When it comes to managing apartments, keeping your rents at market rates is key to maximizing your profit potential. But even the most disciplined landlord will occasionally find they are selling themselves short on their rents. Whether this is because a specific tenant has occupied a given apartment for a long time, or expenses have risen, you might encounter the need to raise rents. Luckily, as long as there is no term lease in place, rents can be raised at any time. However, if you have quality tenants that you wish to retain, the situation can be delicate. Handled improperly, increasing rents can lead to a mass exodus at your property.
One method you can employ to mitigate your losses is to gradually increase the rent. The shock of a $100 a month jump in rent will scare off many tenants, but if you enforce this increase gradually over six months or a year, you may be able to ease the process of transition. Financial incentives, such as a discounted rent for a month, can help to ease the “sticker-shock.” If a tenant is significantly below market, however, it is sometimes best to simply push through the price increase in one push. These tenants will end up moving out anyway so pushing the rent at a controlled time of the year, such as the spring, might be the best move. If the tenant leaves, you’ll be renting the unit at a good time of the year. If they stay, that’s good too.
Another good way to soften the blow is to have the rent increase coincide with improvements to the property. Your tenants will view a raise in rent more favorably if they witness a tangible reason for it. On the same note, being proactive in performing maintenance, can also help justify the increase too. Tenants often remember getting good service, but they never forget poor service.
The final key to retaining tenants is good old-fashioned honesty. If you simply post a notice on the tenants door saying that you will be raising their rent significantly, their likely response will be one of annoyance. Do them the courtesy of explaining why you are raising their rent, whether verbally or in writing. A personal call or visit is more likely to achieve the desired affect than an impersonal written notice. And if they decide to leave; a tenant treated with courtesy is more likely to show you the same in kind. And decreases the chances of the tenant damaging the unit or mailing on their last month’s rent.
Finally, be sure not to scare off too many tenants at once. If your entire building is below-market, raise the rents of your units one at a time to avoid having too many vacancies. The fact is, you should be prepared to lose some of your tenants when raising rents. Just remember that owning rental properties is a business. Just like any business, you need charge a reasonable price for a reasonable product. If you maintain this balance, both you and your tenants will be better for it.