Investment Property: Increase Rent without Losing Tenants

 Being a landlord is difficult—like all businesses where collecting money from people is part of the job description.  But, in order to be successful as a business, landlords need to cover their own costs and earn a profit every month.  This means, with perennially-increasing insurance, tax, and housing association rates, a landlord must periodically increase the rental rate to maintain the profit margin he has established (that’s business).  But how do you hike up the cost of living every year for your tenants without driving them off and having to search for more (absorbing the cost of rent in the meantime)?  Here is a simple strategy for doing just that.

      First of all, it helps to have a history of being a friendly and reasonable landlord.  It should go without saying that this strategy is less likely to work if your tenants hate you from the onset. 

      The best way to approach a tenant is with sincerity and transparency (or at the very least, it should appear that way), in the form of a written letter.  If it’s not too far from the truth, be sure to express what a pleasure it is to have them as a tenant—how they are pleasant, pay on-time, etc.  While your letter doesn’t have to tell them everything about your business and its expenses/earning, it often makes the tenant feel included in the process if you share some of your struggles.  In your letter, which should be sent to your tenants a couple of months before the rental increase is to take effect, you should candidly explain that increasing costs have forced a corresponding increase in rental rates.

      What’s stated above is an oversimplification.  Without lying, you want to overstate the increased expenses, while understating the increased rent.  In other words, make sure the letter includes whatever increases you face (sometimes it’s helpful to include things like the actual HOA dues, which may be $250/month, or the fact that insurance went up by 5%).  Then, mention to the tenant that the good news is the monthly rent will only be increasing by whatever amount you choose, say $40/month.  You can explain that the rental increase does not fully cover all of your new expenses, but you are willing to absorb the blow as a trade-off to maintain this particular tenant.  If your letter makes them feel as though they are wanted, and that you are working to keep them there as opposed to making a quick buck before driving them out, then your tenants will be much less likely to gripe about the hike in rental rates. 

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