Best rents

[Brenda Irwin]

I have been trying to work out the best level of rents to charge whilst being fair also to the tenants. Going by median rents can be sometimes unfair to tenants in older accomodation, particularly if there have been quite a few newer houses being rented in the area.

If I multiply the median rents pw by 5200 and divide by current median price of 3br houses in my area, I get approx 4.4%. This is down from 4.6% in 2004 as house prices kept rising into Dec 2005.

So, would that be a good benchmark to get the fairest rent? A 4.4% yeild based on the market value of each of my houses? What do you think? Make it higher or lower?

 

[alexlee]

Wouldn't best rents be just below what other similar properties in the area are renting for? Ensures that your place gets rented out quickly. I don't see rent as fair or unfair, if the tenants think its unfair the won't rent the place, and if everyone thinks its unfair, no one would rent the place and you lose out on rent.

Market forces decides whether rent is fair or not, surely.
Alex

 

[Brenda Irwin]

Rent range in Saturdays paper was from $165pw to $320pw. Big range.

 

[thefirstbruce]

as well as advertised rentals, why not ring all PMs in the area on two different occasions. THe first time pretend you are a tenant looking for particular types of property and ask them for a rent range for each type. The second time, tell them you are considering buying particular types of property and ask what rents they might get.

Use that info and advertised properteries to get a better range for each type of property you have.

If you are concerned about losing good tenants with rent rises, one of the things you might consider is when you want to make a substantial rent rise, offer the tenant 1-2 weeks rent free at Christmas with the rent rise, as a bonus for paying rent on time and looking after the place. The way to rationalize this is that rents carry a surcharge to cover the actions of poor tenants, and why should good tenants have to cop this surcharge? Doing so can often hold the tenant there until at least after Christmas to get the bonus. This can be good when a lot of people want to move before Chrissy and you risk having IPs vacant for a few weeks then.

You might even talk to DaleGG about instead of offering tenants 2 weeks rent free, offer a Christmas gift to the value of a 1-2 weeks' rent. This might be a full tax deduction for some trust structures....part of doing good business...tenants are clients after all....

 

[Monopoly]

So, would that be a good benchmark to get the fairest rent?

Fair to whom???...You / The tenants???

IMO "fair" equates to what the market dictates, ie. what the going rates are for comparable properties in my neighbourhood. If the going rental for say a 3 bedder is 240p/w, then 245pw may seem "fair" but 250 may be "a bit rich". It depends on who's doing the judging!!!

A 4.4% yeild based on the market value of each of my houses? What do you think? Make it higher or lower?

This is a pretty blanket formula and one that may bite you on the bum, because you could leave yourself wanting in some areas, and over charging in others.

The best way to know what is right is to know the market, and the only way to do this is to do your homework/research. You know, the stuff you did when you bought the houses; apply the same rules, but this time from the other side of the fence, viewing it as the "rentee" and not the "rentor"!!

Finally, if the property you are wanting to adjust the rent on is already occupied, then a "fair" increase is approx. 5% ($10 on $200p/w IP) anything more, had better be justified with something pretty extraordinary ie. new heater/air con, carpet, paint job etc otherwise you may find you'll be advertising for completely new tenants. And thus, if empty, it is (as others have suggested) a matter of ringing around, checking the papers, going to a few OFI's and basically, just knowing what rental $$$ tenants are paying for homes equivalent to yours in the area.

Too easy......

 

[GoAnna!]

I agree with Monopoly.

I set my rents differently depending upon whether it is vacant or a lease renewal.

If the tenants are exisiting then I make small increases each year as long as that rental is no greater than market rentals. This means that over time I do carry a small number of tenants that are paying under market rent but given they are long term, I do not have to pay letting fees or experience any vacancy so I am comfortable with that.

If it is vacant then I go as high as the market is prepred to pay! If the market is tight, and I am advertising prior to the previous tenant is vacanting then I will pitch it a tad higher than I think it might get and I and the PM are often pleasantly surrpised.

I woud think it hard to base the rent on % of house value because tenants and purchasers do not necessarily value a place the same. For example a purchaser might value the "potential" in a property while the renter is paying for what it is right now.

 

[Macca]

I believe the best rent is decided by the market in the area.

If you have your properties managed just ask your PM for the address of of the one they have advertised and do a drive by.

If my place is vacant and the market tight, then I do a quick spruce up and ask the full market price.

If an existing tenant that I am happy with, I keep it about 5% below the market to stop them looking at anything else.

 

[Brenda Irwin]

The rta in Qld has the median for Ipswich as $210. Oh to get that much rent. Mine range from $160pw to $205. Vacancy rates had risen for Ipswich from 2.4% in 2004 to 2.6 in 2005. At present it seems so far to have settled at 2.3%.

 

[skater]

Fair to whom???...You / The tenants???

IMO "fair" equates to what the market dictates, ie. what the going rates are for comparable properties in my neighbourhood. If the going rental for say a 3 bedder is 240p/w, then 245pw may seem "fair" but 250 may be "a bit rich". It depends on who's doing the judging!!!

The best way to know what is right is to know the market, and the only way to do this is to do your homework/research. You know, the stuff you did when you bought the houses; apply the same rules, but this time from the other side of the fence, viewing it as the "rentee" and not the "rentor"!!

Too easy......

I wholeheartedly agree with this. I try to get as much as possible for all of mine. Afterall, I did buy them for investments and I'm not the housing department, so I don't subsidise rents.

 

[Monopoly]

The rta in Qld has the median for Ipswich as $210.

"Median" being for ??? A 3 bedder, 4 bedder??? Double carport or Double garage??? Near schools, shops or in the middle of nowhere??? Median means jack!!! It's an estimation only, and is not a clear indication of individual property worth. Sure, "median" is a measure but it is not rigid and nor for that matter necessarily reliable as a source of accuracy. The BEST way to gauge what YOUR property rental or sale worth is, is to check out what prices are being paid for ones COMPARABLE (ie. those similar) to it.

Saying something like the median in X = Y is all well and good, but how realistic is this notion when the property does not conform to "median" description by which surrounding properties are measured. For example, I live in an area where the "median" property is worth $400K but I live in a house which is four times that value!!! Not every house in Ipswich will have a median 2.6% yield, some of course will be less based on location, lack of car accommodation, number/size of bedrooms, whilst others will supersede this figure because they are above and beyond the "median" or average type of dwelling and have added extras (go figure......)

Regardless of what your property is worth, if a tenant ain't prepared to pay the going rate on the streets, trust me, it ain't the "median" type of home!!! As I said in my previous post Your market is your most accurate measure of worth at the time (in that current market).

Save yourself the unnecessary grey hairs; forget the percentages and focus on the facts, ie. WHAT the property is actually capable of attracting, which is determined by its features.

 

[KL1]

I go looking at similar properties and contact local property managers for their opinions. Once I know what the market rate is I reduce it by $10 a week. For a loss of $520 a year I have a selection of rental applicants to choose from. This makes it easier to choose tenants who are reliable and likely to stay longer term rather than just settling for whoever will pay the highest amount. This works for me.

 

[redwing]

I agree with Monopoly's post on about 5% of an increase for tenants already occupying an IP and if you loose your tenants, re-paint and *touch-up* and IP and re-rent ; then go for the best Market rents you can achieve..

we've just re-rented to current tenants and gone slightly below 5% (i.e $190 to $195, $170-$175 p/wk) for 6 month leases.

And with an IP we just painted etc after a tenant moved out ($2k apprx costs) from $160 to $170 p/wk

I still believe that the rents are slightly less than current market rents and hopefully we retain the tenants rather than price them out for the cost of a few dollars more..

Redwing