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How To Raise The Rent At Your Investment Property

Apr 14, 2008
Being a landlord requires management skills, sales skills, and negotiation skills as you are constantly working with people (your tenants). One sensitive subject for both the landlord and tenant can be "How much is the rent going to be?" Once the tenant is living there, raising the rent is important but can be a delicate decision.

Keep in mind that you must keep your investment real estate business growing. To that end, you must keep your rents increasing at pace with the market and your rising costs. Raising the rent is simply part of managing your business smartly. Done correctly, it can be an easy and stress-free process.

Although every rental situation and each tenant/landlord relationship is different, I think raising the rent depends upon a couple items:

1. Is the tenant paying a fair market rent? If the rent is currently lower than market, it may be easy to raise it slightly as most tenants will realize they are getting a good deal where they are currently living. Plus they will not want to take on the added expense and time of moving.

2. When making your decision, ask yourself: "If the tenant decides to move because you are increasing the rent, can you re-rent the apartment for minimal cost and minimal or no vacant months?" If you increase the rent by $50 and the tenant decides to leave and you are left with a vacant $1200 per month apartment, was the increase worth it?

3. Consider that if you are increasing the rent in the spring, generally you can be more aggressive because it will be easier to re-rent that apartment in May than in December (at lease in colder climates).

4. If you are actively managing your lease renewals, you must be talking with the tenant 60-90 days prior to the lease renewal about their plans and any rent increases. This will give you time to re-rent the unit if the tenant chooses not not to renew.

5. Have the rent increase conversation with them verbally or in person. This will give you the opportunity to read their reaction to the increase. It is also more difficult for them to say no to your face.

6. If the tenant is hesitant about the increase, immediately see if they will accept the increase if you set the lease renewal to 18 months (locking their rent for that time) in exchange for the rent increase. This is actually an even better win for you as the landlord, as you have just locked them in as tenant for 6 extra months (and you got your rent increase).

7. When talking with your tenant, Use your best sales techniques to show them why they should both stay and accept the rent increase. At the end of the day, be honest. If the increase is related to increases in your costs, explain how your costs have changed. Most tenants can understand that taxes, insurance, or utilities do go up.

8. Lastly, if they are a great tenant consider simply leaving the rent at the same amount for another year. I would, however, let them know that you thought about a rent increase but "because they are such great tenants, you have decided to not change the rent for another year". This will set up the idea in their minds that you did them a favor and will get them to expect a rent increase next year.

Having your rents keep pace with your expenses and market rents is an critical part of running investment real estate business. Although it can seem intimidating at first, if you just take your time and think through the process with each tenant, it can be a simple process when lease renewal time comes around.
About the Author
Scott Ficek owns and manages almost 30 investment property units from single family to multi-family. He is also a Minnesota Investment Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Minnesota Investment Real Estate.
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