How to Raise Rents and Not Empty the Building

Real estate investors normally dread the idea of having to raise rents on tenants because owners generally understand that no tenant likes the idea of having to pay more rent tomorrow for a unit they have been paying less for yesterday.

As a matter of fact, perhaps one of the most difficult challenges facing real estate investors during investment property ownership is having to cope with the sensitive issue of raising rents.

For some rental property owners, especially the small Mom and Pop investor with just a couple of rentals, the issue is closeness to the tenants. Over time, small investment operations tend to become overly friendly with their tenants, making the job of raising rents much tougher.

For the majority of real estate investors, however, raising rents is not as personal but the fear that raising rents might cause the tenants to move out, leaving the landlord with a building full of unwanted vacancies. A fear (by the way) that is justified and safe to say haunts every landlord. At the end of the day, no property owner, tenant friendships or not, wants to be left with an empty building.

Raising rents is a reality of real estate investing, however, and when a rent increase is in order, it is needful. The investor's cash-on-cash return and ultimate value of the rental property depend on the amount of rents collected. Raising rents comes with the territory, as do vacancies, as do emotional struggles and fears. Real estate investing is a business in spite of everything, and it does require stamina if you plan to make money at it.

In this article, I want to share a couple of ideas that might help ease the burden for those of you who are currently struggling with the issue of having to raise rents. They have worked for other investors, so they are at least worth your attention.

1) Know what your competition is doing. Tenants are less likely to object to a nominal rent increase when it is in line with the rental market rate in your area because tenants typically are not willing to suffer the stress and cost of relocating when it means paying the same rent down the street. You can do this rather easily by previewing the rental section of your local newspaper and with the free online services of Craig's List. Bear in mind, that if your competition is getting more rent than you are for comparable units, a rent increase is certainly in order.

2) Be consistent with your rent increases. Whether you raise rents annually or semi-annually, regular modest increases are more easily understood and taken in stride by tenants than irregular massive increases; working people normally understand cost of living adjustments. Just be sure to raise rents about the same time during the year because consistency tends to reduce friction generally caused by the element of surprise.

3) Consider doing something extra for the tenants. You might want to offset the sting out of an impending rent increase by steam cleaning the carpets, washing the outside windows, or making some other upgrade to the unit that might be in order for your rental property anyway. It never hurts to remind your tenants from time to time what a great landlord you are.

4) Show the rent amount on your "For Rent" signs. When existing tenants see what a new tenant will have to pay for the same unit they currently rent for less (assuming they are paying less, even after the increase), they are less apt to object and might even go to bed that night appreciative about the good deal they are getting. Besides, having the rent posted should reduce the number of calls you get from drive bys.