The owners won’t listen to our advice about a rental increase. They are worried about losing their tenant. What should we do?
Every day, property managers are faced with the dilemma of owner reluctance when it comes to rental increases. Property managers confirm the rent can be increased, but owners are unwilling to raise it in case their tenants move out instead of accepting the increase and continuing on at the property.
The tenant’s lease is due for renewal. The property owner is reluctant to increase the rent out of fear of losing their tenant, even though the market analysis confirms a rental increase is in line with current market trends and movements.
- Before calling the owner to discuss the renewal or termination of the current tenant, prepare a Comprehensive Property Analysis (we refer to this as a CMA). The CMA should provide evidence of similar properties that are currently available and comparable to the property in question. It should evaluate and analyse the following:
- How much is the advertised rent of comparable properties?
- What are the similarities and exacts?
- Where are the properties located in comparison to the property being evaluated?
- Do the properties have views or similar features that would increase the rental earning potential?
- If the tenant moved from their property and rented a similar property, how much rent would they be paying?
- When speaking with the owner to discuss whether to increase the rent, offer a renewal or terminate the tenant, you must let the owner know that you are unaware of the tenant’s intentions at this time. The tenant may be planning on moving or intending to stay. Remind the owner that one thing is certain- the tenant will not move because of a rental increase if the property is aligned with comparable properties; the tenant will move because they were planning to move.
- Understand the owner’s concerns and pain points before calling them so that you are prepared for their reluctance, or, they may even want an increase that is unrealistic. You will know what the owner’s concerns and pain points are by communicating with them during the term of the current tenancy and prior. Let the owner have their say and respond with positive reinforcement as to why you are providing the advice being given, then send them the CMA you have prepared so they can make an informed decision. Let them know you will call them in two days after they have had a chance to review the findings.
Property owners are usually reluctant to make the decision to increase rent because evidence to support the recommendation is not provided. Evidence always defeats doubt. Rent increases should not be an estimate, they must be generated through market analysis and factual calculations. Residential rental increases have nothing to do with CPI (consumer price index) and everything to do with market supply and demand.
If property owners are reluctant to increase rent out of fear of losing their tenants it points to one compelling fact- evidence was not provided to support the recommendation. These owners also impact every other owner in that market area as they force rental market averages in a downward trend, bumping returns to below market average. So, make sure you do your research and come prepared with all the facts and figures before having the rental increase conversation with your owners.
If you’d like to find out more about how to overcome owner reluctance when it comes to rental increases, contact us.