Apartment owners spend a lot of time attracting tenants. Equally important is keeping those tenants, especially when owners raise the rents.

“No one likes to pay more, but we’re hoping to build some good will along the way,” said Dan Lieberman, president of Oakland, Calif.-based Horizon Management Group, a real estate management, development, and investment company. “We give the tenants options and upgrades to soften the blow.”

A philosophical approach

Lieberman said his firm rolled out a new philosophy last August to deal with rent-raising time.

“We thought our philosophy was that we were paying attention to all tenants all the time,” said Lieberman. “But when we looked at what actual practice was … the truth was that all the marketing was geared toward leasing and attracting, nothing geared toward existing tenants except for an occasional party or something. They got a generic rent raise letter. A nice cover letter informing them of improvements, what other rents were. The truth was it was lip service, rather than real change.”

Horizon’s approach took the form of a 12-step program. Managers had to complete 12 tasks geared toward existing tenants. The first step is providing a welcome packet for tenants when they move in. A month later, tenants receive a survey. That’s step two.

“The key is maintaining contact with tenants,” said Lieberman. “Tenants can be influenced by one bad element, even if the other elements of their experience are good. Because every day in the apartment business, we have a chance to screw up.”

Four months after the move-in, tenants receive another survey. “This survey focuses on how much would tenants be willing to pay for certain amenities,” said Lieberman. “We keep it short, and we give them something for returning it, like a $10 Starbucks card.” According to the positive comments on several resident surveys, Lieberman’s new philosophy seems to be working. He’ll have a better idea of how his new approach is working come August, a year after the 12-step program’s launch.

Terri Trainer, a Dallas-based property management consultant, thinks Lieberman has the right idea.

“If you’ve been giving your tenants a great experience, they aren’t going to want to go anywhere else, unless you are raising the rents excessively or their life situation changes,” said Trainer. “You’ve got to give them an experience they feel they can’t get anywhere else. That makes them stay.”

It’s that time

It’s that time to raise the rents. But how much? If you don’t know what’s going on in the market, you’re in trouble.

“You don’t want to raise it too much, or you’ll lose your tenants,” said Jack Terrillion, owner of Terrillion Investments based in Dallas. “But you want to see a return on your investment. As a general rule, I raise rents 5 percent every year. You want to keep up with inflation. I may raise it more, depending on what’s happening in the market.”

When Terrillion sends out the rent-raise letter to tenants, he includes a lot of information. He attaches a summary of what it costs to move, newspaper and magazine articles advocating renting versus buying a home, a list of other rents in the market, and a self-addressed stamped envelope. He offers to clean the resident’s carpet once they agree to the increase.

Terrillion sends out the packets 45 days before the rent is set to increase, giving him plenty of time to line up a prospective tenant, should the resident decide to move.

“I have found that a lot of my tenants move because their personal situation changed,” Terrillion said. “They have a job change or a marriage. Studying the market, keeping the rents reasonable, pouncing on maintenance issues has worked for me.”

Lieberman said he gives tenants two options: A “short-term premium,” in which the tenant pays a higher rent month to month, or an increase which is lower than the “short-term premium” if they sign on for a year.

How sweet it is

“To sweeten the deal, we may do an upgrade to the apartment, like a closet organizing system or painting an accent wall or room, upgrading a light fixture, upgrading an appliance,” said Lieberman. “It depends on how much we are increasing the rent and how long they’ve lived there.”

“It comes down to what value have you been giving,” Lieberman added. “When you are leasing, you’re promising tenants something, and when you are re-leasing or raising the rents, they actually know you.”