Keeping rents at or near market level is a critical part of maximizing the value of your rental property. Yet the topic of rent increases is one of the most sensitive and procrastinated tasks facing many owners and managers. These past few years, many of us have dropped rents or been running in the negative due to increased costs and decreased income. There comes a time when the rent has to be raised. Many owners fear it because they are worried their tenants will move out and keep delaying this task. Here are a few simple tips to help minimize the collateral damage of a rent increase.

Prepare and Know the Market:

If you have a multi-unit property, test a few units before deciding what the market rent is. The best way to determine market rent is to let the market decide. Then you can feel confident in whatever increase you give, knowing what discount to market you are offering your existing resident or knowing what you can get should they not accept the increase. If you do not have a large enough building to have tested your vacancies for market rents, you need to determine market as best you can. Go see a few competing units and what they are offering. Check Craigslist to know the rent levels in your area, etc.

Add value before the increase:

It can soften the blow if you do some needed upgrades to the property. Look, if you’re going to have to plant flowers, paint, and do other spruce-up items to attract a new tenant anyway, why not do some of that for your existing resident before hitting them with the increase? At least you have rent coming in with the current tenant while you do your fix ups. If you truly believe in long term tenancies, you will be doing this as a matter of course and increasing the value of your rental. Increased value justifies an increased rent.

It’s not what you say, it’s how you say it:

No rent increase will welcome by your tenants – no matter how small, but the way you deliver the increase is critical to its acceptance and success. You might want to meet with the resident in person before sending the official rent increase notice to soften the blow. After all, you don’t rent your apartments with a letter, why do you think you can re-rent them at an increased rent with just a letter? At your meeting, you can explain the reasons for the rent increase (such as cost increases), gauge their reaction, and sell the benefits of staying and accepting the increase.  Oh, and be prepared for the resident’s objections. Be kind and understanding in your answers – but know your answers in advance.

Show them that it costs a lot to move:

Relocating is not cheap. Renting a U-Haul, disconnecting and reconnecting utilities, notifying everyone of the address change, all cost. And even though the cost of moving has gone down (most people no longer have to disconnect and reconnect phone service – they just keep their cell number), it is still a hassle in terms of time and money. If it costs $600 to move, than a $35 rent increase is actually saving your tenant money. Remember, many residents react emotionally. If they don’t realize the cost of moving up front, they will start the process and once started, proceed to finish.

Offer incentives to stay and renew.

If you’ve ever calculated the cost of a turnover, you know that keeping good residents is the most effective way to create a profitable rental business. Small items like carpet cleanings, washing the windows, or even a Starbucks gift card, all help soften the blow. If nothing else, sometimes you might even consider reducing the amount of the increase if they agree to sign for another year. This stabilizes your occupancy, saves you the cost of a vacancy, and your resident feels like they ‘won’ something from you.  Also remember to time the increase. Generally you can be more aggressive in the spring than in the winter.

Finally, make your residents aware of the value of your customer service. Starbucks, the Ritz Carlton, Lexus, and others are all able to receive a premium for what they offer due to the service they provide. You are not like every other landlord out there, and if you are providing what the market wants, you will be rewarded with people staying at higher than average rents.

Keep in mind that owning rental property is a business and that raising rents comes with the territory. Your cash flow and the ultimate value of your property depend on it. If you follow the above steps, you may find that your residents will not react as badly as you thought, and more importantly, will not vacate.