Do’s and Don’ts for Negotiating San Diego Rental Rates with Tenants

Your rental income is the lifeblood of your business, so the success of your property depends heavily on tenants paying rent. Sometimes, circumstances call for rent increases to cover costs without getting a negative cash flow, and sometimes, you'll need to agree to a lower rent price to reduce vacancy rates.

In the process of negotiating rent, landlords are required to abide by both unspoken and legal rules to reach a mutually beneficial agreement. Learning which strategies work could make the difference between profitability and tenant turnover.

Key Highlights:

• Rent negotiations are a vital part of maintaining profitability and tenant satisfaction, and landlords must follow both legal and professional standards when discussing rate adjustments.
• For lease renewals, rent increases can only occur at the end of a lease term, and landlords should research the market, review lease terms, and justify any adjustments with valid reasons like higher taxes or maintenance costs.
• Good communication and flexibility, such as offering discounts or longer leases to reliable tenants, can help retain quality renters and reduce costly vacancies.
• When dealing with new tenants, landlords should consider seasonal rental trends, conduct thorough tenant screening, and explain lease terms clearly to ensure transparency and compliance.
• Rent negotiations should always be supported by legitimate justifications, such as rising expenses or property improvements, to build trust and maintain a fair, sustainable rental business.

For Lease Renewals

Landlords typically increase rent at the end of a lease term, whether it's a month-to-month lease or a fixed-term lease. That's because it is illegal to issue rent increases mid-lease unless the lease agreement states otherwise. You might also encounter tenants who ask for a lower rate after completing a long lease, such as a two-year lease.

What You Should Do

1. Research the local rental market. Check the rates of comparable properties in the area through online listings or local rental reports to establish a baseline for your rental rate. Always consider the market rate in setting rent prices as well.
2. Review the rental or lease agreement. The current lease agreement will outline what you agreed on about rent adjustments.
3. Be more open to reduced rent for reliable tenants. If the renter pays on time or offers months of rent upfront, consider offering them a discount.
4. Offer a longer lease. Instead of simply agreeing to a reduced rate, you can offer the tenant a new lease that comes with perks. For reduced rent and even access to specific amenities, you can have them sign a longer lease.

What You Shouldn't Do

1. Don't increase rent without prior notice. For month-to-month lease terms, you should provide at least 30 days' notice. For a longer lease term, the suggested notice period prior to the rent increase would be 90 days.
2. Don't terminate a lease when a tenant disagrees with rent negotiations. While it is within your right to refuse lease renewal, you should first consider the value of that particular tenant. Good tenants who make regular rent payments will be more profitable than vacancies.
3. Don't implement rent increases without justification. Explain why the monthly rent is higher, such as rising property taxes, insurance premiums, maintenance costs, or market demand.

For New Tenants

Rent negotiations aren't limited to existing tenants who decide to renew their lease. You might need to adjust your rental rates for new tenants as well, especially if rental demand is low and other apartment complexes charge lower rates. As a property owner, you are still required to think about how the price will affect your investment.

What You Should Do

1. Understand how seasonal trends affect rental rates. You have more bargaining power when rental demand is high, since other rental properties will also adjust their rates during peak seasons.
2. Engage in verbal conversations as much as possible for the first meeting. You can conduct future negotiations virtually, but meeting your tenant in person can help you assess them more effectively.
3. Explain the lease terms carefully. Your potential tenant needs to have a clear understanding of what is required of them, such as rent amount, utility bills, maintenance responsibilities, security deposit amount, insurance, and more.
4. Screen your tenants thoroughly. Check their credit score, criminal history, debt-to-income ratio, employment verification, rental history, and previous landlord references to ensure that they are responsible tenants.

What You Shouldn't Do

1. Don't leave out the possibilities of negotiating rent. This is a two-way street, allowing both you and your tenant to negotiate rent increases or decreases based on the circumstances.
2. Don't rent to applicants with low credit scores. Even if everything else in the screening process turned out well, you cannot dismiss this crucial factor for the sake of potentially securing a tenant.
3. Don't forget to consider local laws during the application process. If you have a San Diego rental, for instance, you are not allowed to charge tenants an application fee until they are actively under review, as per California's AB 2493.

Why You Might Need To Make Rent Negotiations

Common mistakes among landlords include failing to identify when they might need a rent increase or to mention it during a negotiation. Renters appreciate transparency and are often willing to pay as long as the prices are justified and they know what to expect.

Providing a solid case will help property owners negotiate better prices and build trust during the exchange. Just like any transaction, a renter will want to know if they are getting their money's worth when they rent your apartment or renew their lease. Some examples of valid reasons for increasing rent are:

• Rising property taxes
• Increased insurance premiums
• Real estate improvements
• Higher costs for maintenance and repairs
• Market rate adjustments
• Vacancy Risk Mitigation

You Can Leave Negotiating Rent Increases to Professionals

Negotiating rent prices can get tense, no matter what the situation is. To a tenant, a rent increase simply means paying more. With Income Property Advisors, we want to ensure the tenant fully understands why rates are changing and is comfortable with them.

If they ever try to negotiate a rent deduction, we will assess every factor to ensure that your rental business remains profitable while accommodating tenant requests. You can keep these worries out of your mind, since we can step in for you.

Be a stress-free landlord today. Contact us!

More Resources:

• A San Diego Landlord’s Guide to Tenant Relations
• Must-Have Amenities for San Diego Tenants in Today’s Market