How to Successfully Raise Rents Without Risking Costly Vacancies

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One of the most often-pondered questions among rental property owners is whether or not they could be making more money on their rentals. Unfortunately for landlords, unlike many forms of investment that are sheer math games, renting has a distinctly “human” element to it that many money-focused investors aren’t really prone to paying a lot of attention to. That’s where a good property manager comes in. As the people who are interacting with the tenants on a day-to-day basis, we’re the ones who can tell you whether or not a particular tenant seems likely to absorb a rent increase without bailing on you.

Related: How to Respond if You Raise the Rent and Your Tenant Hands in Their 30 Day Notice

Here’s why:

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We Have a Pretty Good Idea of Who is Happy and Who is Not

There are some pretty clear ways a property manager can tell if a tenant is happy with their situation:

  • If they call about a repair and they’re relaxed about it
  • If they turn in the rent on time consistently
  • If they’re putting some effort into keeping the place looking nice, mowing lawns and whatnot

The happier a tenant is in their current situation, the less likely they are to suddenly become unhappy if you raise rent by $10-$20/month.

We Keep a Close Eye on Comparable Rents

The easiest way to lose a tenant is to raise your rent to a level above what the nice house a block down the street wants. Even a happy tenant will probably be just as happy right over there, and they know it–so raising your rents beyond what the neighborhood is supporting will cost you. And while you might have done the research on comps when you purchased the house, we keep up on those prices on a weekly basis, so we can tell you when a rent raise is more likely to be harmful than helpful.

We Can Offer a Worst-Case Scenario

Moreover, because we’re frequently advertising several dozen houses at once, we have a pretty solid idea of what the overall market is like in our area, which means we can offer a passable estimate about how long it will take you to fill a vacancy. If you raise rent and your current tenant moves, we’re the ones who will know about how much it will cost you in repairs and rehabilitation, too. Together, that means we can give you an idea about what your finances would look like if the raise in rent goes badly wrong–which means you can determine whether or not you can absorb the risk.

Related: 4 Points to Consider Before Raising the Rent

We Can Show the Tenants the Deal They’re Getting

One of the reasons tenants are often upset about rent increases is that they feel like they’re getting ripped off somehow. Property managers already have the data for their neighborhood’s comparable rentals (see above), and we won’t hesitate to show them that they’re still getting a better deal than their neighbors.

But perhaps the most important reason a property manager is the right person to raise the rent is this:

We (Usually) Have Goodwill to Cash In

Our entire function in life, as far as the tenant is concerned, is to keep their shelter safe, warm, and comfortable in exchange for a monthly payment. As long as we’re doing our jobs well, we’ll have a history of prompt, open communication, reliable repairs, and the occasional bit of mercy for a hiccup with a rent payment–and we can leverage that to convince a tenant that their extra payout is worth what they’re getting.

Obviously, this won’t work every time nor will it work if you try to raise rent like clockwork every time the lease and local laws allow you to (tenants catch on to stuff like that really quickly). But if

  • You’re reasonable in what you’re asking,
  • You genuinely do keep your rents within the neighborhood’s norms, and
  • You have a property manager who can help you understand who is most likely to absorb a rent increase without causing trouble,

You can stop wondering whether you’re maximizing your income and start actually maximizing it.

Do you regularly increase rent? How have your tenants reacted?

Let me know with a comment!

About Author

Drew Sygit

Drew is the manager of Royal Rose Property Management, a fairly high-tech solution for Detroit Metro area property owners & investors.

49 Comments

  1. Andrew Syrios

    Great article! I would also recommend some of the ideas Jeffrey Taylor (Mr. Landlord). He offers these “anniversary gifts” upon renewal, which are always an improvement to the property, like a ceiling fan, accent wall, etc.

  2. Darren Sager

    I think it’s important to raise the rent each year no matter what, even if it’s only $25 to cover your tax and insurance increases. I learned the hard way that in the end your residents are only out for themselves. They’re not your friends and this is a business so treat it as such. You’re not in the business of supplementing someone else’s living expense just because they’re nice to you. All the points of this article are very good. Very smart to keep your eyes on what’s going on in the market and not letting your units fall behind. In the end if you do that your investment is worth less than you might think!

