Lease renewals are often a balancing act. You want to keep your good residents in place, but you also want to keep your rental value consistent with the market. How can you increase your rent without chasing your residents out of their rental home?
This is especially important now when rents have risen dramatically and at the same time, tenants are feeling financially pinched by inflation and the higher costs for everything from groceries to gas to utilities.
The lease renewal process requires organization and excellent communication. Prepare to negotiate with your best tenants in order to keep them in place, and make sure your rental increases are reasonable.
As Santa Rosa property managers, we encounter lease renewals every month. We’re sharing some tips that can help you successfully negotiate lease renewals and rental increases for your investment property.
Timing Your Lease Renewal: Communicate Early
Keep a calendar that tells you when lease agreements are ready to renew. You don’t want to get in touch with your tenants a week or two before the end of their lease term. Set a reminder at least 60 days out from the end of the tenancy. At that point, you’ll want to contact your residents and find out whether they intend to renew or move on. They may not have decided yet, but when you get in touch, they’ll start thinking about it.
You’ll want to check the existing lease agreement so you know how much notice is required if your tenants plan to move out. They will likely have to provide at least 30 days; in many lease agreements, the notice period is 60 days or even 90 days.
Preparation is an important part of managing the lease renewal process and the corresponding rental increase that comes with it. You don’t want to be caught off guard by a renewing lease or a tenant who lets you know that they will be moving before you’ve had a chance to pitch your lease renewal.
Check the Market Rates Before Making an Offer
Consider the Santa Rosa rental market before you establish a new rental value for your property and offer it in the renewal offer to your existing tenants. Before you negotiate any lease or rental increase with your tenants, you want to have your research completed. Determine the average rent for properties like yours in your community or neighborhood. Look at comparable properties, not at the market as a whole, just as you would if you were pricing your property for the first time while listing it on the market.
You have to remain competitive.
While your profit is important, and the increase is necessary to offset your own rising expenses, your goal is to retain your tenant. Avoiding turnover costs and vacancy as well as new marketing and advertising expenses is an important reason for negotiating the right lease renewal and rental increase.
Don’t give away the property either. Setting your renewal rate too low will only lead you to less profit, lower ROI, and a struggle to bring that rent up to the acceptable market rates. A tenant who is paying less than market rent will likely never leave their home, and you might pay the price for that.
Access good data and set the right rental renewal rate. You want to be competitive while keeping yourself profitable. If you are struggling to find the right rental range, get in touch with a Santa Rosa property management company. We have some of the most accurate and up-to-date information on what you should be earning for your property. This is based on our local market experience as well as the analytics and insights that we are constantly collecting thanks to our investment in good technology.
Be Mindful of Good Communication Practices
Keep the lines of communication open, whether the tenant has expressed an interest in renewing the lease agreement or they’ve told you that they’re planning to move out. A lot of details need to be managed if they’re moving out, and you’ll want to be aware of the date that they’re leaving. You’ll also want to make them aware of the expectations you have for how the property is returned to you.
When there’s a tenant who is on the fence about renewing the lease or leaving, find out what you can do to keep them in place. Ask about their satisfaction and their experience. If they know that you’re interested in their happiness and their comfort, they’ll keep the lines of dialogue open, and you’ll be more likely to find yourself renewing their lease agreement.
The tenants who know for sure that they’re renewing will also need communication from you. Express to them how grateful you are to have them as tenants. Work with them on the details of the new lease, especially if there are any changes. Talk through the renewal amount and make sure they understand that your relationship with them is important.
Lease renewal periods are an excellent opportunity to improve your tenant relationship.
Know How Much You’ll Negotiate
What if your resident comes back with a counteroffer?
You’ll need to decide ahead of time whether you’re willing to negotiate and how far you’re willing to let the negotiations go. You may want to have a range in mind rather than a specific rental amount from which you will not budge.
Prepare to discuss the reasons that you’re increasing the rental amount. You can share data on what local rents are currently, and if they do any research on their own, they’ll know it already. Talk up the benefits that they’ve enjoyed while leasing a home with you, whether it’s your willingness to allow pets, your ease in collecting rent electronically, or your willingness to respond to maintenance right away.
In some cases, you may be selling your property the same way you did when they first came to see it.
You can also offer incentives to good residents when you’re negotiating the lease renewal. Consider offering a rent discount on their first renewal month. Other potential incentives to help keep your residents in place might include:
- Upgrade or renovation offers. Maybe your resident wants a new microwave or an energy-efficient refrigerator. You can provide in-unit laundry if you have a hook-up but had not supplied a washer and dryer previously.
- Fresh paint or new carpets. Potentially, a professional carpet cleaning will be enough. But, perhaps you can offer a new carpet if theirs is looking worn. Hard surface flooring would be a very valuable upgrade, too, if you’re looking for ways to both keep your tenants and increase the value of your property.
- Flexible lease terms. Perhaps your resident is willing to renew, but they don’t want a one-year renewal. You can offer flexible renewal terms such as a six-month lease or an 18-month lease.
When you’re willing to make concessions such as these, your tenants will be far more receptive to paying higher rents. They’ll also be more willing to stay in place.
If your tenants make a specific request, be willing to honor it.
Document and Sign the New Lease Agreement
If you’re casually talking to your tenant and they agree to renew the lease agreement, make sure you put everything you’ve discussed into writing. Create a written document that outlines the terms of the renewal and the new rent. You’ll want your renewal offer or agreement to include the rental increase and any additional information such as modifications or new inclusions. List the perks and amenities or the changes that were agreed to.
With the written agreement in place, you and your tenant will have the security of understanding that a formal lease renewal is in place.
Negotiating lease renewals and rental increases may feel like a lot to manage. It’s all about timing, proposing the right renewal terms, and establishing a new rental value that’s in accordance with the local market.
To avoid any confusion or hard feelings, make sure you’re adequately prepared. The right renewal communication and process will contribute to a great relationship and, ultimately, a renewal.
Tenant retention should always be a priority when you’re renting out a home in Santa Rosa. Avoiding turnover and vacancy costs will seriously increase your profitability and long term ROI. Keeping your rental income consistent and recurring will lead you to a better and more profitable investment experience.
Always reach out to a Santa Rosa property management company if you’re struggling with any part of the renewal process. Whether you’re not sure when to approach your tenant or you don’t know how to calculate the right rental increase, a property manager can provide the guidance and leadership that you need to effectively hold onto your tenants and execute another lease.
We would be happy to help you with the lease renewal process, the rent increase that comes with it, or any Santa Rosa property management questions you might have. Please contact us at Prestige Real Estate & Property Management. We manage homes in Sonoma County, including Santa Rosa, Windsor, Sebastopol, Petaluma, and Rohnert Park.
