do 8% now, 4% in six months, and then the remaining 4% one year from now. It will give the tenants time to look around and figure out if they have a good deal. I tell tenants in my rent increase letter what the market value for their unit is just so they know they still have a good deal. I raise to market at each turnover and then as rents increase I keep good tenants about 5% under market.

Sandro Hagenbuch · Answer

Thank you all for the resourceful responses - it's greatly appreciated and helped me prep for the conversation!

Drew Sygit · Answer

@Sandro Hagenbuch

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?
• Often, they may volunteer a higher amount than you were hoping for.
• Those that respond “$0” or something ridiculous, you can request income documentation from them to justify.
• Don’t be afraid to share with them how much your property taxes & Insurance increased and that YOU cannot afford to absorb the.

ALWAYS get an increase or something of value annually or tenants will start thinking they should never have an increase, making future increases that much more difficult to negotiate.

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Bud Gaffney · Answer

@Sandro Hagenbuch go for it. Rentometer is a good resource.

How to negotiate big rent increase with tenants

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