The Tension Between Retention and Returns
Long-term tenants are valuable. They know the property, have a track record, and minimize vacancy costs. But leaving rent below market indefinitely costs real money. Here is how to think about rent increases for tenants who have been in place for multiple years.
Assess the Actual Market Gap
Before raising rent on any tenant, run a current market comparison. Pull active listings and recent lease comps for comparable properties in the same neighborhood. If your tenant is 5 percent below market, you have a different conversation than if they are 25 percent below. Know the number before you open negotiations.
The Risk Calculation
Factor in the cost of replacing the tenant if they leave: vacancy (typically two to four weeks of rent), cleaning and repairs (often $500 to $2,000+), leasing fees (usually one month’s rent), and the uncertainty of finding a tenant of equal quality. A $150/month increase that causes a good tenant to leave can cost $3,000 to $5,000 to recover.
Strategies for Gradual Correction
- Phase it over two renewals, bring rent halfway to market at one renewal, finish the correction at the next
- Tie the increase to a lease term, offer a 12-month renewal at a modest increase vs. month-to-month at market rate
- Give advance notice, informing tenants of a future increase 90 days out (rather than at the 30-day minimum) reduces shock and improves the chance of renewal
When to Move to Market Quickly
If the rent gap is large (20 percent or more), the property needs significant updates the tenant has not maintained well, or you plan to sell, correcting to market at the next renewal is usually the right call. Absorbing continued below-market rents to avoid conflict is not a strategy, it is a slow leak.
How a Property Manager Handles This
A good property manager monitors market rents continuously and advises owners on renewal pricing before it becomes a problem. Lux Management Group provides market analysis at every lease renewal and handles the full renewal conversation on behalf of owners. Contact us to learn more.
