CPI Increases

[PPCMan]

Dear all

I have been a long time avid reader of the forum and have learned a lot over the years reading the various posts, and would like to congratulate everyone on their contributions and achievements.

I have a simple question/poll I would like to ask forumites in relation rental/CPI increases. Most poeple in their analysis appear to factor in some form of rental increase at or around CPI and cap grwoth, which can range anyware from 1-2%. While I have personally seen cap growth over the years I can't say that I have seen rental increases in line with CPI as much (my experience only).

Consequently I would like to ask if it is realistic to factor in rental increases of 1-3% in any type of analysis (if only as an academic excercise).

In addition I would also like to know how many people actually manage to achieve any type of CPI/rental increase on a yearly basis. I ask this beacuse every time I tell my PM to increase the rent, all I get is pushback/excuses such as the rent is at market, tenants will move/don't want to pay increase etc. I have steadily seem the margin betweeen rents and expenses get smaller over the years (ie. expenses outstrip rents) to the point that I am beginning to think holding IP's is worth the hassle any more.

For those that have managed to maintain the margin between expenses and rents (ie consistently increased rents to cover CPI) I would be interested in how you have achieved it and would appreciate any tips that may be forthcomming.

Cheers
PPCMan

 

[geoffw]

Rent, like property prices, is cyclical.

It can increase a lot in one year, and then stay steady for more years.

And the cycle is probably different from the property price cyle.

One symptom of cycles- the do not move at then same average rate year after year.

 

[Dazz]

In addition I would also like to know how many people actually manage to achieve any type of CPI/rental increase on a yearly basis. I ask this beacuse every time I tell my PM to increase the rent, all I get is pushback/excuses such as the rent is at market, tenants will move/don't want to pay increase etc.

Exactly, and if you are talking strictly residential, you'll be pushing the proverbial uphill with a stick of wet spaghetti. We don't try that anymore.


What we do now is agree everything upfront, before they move in, so it's all agreed upfront....no need to argy bargy with the tenants.

A short time back we just signed up a large company on a 15 year deal. A five year initial term, with nett rents escalating at 4% p.a. during the first 5 yr term, with two further 5 year options.

At the take up of each option, there is a "market review", just in case 4% wasn't enough to keep up. Review is limited to between 0 and 20% of the final years nett rent from the previous session.

So, all sorted for the next 15 years....no need for PM's pushback, no need for fretting over "will the tenant up and leave" and no need to put up with 1-2%.

Works OK for us.

 

[WillG]

I would also like to know how many people actually manage to achieve any type of CPI/rental increase on a yearly basis.

I generally manage to achieve rental increases in line (or above) CPI on a yearly basis and have done so for the past 5 years.

I beleieve it very much depends on the type of properties you rent. I generally buy properties in the lower to mid end of the market. These type of properties always seem to rent quickly and have good rental increases.

 

[knightm]

totally depends on where and what you buy.
Scenario 1
My parents bought a new 2br unit in southern sydney 8 yrs ago, sold last year with the same rent it was in yr 1!!! New ips become old and therefore less desirable. Also in the area more blocks of units were built and sold to investors so vacancies stayed at or above 3% the whole time.
equals 0% rent inflation (negative if include rising cost of rates and body corp)

Scenario 2

20 yr old 3 br house in beenleigh (seq) area purchased 3 yrs ago. Had been tenanted at 150pw, Purchased with vacant possession and renovated after settlement. Lack of development in the area recently and growing population numbers meant vacancies were at 1-1.5 % (and have remained under 3% since) New rent 210pw, 12 months later 220, 18 months later 245 (current)
equals over 5% rent inflation

not saying all new units are bad, or that sydney is bad, just different market dirvers and stages of cycle.

 

[FrankGrimes]

I find you really have to keep on top of your PM's to make sure your places ARE at market rents, check places like realestate.com.au for other similar places in your area. If it's undervalued just call the agent and tell them you want it increased, it's your property and I wouldn't accept their "It's at market rent" if you have data to prove them otherwise. The PM is just being lazy and is trying to fob you off.

I've demanded 3 increases over 4 years in one of my properties, I just keep my eye on current rents in the area and ask the PM to up it in small increments, usually 5$-15$ anymore than that will scare off the tennant. However, the best time is when the place is vacant but this can be an issue when you have longterm tennants in your properties (3 years and 2.5 years in my case). Make sure they notify you when it is!

Just my thoughts.. You need to be on top of it and know what your place is worth! Don't let the PM decide, they work for you!

 

[JimmyJames]

I agree that you need to keep on top of your PM's but if you find good enough ones in the first place then there is no need!!! A good property manager is not often liked by their tenants. At the end of the day they have to work for you not the tenant.

Example:

You buy a brand new house, as an investment, in a growing area and go about employing a PM. Given that the area is growing (and that you have selected an area that isn't 50% rentals) the PM should be able to increase the rent every 6 months. This should occur relentlessly for a couple of years until the tenant gets fed up and shifts out.

This sounds a bit silly doesn't it??? Why do this???

Well, at this time the property can be restored to it's former glory, with the old tenant's bond and maybe some contribution by the owner. Then new tenants are found who pay the same rent because the home is close to brand new.

Also new tenants use the home differently. Couches etc are placed in different spots and the house is not worn down in specific areas so much.

If you keep repeating this process your IP still looks great in 10 years time... Just an example of proactivity.

If your PM isn't doing everything they can to increase your Cashflow, and the value of your property, then I suggest you find one that will...

