Raising rent…this seems like one of the most challenging things you will need to do over the years managing a property. As your costs increase, so too will you need to raise the rent. While the upfront reaction may be negative, in reality every business needs to raise their prices as time goes on. There are right ways to go about doing it, and wrong ways.
The problem with raising rent – even if (or perhaps especially if) you are raising rent for the first time – most of your tenants are going to have a very negative reaction. At the very least you need to assure that whatever increase is reasonable and justified. If you try to raise the rent just because you figure you can (because you feel you can fill a vacancy quick at the new level) – even if you don’t negatively affect your profits, you will still negatively affect your image. If you find yourself needing to raise rent by a sizeable amount, you should instead raise the rent by small amounts more frequently (every lease term if necessary) until you reach your goal.
An example of what not to do: In a previous apartment complex where I lived, I had been a tenant for two years – during the second year, the ground floor of the building filled with business (the apartment was above the business level). Due to the available businesses below, the management felt they could easily raise the rent by a sizeable amount – thinking that even if people left, they could still fill the units. They raised rent around 30% for everyone – a good portion of people left (including myself) and they continue to bolster a terrible reputation.
Maybe in the previous example they are still able to keep the units filled – if so, good for them I suppose, but you don’t want to be in the position of building yourself poor reputation just to make a little bit more money faster.
One way to handle tenant objections to rental increases is to justify with some visual improvement to the property – something beneficial to the tenants. This can be nicer public areas, greater security, or perhaps remodeling improvements within the units themselves. Whatever you chose to do, if you tie a benefit to the tenant with the rent increase, it’s far easier to convince tenants to go along with it happily. This can be as simple as repainting and/or re-carpeting the unit for example.
When you do plan on increasing the rent, it is advisable to notify tenants well in advance – most legal requirements are 30 days, but 45-60 day notices will be much more friendly to your tenants. You shouldn’t fear your tenant’s leaving by giving them more notice than necessary. If the rent increase is unacceptable to the tenant, it is better to give them a cushion for moving out than put them in a situation where they may be forced to keep living where they would rather not.
Ultimately the name of the game is make your tenants happy – so just think about what you would prefer if you were in their shoes.