    • Christian Bors

      Well what about the risk of turnover? Also how much are you typically raising rent? For example, I have a property where the monthly rent is $800. For the neighborhood, the rent is priced in the median and I would say this apartment is slighty above average. I was considering raising rent by $24 (3% to keep pace with inflation), however I decided not to because the tenant has been great. He never calls, he keeps his place spotless, and has never been late. I figured its better not to mess with the situation, and hope he stays as long as possible. If he left due to a rent increase, I am risk at for the repairs, cleaning, vacancy etc…It may cost me $1000 just to get it rented again. So the yearly increase of $288 doesn’t justify the potential lost of 1k. Your thoughts?

      • I have not raise the rent for four years. He is a handyman and wife works at the hospital. When the water heater started leaking, we went to home depot and he ordered the replacement. I paid for the water heater but he took care of the installation. Garbage disposal started leaking at the bottom so i have to buy the parts and he takes care of the installation. Sometimes they are late on their rent but they pay me every month.

        • Drew Sygit

          @Tony: Have you figured out the actual costs of paying someone to do those things and compared that against the rental income you’ve lost over the last 4 years because you didn’t raise the rent to keep pace with the market?

          Please publish those numbers here, so we actually have something to discuss:)

      • Drew Sygit

        @Christian: Do you also make sure you don’t make your offers to low when you buy properties, to make sure you don’t upset the seller so they don’t accept your offer?

        Next time why don’t you try this script: ” Hi Mr Tenant, we’d really like to renew your lease as you’ve been such a great tenant. Due to rising property taxes and insurance rates we do have to raise your rent, but because you’ve been such a great tenant, we’d like to keep that increase to something you can afford. How much of a rent increase do you think is fair?

        You’d be surprised how many will give you a higher number than you were thinking:)

        As a business person you need to STOP making decisions based on emotions and not be AFRAID to at least ask for something!

    • Drew Sygit

      @Darren: we couldn’t agree more! It’s like watching an accident in slow motion when “great” tenants lose their job or something else happens to change their ability to pay on time. Desperate people do desperate things — especially to their landlords!

  3. Kevin Izquierdo

    Great article! Darren does bring up a good point, that tenants will ultimately look out for themselves. I see way too many landlords in my area where they treat their relationships and properties as a hobby and bend to the tenants every whim. Great tip on keeping and eye on the neighborhoods rental comps.

  4. Jerry W.

    Thanks for the article Drew. This is am area I struggle with. Turnover takes a lot of time and energy, and I would rather get a little less than have to paint and wash and possibly replace carpet, etc. I really value my time, especially since I have such a hard time getting a contractor to do things. It is also hard to get an idea of where rents are in a small town. Very few places are advertised online or even in the paper so it is hard to get an idea on prices. The flip side is that I bought out a partner in a real estate company recently and so cash flow is important too. Nothing is easy.

    • Drew Sygit

      @Jerry: ah the old saying, “if it was easy, everyone would do it.”

      Our article wasn’t meant to imply that you should raise rents and ignore all other factors. We pointed out several other factors to take into consideration to avoid unnecessary vacancies. One thing landlords (and tenants) ALWAYS forget to factor into all this is the cost to the tenant to move. Renting a truck, buying boxes & other materials, turning utilities on & off, transferring cable, etc. It all adds up!

      Regarding rent data there are several things you can do: join a local investor or landlord association, if there isn’t one, start one. Hang out at the eviction court and hand out flyers to the landlords that show up. Get to know the eviction attorneys — there’s usually just 1-3 that handle 80% of the cases. Scan the rental section of your local paper and save them to track whatever listings there are. Check Craigslist.

      One other thought, if there truly are that few rentals in your small town, than where else are the tenants going to go? Basic rule of economics is supply and demand. When demand is higher than the supply, prices go up!