Jimmy

 

[abcdiamond]

My own rent rises have been:
QLD
July 2003 $240.00
July 2004 $250.00 + 4.1%
July 2005 $260.00 + 4.0%

NSW (1)
Dec 2002 $140.00
Dec 2003 $140.00 0% No change
Dec 2004 $160.00 + 14% (over 2 years) - At change of Tenant

NSW (2)
Dec 2002 $240.00
Dec 2003 $250.00 + 4.1%
Dec 2005 $260.00 + 4.0% - At change of tenant.

 

[Andrew_A]

Units

Brisbane 2br unit.

Jan 03: 200
Mar 03: 210
July 03: 220
Jan 04: 230
Jan 06: 250

Have had similar growth for a unit on the GC as well. Would be interested in reading more figures.

 

[thefirstbruce]

PPC, welcome to your first post.

If I was in your shoes, I would:

- Ring your PM anon as a prospective renter asking what they have on their books, then inspect, or check on realestate.com.au. Compare with yours.

- Ring your PM's competitors, and ask them what they have on their books for rent.

- Ring back your PM's competitors as an investor, asking what rent your property might attain. And how often you might increase rent. Compare what they tell you in first call with second call. (you could expect a discrepancy)

Basically, rental increases are supply and demand driven. If there is high demand and low supply, then of course your property can weather a rental increase. Will come down to where your IPs are and what state they are in. If you have let them run down over a few years, then you need to consider bringing them back to a std the market finds desireable.

 

[FrankGrimes]

Have had similar growth for a unit on the GC as well. Would be interested in reading more figures.

Wollongong Unit

2002 - 150
2003 160
2004 - 170
2005 170
2006 - 180

About to be raised to 190

Redcliffe, QLD Townhouse

2003 - 170
2004 - 170
2005 - 170
2006 - about to go to 180

Needless to say, really not happy with my Brisbane IP

 

[thefirstbruce]

Frank check the rental section of realestate.com.au for redcliffe. If your townhouse has 2 bdrs and is in reasonable condition, then your rent sounds below market.

Hang on and I'll look it up now:

http://www.realestate.com.au/cgi-bi...iving,Serviced+Apartment,Studio,Unit&p=30&o=p

gees Frank, if that page doesn't blare out a lack of rentals on the Peninsula, then I don't know what would. And if supply is extremely low and your PM hasn't secured a rent rise, then they are doing you a great disservice. WHo are they by the way?

 

[FrankGrimes]

Frank check the rental section of realestate.com.au for redcliffe. If your townhouse has 2 bdrs and is in reasonable condition, then your rent sounds below market.

Hang on and I'll look it up now:

http://www.realestate.com.au/cgi-bi...iving,Serviced+Apartment,Studio,Unit&p=30&o=p

gees Frank, if that page doesn't blare out a lack of rentals on the Peninsula, then I don't know what would. And if supply is extremely low and your PM hasn't secured a rent rise, then they are doing you a great disservice. WHo are they by the way?

It's a 2 Bedroom Villa, 1 Bathroom, Single LUG. Block of 4, built in 1986, so it's in pretty decent condition. I recently got the rental renewal notice, the agent suggested $175, but I went back and told them to secure $185-190 as it was already undervalued. Tenant hasn't signed the new lease yet, it expires in May.

The stuff that rents under 200$ in Redcliffe is just rubbish, mine is VERY decent compared to those listings.

It is west of Oxley Av which doesn't help, but not by much!!

 

[quoll]

Must admit I've got trouble remembering the exact figures but it's something like this.

5 bedroom house - outer southern adelaide suburbs
2001 - 180
2002 - 185
2003 - 190
2004 - 200
2005 - 210

3 bedroom house - - outer southern adelaide suburbs
2001 - 165
2002 - 170
2003 - 175
2004 - 175
2005 - 180

2 bedroom flat - - outer southern adelaide suburbs
2001 - 135
2002 - 140
2003 - 145
2004 - 145
2005 - 150

2 bedroom flat - - outer southern adelaide suburbs
2003 - 160
2004 - 165
2005 - 170

2 bedroom flat - - outer southern adelaide suburbs
2003 - 165
2004 - 170
2005 - 175

3 bedroom courtyard home - mining town (got two of them on one block)
2003 - 250
2004 - 310
2005 - 320

The mining town had a major housing shortage which adversly affected rents.

We try and increase rent every year, get the tenants used to the fact that rents go up.

Cheers
quoll

 

[Brenda Irwin]

Not that I'm buying at present, but I do still watch the market prices and rents. I noticed in the re section of the courier mail the other day, that it was possible to buy a cottage in Clayfield only a few kms from the Brisbane CBD and pay the same amount for a house in Redcliffe. Based on that, you would maybe say well it doesn't really matter if you buy one or the other.

Then I had a look in the properties for rent section and found the the Clayfield return was far superior to the Redcliffe one. This doesn't necessarily mean Clayfield is a better buy, but perhaps the purchase prices in Redcliffe are sitting a bit high at present.

 

[FrankGrimes]

Not that I'm buying at present, but I do still watch the market prices and rents. I noticed in the re section of the courier mail the other day, that it was possible to buy a cottage in Clayfield only a few kms from the Brisbane CBD and pay the same amount for a house in Redcliffe. Based on that, you would maybe say well it doesn't really matter if you buy one or the other.

Then I had a look in the properties for rent section and found the the Clayfield return was far superior to the Redcliffe one. This doesn't necessarily mean Clayfield is a better buy, but perhaps the purchase prices in Redcliffe are sitting a bit high at present.

Just having a look on domain.com.au. Entry level house in Clayfield is 375K, where as Redcliffe is 220K?

My relatives live in Clayfield, you could do alot worse for 375K though, it is a beautiful suburb..

EDIT - Definitely a shortage of rentals there as well

http://www.domain.com.au/Public/Sea...ld&from=0&to=0&proptypes=H,S,X,T&ptdes=Houses