How to successfully negotiate with a tenant when raising rent

To raise or not to raise? It's a question that every landlord must ask at some point when it comes to determining what their tenants should pay for living in rented space. On one side, increasing the rate may make sense, given taxes, utilities - assuming at least some of them are included - and other operational expenses are constantly rising. Then again, requiring renters to pay more per month risks the possibility that they may seek out greener pastures, preferring a place that doesn't entail setting aside as much of their regular income. That's bad news for landlords with model tenants who pay on time and keep their units spotless.

But experts suggest a more middle-of-the-road solution: Negotiating with your tenant by brokering a price point you can mutually agree upon. Those who recommend it say the rewards can be substantial, beyond the financial sense of the term, by establishing a sense of mutual trust and appreciation.

Rents climbing throughout the U.S.
Of all the major expenses that seem to be climbing, lodging is chief among them, due in part to high demand and low supply, both for housing and rental units. Indeed, among the country's largest rent markets, rents appreciated this past spring at a faster clip than last in 75 percent of them, according to figures compiled by Zillow. More specifically, of the 35 cities with the highest share of people renting, rent rose more rapidly in 27, led by Pittsburgh, Detroit and Houston. The national year-over-year rate of rent prices growth in May was 2.1 percent, translating to approximately $1,440 per month.

Even though the economy is humming and wages are climbing, according to the most recent data available from the Bureau of Labor Statistics, renting an apartment, house or condo doesn't come easily, accounting for a fairly sizeable share of the average person's paycheck. For instance, according to the National Low Income Housing Coalition, a renter needs to earn about $30 per hour to afford a two-bedroom rental, where no more than a 30 percent of their income is put toward the cost of rent. In California, affordable rent requires tenants to make around $33 per hour - more than double the $15 per hour minimum wage set to go into effect in 2022. In the plains states, Midwest and South, renters don't need to make nearly as much, but nevertheless, the cost of rent is up considerably from previous years.

What you charge in rent can be a delicate balancing act.

In short, no matter the area, tenants are likely paying more than they bargained for. But by negotiating, you can kill two birds with one stone, helping them keep their budgets in check, while addressing the cost considerations you incur as a landlord.

How do you determine the right rent rate? Consumer advocate and Washington Post contributor Elisabeth Leamy offered some suggestions: 

Know the numbers
Real estate prices - both for buyers and renters - are in an almost constant state of flux, so you have to be attuned to the market in your area. Check out Zillow, Trulia and other similar property listing websites to see what local landlords are charging in rent and how they align with yours.

Determine adequate definition of affordability
What's affordable or reasonable is a relative term; what one person considers low cost another views expensive. Leamy cited a website called Rentometer, which features a tool that allows you to compare the cost of rent with other properties in the city, region or state. Just plug in the appropriate data points.

Name the price
Once you've factored in what costs you're capable of absorbing, present the price increase to your tenant, saying that you're willing to negotiate if it presents an issue. Have a second number in mind for what you're capable of reducing the price to, depending on his or her circumstances and the argument put forward for why the counter price is appropriate. Mitigating factors may include other expenses, like childcare, or certain inconveniences out of his or her control.

What you charge in rent is an important decision but an even more weighty one is the tenant you select. Microbilt has the background screening tools that can help you whittle down your list of rental applicants. Please contact us to learn more.