This article was written in 1999.  I will be updating it this year 2019.

Often the most daunting task we face as property managers is increasing rents.  I am not referring to the increases two and three years ago that all owner and managers enacted after the market changed dramatically from the early 90’s doldrums.  Those increases were so necessary most owners have now completed the “catch up” process except for those owners whose style it is to never “hear” from their tenants.  As a quick aside: I have always felt it is imperative to hear from your tenants.  They can provide valuable information on the condition of the property and/or other resident information.  But back to raising rents.  In the current market as rents continue to climb at a steady and impressive rate the most difficult problem we face is raising rents on existing tenants.  They are our best customers.  You must communicate with your customers and make them aware you have a formula or system for rents.  The primary foundation of your system must be market rent and a standard discount.  The discount system shows the tenants that their tenancy is valued and tenants understand that a five or ten percent discount on their largest budget item is quite substantial.

Communicate the foundation of your system and how your system operates and the customer or tenant will immediately understand.  Cal-Prop has developed a system that we feel works effectively in this market and would like to share that with you.  In order to implement any system you must first obtain the following information:

    • Know the square footage of your units.
    • Know the square footage of comparable units in the same unit type i.e. two bedroom two baths.
    • Read the Sunday Union and Reader classified ads.
  • Call on for rent signs at other properties in your neighborhood.
  • Call on property managers about comparable units.
  • Be aware of the average length of tenancy in your area.
  • Know the monetary and non-monetary costs tenants incur when they move to new units.

This system is designed to be used by owners with properties that are kept in very good condition: the owner responds to tenant requests quickly and efficiently and the property is in an average or better location.  Each property needs to be evaluated and changes made based on those evaluations.  To implement the system you must:

  • Evaluate your units every three months and be prepared to make an adjustment at any time a difference exists between the market and the current rent.
  • In times of increasing or decreasing rents adjust the rents every six months.
  • Tie your rents to market in verbal and written communications to the tenants.
  • When tenants are moving into your units verbally communicate with them that you keep rents at a market level.

Increase your rents as follows:

  • Market rate less 5% for all tenants with a length of tenancy between one and five years.
  • Market rate less 10% for all tenants with a length of tenancy over five years.
  • Enact any increase $10 over the current monthly rental amount.

Tenants are knowledgeable and most understand market dynamics.  If you communicate with them they will grasp the fairness of this system.  They also react very positively to discounts and a five or ten percent discount on the largest budget item of most individuals is substantial.  Please never mention your expenses.  This is bad economics and bad policy.  I do not know how that trend began, but please avoid it in your practices.  Keep and maintain a business relationship and your tenants will respond accordingly.  Good luck and please call with any questions you may have.