How can a landlord raise rent without losing tenants?
If you’re like most landlords, you love the idea of raising rent but fear losing all of your tenants. It’s a difficult decision. By raising the rent, you might dramatically increase your income, or you might lose everything because all of your tenants leave. Fortunately, there are solutions. Here are three strategies experienced landlords use to raise rent and keep their tenants happy:
Create Value through Add-Ons
Rent is payment for a service. When you raise the price for the same service, people are naturally upset. It benefits you and hurts them. So, regardless of the fairness of the price, your tenants may leave because they feel you are cheating them. No one likes a win/lose relationship.
The most effective way to solve the problem is to provide extra service. When you raise the price, give your tenants something extra. For example, throw in a new microwave or install a ceiling fan. Sure, you’ll have to pay a little money for the extra service, but the rent increase should pay for it several times over. And your tenants won’t feel cheated.
Increase Rent Gradually
Most tenants also understand that you need to make small, periodic rent increases. If you raise the rent once per year, you might hear a little grumbling, but the majority should stay. Just don’t increase it too much. For example, a 5% increase is usually acceptable, but a 20% increase might cause a mutiny.
If you’re in a hot market, you can also make more frequent rent increases. On one of our properties, we raise the rent every quarter and we still have a waiting list of potential tenants. People complain, but because the units are still competitively priced, few leave.
When Necessary, Make Exceptions
Occasionally, you’ll increase the rent and one of your best tenants will come to tell you they can’t afford it. When this happens, you’ll have a tough decision to make. Do you want to stay stern and lose them or give them a break and reduce your income? If you lose them, you might have trouble finding a dependable replacement. Making an exception may also offend other tenants who feel you are playing favorites.
Ultimately, you have to consider your own situation. Is a good tenant worth losing some money and potentially annoying your other guests? You’ll have to think about opportunity costs, risk, and whether you can trust the tenant to stay quiet. It’s a tough decision, but remember, you’re a landlord. You’re getting paid to make tough decisions.
I can, however, make one suggestion. If you decide to give them a break, think of a way to make it more equitable. You might maintain the current rent but require them to clean the office twice a month or babysit your kids. Not only will you receive some extra value, but other tenants will be able to justify the decreased rent. Everyone is happier.