A renewal is the cheapest deal you'll ever do: no vacancy, no turnover costs, no screening risk, and a tenant whose payment history you already know. The goal is to keep good tenants at a fair market number — not to win a negotiation.
Start early and make it easy
Open the conversation 90 days before lease end; many states and leases require 30–60 days' notice anyway, and early contact gives you time to re-list if they're leaving. Send a simple offer: new rent, term options (12 months preferred; some tenants pay a premium for month-to-month flexibility), and a deadline to respond. A tenant who hears nothing until two weeks before expiration starts browsing listings.
Pricing the renewal
Check current market rent for comparable units, then price the renewal at or slightly below it — commonly a 2–5% increase in a normal year. The math that disciplines greed: a $75/month premium is $900/year, while one month of vacancy on a $1,500 unit plus $1,200 of turnover costs is $2,700. Pushing a reliable tenant out over a small premium loses money for two years.
Segment by tenant quality
Great tenants (on-time, low-wear, pleasant): renew below your maximum — retention is the profit. Average tenants: market rate, standard terms. Problem tenants (chronic late payment, damage, conflict): a renewal is optional — this is your lowest-drama exit; decline to renew with proper notice rather than raising rent and keeping the problem.
Worked example
Unit rents at $1,450; market is now $1,550. Turnover would cost ~1 month vacancy ($1,550) plus $1,300 in turn costs = $2,850. You offer a solid three-year tenant $1,510 (a 4.1% increase). They accept in a day. You "left" $40/month ($480/year) on the table and avoided a $2,850 hit — a clear win, plus another year of known payment behavior.
When this rule of thumb breaks
When a unit is far below market (an inherited tenant at 70% of market), small percentage bumps never catch up — you may need a larger, phased correction, communicated early, accepting some turnover risk. Rent-controlled jurisdictions cap increases regardless of your math. And if you plan to renovate or sell vacant, a renewal is a liability, not a win — offer month-to-month or let the lease lapse with proper notice instead.