  5. Eric Higgins

    Right now I own two separate rentals – a 4 BR SFH and a 6 unit building.

    The SFH I require at least a year long lease, and at the completion of the 12 month lease, I offer the option to renew for an additional 12 months, 3 months, or month to month. If the tenant elects 12 month renewal – no increase in rent. However, the shorter the duration is positively correlated with an increase in the rental price. If I have to turn the property over due to vacancy, we adjust to the market rate.

    For my 6 unit building, my policy is that if the tenant is good with timely payments and care of the property, I won’t increase the rent while they’re there. Of the 6 units, 3 are 2 BR and 3 are 1 BR. My longest tenant has been in the property for 15 years in a 2 BR (and his family is wonderful), so he is paying what a 1 BR pays. I just turned over a 2 BR last month, and it rents for $200 more/month than the long-standing tenant.

    Could I raise the rents on him, and try to squeeze out an extra hundred or two a month?

    Sure – but I would grant a 50% probability that he leaves in the next year, and then I run the risk of increasing volatility not just in my bottom line, but in the building as well.

    To me, it’s just not worth it. The building CFs positively to the tune of $1800/monthly, and I rarely have a vacancy longer than 2 weeks. Perhaps I could shake things up and get another couple bucks a month, but I like the stability right now.

    • Drew Sygit

      @Eric: ultimately, if what you’re doing works for you — then keep doing it.

      Ask yourself this though, if you hired a Property Manager to run your units for you, would you accept the same reasoning from them, or expect them to get you higher rents?

  6. Wendy Black

    I agree that if you raise the rent too much, and the tenant were to move out, you’ve got to clean and paint the property and find a new occupant. That costs money.

    After two years in their residences, we decided to modestly increase rents at our SoCal properties. The tenant who lives in a condo in OC said she couldn’t afford the $25/mo. increase because she was living on a fixed income. I directed the PM to increase it just by a few dollars this year (like $5 or $10) with a larger increase next year if she really couldn’t afford it. The rent simply had to rise. We knew she wouldn’t be moving for that little. Nevertheless, the PM got her to agree to the $25/mo. hike, which is good because the HOA went up, too.

    That said, our son’s rent for his AZ SFR increased $200 this year. I think if you’re priced properly in the first place, such a rent hike isn’t needed.

    As a landlord, I look for well-chosen tenants who will care for the properties and remain in place for years.

    • Drew Sygit

      @Wendy: glad you at least TRIED for a rent increase — and look what happened:)

      Too many landlords take a tenant’s first “no” and meekly keep the rent the same. What do you expect a tenant to say to a rent increase? Most will eventually agree if you sell it the right way!

      And yes, we don’t recommend just chasing the highest possible rents and ignoring the impact on your occupancy rates.

  7. ken gurta

    I’m not sure that it makes sense to raise the rent on a tenant who pays on time and takes care of the property. I would rather have steady rental income without the worry of vacancies and repairs. Raise the rent on the riskier tenants or raise the rent when the currant tenant moves out.

    There is a house across the street from one of my rentals that has been posted for rent for approximately 6 months. The house is identical to mine. They are asking $1350 per month while I am renting mine for $1150 per month. To be honest, I could probably have asked for $1200 per month and gotten it. However, the owner across the street is out thousands of dollars in rent because he has his priced too high.

    Screen your tenants, keep them happy, and they will stay a long time.

  8. Ken p.

    Like Eric Higgins above, we use turnovers as the time to raise rents, not when we’re in a long period of problem-free rental. Particularly on some of our few non-renovated units, if the tenant is happy, a pleasant neighbor, and pays on time, I’m not going to rock the boat with a $25 rent increase when the costs of renovating the unit if they move out will take 5 years to recoup in higher rents.

    • Eric Higgins

      Agreed – I just don’t like the message it sends, either.

      I do things like get a $5 – $10 gift for the children on their birthdays / Christmas, and provide the adults a gift card for their birthdays as well.

