How to Raise Rents and Keep Your Renters!

Your occupancy reaches 95% and the whole staff celebrates! At last your team can take a deep breath and relax. Months of effort, long hours included, have paid off.

That's when your supervisor drives up and enters your office with that dollar sign gleam in his or her eye! So much for that little break. Now you get to deal with hostile residents, move outs, more paper work, and then start leasing the vacancies caused by the rent increase!

For the property management professional, little is more exciting than a market which allows rent increases. Unfortunately, those rent increases also give us some of our most challenging and frustrating experiences with our residents.

Is there a better way to present the "bitter pill"? Can we not only diffuse the majority of hostility, but also decrease the number of move outs due to rent increases?

The answer is an unqualified "YES".

First, let's examine your attitude toward, and understanding of the necessity of, rent increases.

In most cases, ours is not a high profit business, therefore soft markets, resulting in 15-30% vacancy factors, create a significant financial hardship on apartment communities and their ownership. Because our business is cyclical, those soft markets usually show up every 5-7 years. Therefore a strong market offers the opportunity to recoup losses, add amenities, take care of neglected repairs, and to upgrade the property over all. How? By increasing rents while the property is in high demand! Or, as my grandfather taught us early on, "You gotta make hay while the sun shines." Most of us sell better what we're sold on, so step one is to get clear on, and excited about the importance of increasing rents when the market allows the opportunity.

Next, make sure your entire team understands and is positive about the increase. The service technician spends time working on apartments and listening to the inevitable complaints. His or her response to the resident is critical. Recently, a manager shared this story: The resident stated, "I can't believe you guys are raising my rent...again." The service technician replied, "I can't believe it either. We're gonna keep gouging you people until everyone moves out." Step two: meet with your entire team and review the information in this article with them. Ask them to cooperate and not to make negative remarks. Briefly review why it is important to retain existing residents, besides the obvious bottom line. Fewer move outs mean less damage to the property, less paper work, less time spent on turns and less complaining from your boss. Fewer move outs mean more income, more time for preventive maintenance, and happier owners.

Test the market
Do your homework before increasing rents. Update your market study, then have the properties on the study shopped to verify rental amounts. If you have any doubt about the increase on a particular floor plan, try the new rental amount from the leasing desk. If the new traffic is receptive there's a better chance that existing residents will be. Plus you'll feel confident that you can lease at the higher amount, any vacancies caused by the increased rent.

Be able to justify the increase
Prepare a chart of expenses (exhibit 1) like the one shown here. Actually go back a few years for proof that costs have gone up. Prepare the chart, mark the increases in red, and use the chart in educating your team. Then enclose a chart with every increase letter. I truly believe that 80% of apartment residents are mature and intelligent and can be reasoned with. Helping them understand that the concept of the 'end' user, the consumer, must bear increased costs, is the only way a company can stay in business.

It's not just what you say, but the way you say it
Americans today are very sophisticated. They expect explanations, justifications and appropriate communication. Their deserve levels are high, making them more demanding than ever before. And they hate form letters. He 'bad letter' taken from a policy manual written in the 1970's. (exhibit 2) If this letter looks remotely familiar, anything like the one you use, it's way past time for an update.

This letter (exhibit 3) is an example of a friendly, yet business like cover letter for the format required by your state law and/or company policy. Obviously the resident will have to be advised in writing of the amount of increase and when it becomes effective. Yet it can certainly be softened with some thoughtful words.

The power of words
Look again at the 'Good Letter'. The first sentence lets the resident know that they are important. The second paragraph uses the word 'renew' versus the usual expire. Why have we always used the negative instead of the positive?

In the third paragraph, first sentence, we use 'increase the rent', not your rent. They take it personally enough with out our adding to it. The third paragraph also points out that the increase allows us to maintain great service and refers to the graph and flier attached.

Paragraph four reinforces the fact that we want them to stay. There is a lot of magic in saying it the right way.

Convince them that it costs a lot more
This is not a new concept. We've been designing fliers like this for years. Yet it has become more effective with age. (exhibit 4) It too should be part of the rent increase correspondence.

Rewarding Renewals
Have you ever sat down and put a pencil to your costs if they do move out? Take a look at some average costs. (exhibit 5) What if cleaning the carpet won't do it? Replacement could cost $600 to $1000, which could change that $1300 to $2000 in a hurry. Multiply an average of $1300 times 100 move outs a year and you may be shocked. Wouldn't it be smart to budget money for retention at one third that cost?

Incentives to stay

  • Why don't we reward them for keeping us from painting and papering every six months?
  • What if we had a deposit refund system of 1/3 a year for the next 3 years? Only the ones with tenure will be rewarded!
  • What if we gave a 'renewal bonus' which is non cash, non rent, non refundable? Each property would choose viable 'bonus' items and the amount allowed. It appears to be a bonus, yet you are probably doing little more than you typically do for a renewal. But it is a whole lot less than a move out and psychologically the resident feels they were 'bonused' for renewing. Plus, they saved the cost of moving.
  • Work up a chart showing that the monthly increase times 6 or 12 months adds up to a total of _______. Example $15 increase for 6 months is only $90 dollars. The $200 bonus is more than double. Plus they could spend $1000 or more moving.
  • If you are making improvements to the property be sure to point those out as an increased value.

Be prepared with an intelligent response to their complaint

When the resident comes in angry, they say things like, "I can't believe you're doing this to me. You should be rewarding, not punishing me." NEVER say "I didn't do it. It came from the main office!" That really makes you look like a clerk rather than one of the decision makers. Carefully review this article and be ready with an answer. Something like this--- "Miss Jones, I understand that you are upset. May I review with you the information we sent you?" After going over the letter and graphs, try an analogy. "Let's say that the citrus fruit crop froze this year, greatly limiting the supply. Your grocery store would have to pay more for oranges. Do you think they would simply absorb the loss, charging their customers what oranges were when they were plentiful? No, the consumer would have to pay the increased price or the grocer couldn't stay in business. The same rule applies to your clothing and your automobile. When costs to manufacture go up, we the consumer, must bear the increase." You'll be amazed how many will calm down and see the point. Be sure to be kind, understanding and prepared, yet not rehearsed.

Our industry has always focused more on physical occupancy than economic occupancy, on leasing versus resident retention. Finally we see how expensive it is not to be retention oriented. Statistics indicate that it costs five times more to gain a new customer than to keep the one you have. Think of the satisfaction (and the praise) you and your team will experience when you raise rents and stay fully occupied.


by Anne Sadovsky
one of Multi-housing's foremost marketing and motivational speakers.

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