Negotiating Lease Renewals in a Stabilizing Rent Market
The tough rental market that began the last quarter of 2008 might be over soon. Some markets are showing rent increases, and most are showing signs of stabilization. This is good news for rental property owners and managers. As the rental market recovers, when can landlords start recovering, too—by raising rents and cutting perks?
That answer depends on your market. If it’s still hurting, like in Las Vegas, San Jose, or San Francisco, you might need to hold off on trying to recoup your recent losses. In other markets, it’s best to do your homework before raising rents. Check out the rents and vacancy rates in your area. Talk to other landlords and property managers. Spend a little time making phone calls or email inquiries and be willing to share information with others in the rental business.
Whether or not a landlord should raise rents or cut perks also depends on your financial picture. If you’ve had to cut rents to fill vacancies, or just to jump-start cash flow, it might be a good time to look hard at your bottom line. If the balance sheet shows an unhealthy situation, it doesn’t make sense to continue on—especially if an increase can help stop the bleeding. Some rental businesses can absorb losses for a short time, but most cannot—and none can suffer negative cash flow forever.
If it’s time to raise rent, let your tenants know before their lease is up. Offer a renewal at the new rate, and then start the negotiation process. If you’re dealing with a good tenant, be flexible—and if they refuse the increase, talk about other ways to renew the lease to your advantage. Ask them to pay the cable or another perk you might have thrown in during the existing lease negotiations.
Be flexible. It’s easier and less costly to keep a good tenant for another year than to repaint, repair damages, and find another good tenant. But if you ask for a higher rent that is within your local market’s asking rents, and the tenant refuses to pay, you might need to let them go. Replacing a lower-paying tenant with a higher-paying one could be better for your bottom line.