      We put back ~$100/year in tenant gifts, and I’m convinced it’s the best $100 we ever spend. Not only do we (theoretically, at least) reduce our turnover rates, but we also are giving gifts and toys to families who are likely appreciate it exponentially more than I would.

      Maybe if I did this full time my mentality would be different, as every last dollar might matter more, but for now, I value stability because it makes the investment that much more passive.

      • Ashby Nigel

        I agree with Eric Higgins, tenants are customers and to show them a little appreciation builds goodwill. This will be my approach when I become a landlord. I have used this approach in my other business and it has served me well.

        • Drew Sygit

          @Ken and @ Ashby: Birds of a feather…:)

          No offense guys, but you’re all drinking the same Kool-Aide and Eric said it best, “Maybe if I did this full time my mentality would be different”.

          In our opinion, what makes more sense for you to say is, “I know I might be able to make more, but I’m satisfied with the results I’m getting from my investments.” There’s nothing wrong with that approach:)

          If you insist that your way is the best though, we have some tough questions you guys may not like:
          1) Are you really doing this as a business or a hobby?
          2) What are the chances you would accept the same reasoning from a professional property manager you were paying to manage your rentals?
          3) What favors are you expecting from these cherished, long-term tenants of yours when their finances go south or there’s a big maintenance issue?
          4) Why are you afraid to just ask for an increase?
          5) Where are your analysis numbers to support your theory that you are making more money in the long-run by not raising rents to avoid vacancies?

          Again, you may not like our questions, but you really shouldn’t ignore them:)

  9. Jiri Vetyska

    Well, it is important to keep up with the market in your area. So if rents are going up 6% a year, I will be raising the rent by at least 5% if it’s a great tenant. Of course, I won’t sweat the little penny, so if the rent is 600, it may not make much sense to push extra 20 bucks and risk all the extra work. But if rent is around 2000, then it is very important to raise the rent, because taxes and insurance will go up and you have to cover that along with inflation. Yes, people sometimes left, other times they have stayed. In the end, it is worth it keeping up with the market.

  10. Susan Maneck

    I have never raised the rent on an existing tenant, but I’m thinking of doing so now for my oldest tenants. The reason is that I cut their rent initially just a bit to encourage them to buy renters insurance. I’m pretty sure they let this expire but hitherto I’ve not pressed the issue. Recently I found I could add renter’s insurance onto my own policy at modest cost, so I think I’m going to raise their rent by the cost of that policy. That would be good for both of us.

    • Drew Sygit

      @Susan: you just found out how much your tenants REALLY appreciate your kindness of not raising their rents. Hopefully, you can apply this experience to your future dealings with them. Although why would you only raise the rent to cover the cost of the insurance instead of looking into what the market rents are?

  11. Robert Steele

    A lot is going to depend on the market conditions at the time.

    If property taxes and insurance are going up you pretty much have to match them or you’re going backwards.

    If it’s a tight rental market there is less risk of your tenant leaving if you raise rents – where are they going to go?

    I like the idea of doing a small improvement just before the rent increase. It makes the pill easier to follow. I also find that providing comps and explaining you regret for the increase in a letter helps. Also I would avoid increasing by round numbers. For instance, $48 is better than $50. The latter seems like the landlord arbitrarily picked it out of the air just to fatten their pocket. The former seems like it was carefully calculated using real data. Even if you do, don’t round up or down to tens or fives.

    Basically if you offer a good service (prompt repairs and a clean rental) at a fair price (at market rent or slightly below for tenants that are keepers) then you won’t have trouble raising rents.

  12. Amy A.

    I’ve used the cost of living increase that the federal gov’t uses for Social Security, etc. This year is was 1.7%. Most people get a raise every year of at least that amount. This includes teachers and other government employees, thereby increasing our property taxes. Unless there is a rental market crash, I think this is fair and haven’t had any complaints.

