Managing Rent Increases Is a Critical Operating Skill for Property Managers and Investors

Property managers and investors follow rent production closely and for good reason.  Rents, delinquent rent, uncollectable rent, and occupancy all are the key components driving revenue.  These factors are where the rubber meets the road to drive profitability, to protect value, and see the expected asset appreciation owners should expect.  Understanding this, what are the  key components of managing rent?

First is frequency.  In general rents should be raised one per year.  Most residents expect that rents will not increase more frequently than this.  Imposing more frequent increases should either be avoided or should be part of a careful strategy post acquisition during a management, renovation, and repositioning plan for a property.

Provide a long lead time before increasing the rent.  Residents need time to prepare their budgets for a rent increase.  Providing notice is an important key to avoid collections and bad debt issues.

Using odd dollar amounts avoids perception issues.  When you increase the rent $20, the renter often perceives this as padding the owners pocket.  However, if you increase the rent $22, the sense is that there was an economic need for the increase and perception is more likely to remain in your favor.

Adjust rents for the quality of the unit.  Desirability matters.  A unit overlooking the pool may draw a higher rent than a unit on a major roadway.  Planning rents accordingly improves rentability and revenues.

Use graduated rents.  Inform the renter that the rent will increase in stages.  This can often help residents manage more challenging financial demands.

Testing the rents on vacancies first.  This will allow you to establish the market before you run the risk of losing your resident base.

Make some improvement or add some feature or benefit prior to or along with the  rent increase.  Often  times this changes a distasteful event into a very positive action.  Sometimes, you will even see demand improve for the property as a whole of this process is managed in the right way.

Sometimes properties can follow the rents of a new neighboring apartment complex.  If a property is constructed and demands rents at a significant premium on the basis of newness, this will often increase the potential rent that older unimproved projects can charge.

Don’t introduce  on all the units at one time if you can avoid it.  Instead introduce new rents on their rent anniversaries.  If this process is not followed, you can end up  with a mass exodus of residents.

Blake Ratcliff (US Naval Academy Graduate & Marine Officer, Serial startup entrepreneur, COO/CEO, multifamily / residential investment founder, and property manager).

Blake’s crafted 100+ business plans, prepared and delivered 1000+ investor presentations, and is an expert financial modeler. A deeply experienced real estate business person and startup business expert, Blake hones your Business plans, reports, and presentations.

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