  13. Deanna Opgenort

    So far I’ve had enough tenant turn-over that raising between tenants has let me raise the rents, adequately.
    Last rent increase was almost $75 between tenants, but market had gone up significantly, and a the kitchen got a serious refresh/emodel — New paint on kitchen cupboards, new 9″ deep kitchen sink, new dishwasher, and new/used ivory corian counters in entire kitchen (HUGE improvement over ’80s formica). I still have a few things I’d like to do to bump it up to solid middle-class standard, but the remaining items are mostly aesthetic items (replace a yellow ’80s tub/surround, replace worn laundry room sink).

    • Drew Sygit

      @Deanna: glad you’re keeping up with the market. Be sure to keep doing so even on your renewals. As many have pointed out above though, keep an eye on your vacancy factor. You really don’t want to flip tenants every year as the cost of freshening a property and the rents lost while vacant can screw your ROI.

  14. George Kaberlein

    In our market, rents are often held constant until there is turnover. We look at it from a payback standpoint; in a $600 unit (very typical in our market), a $25/month increase would be a 2 year payback in the event of just 1 month of vacancy between tenants. If a unit needs some remodeling that would make the vacancy longer, obviously the payback then becomes longer, as well. From that perspective, we do not raise rent annually as a policy, but rather look at each unit individually to determine if an increase is necessary, considering the tenant’s performance as well.

  15. Justin C.

    We do not offer month to month renewals. Our system of renewal after the 1st year lease is an option of the following:

    $5p/m for a 3 year renewal
    $10p/m for a 2 year renewal
    $15p/m for a 1 year renewal

    We used to do a percentage increase but it was too complicated trying to ask for an additional $13.27 each month or saying something along the lines of instead of $13.27, consider the increase an even $10. We also do anniversary gifts. A popular one for us is a glass block window in the basement, a ceiling fan, etc…

    This seems to work for us.

    • Drew Sygit

      @Justin: if it works for you great! We’d just advise caution about offering more than a two year lease as it may lock you into a well-below market rate.

      How about offering your 3 year renewal option with another $x/month bump for the 3rd year?

  16. Erick Caffarello

    I have a SGH in NW Indiana. In 2011, I started renting it at below the value merely because I wasn’t getting any bites. That was $895. Since then, I’ve been able to raise it to $950. This is a 3 bed, 1 bath ranch, 960 square feet with a large fenced in backyard, shed, but no garage. I had my last tenant at $925, and the house sat for about two weeks. However, based on the previous tenant who was paying $895, it was totally trashed when she moved out. By raising the rent, I wanted to try and attract a more stable tenant, which I was able to do. That was back in 2013. I just signed a new tenant at $950 two weeks ago. They are a young couple, and both work at the State Prison, so I won’t have to worry about any criminal activity, which is a good thing. Being they are State Employees, their income is relatively well protected. My rent is higher than most other homes in the neighborhood, and it all comes down to curbside appeal. Trees, nice landscaping, and a fully rehabbed interior with attractive, neutral paint colors w/accent walls in every room set my house apart from similar houses in the area that lack in those areas. Raising the rent to $950 was a risk, and it only sat for about a week. I never thought I’d be able to get $950; in fact, I was thinking I may have to drop it back to $925. With the sharp increase in insurance, and the small increase in taxes, I’m just able to fully cover those expenses with the increase, but anything higher than $950 base is going to prove to be a difficult challenge. As an incentive to renew the lease, I offer $150 off the following December rent, so long as the lease is adhered to. I can guarantee you no one else is doing that. Further, I was able to get them to agree to a 1.5 year lease, which bring us to May, 2017, protecting me from a vacant house in November, which can be a challenging time to try and find a tenant. I was pleasantly surprised when this couple came along….

    • Drew Sygit

      @john: We did back around 2002 when everyone that could fog a mirror were getting mortgages to buy homes and it seemed we were left scraping the bottom of the barrel for tenants.

      We never offered to lower rents for existing tenants, but several approached us for renewals with the attitude that they could find a cheaper rental. So we were forced to lower rents to keep the good tenants.

      It really taught us the lesson that tenants will ultimately usually do what’s in their best interests and not their landlord’s.

      That’s why landlords should do likewise and do what’s best for their business, and only do tenants favors when it is good for business.

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