How do you know when to raise the rent on an IP with good tennants?

[tl899]

I have an IP in a rural area 15 mins out of the nearest city and 45 mins from Sydney city. It's a large house with a nice view. Over the last 10 years the rent has only increased by around $65/W, while the surrounding land is being developed and property values have increased.

How can one assess the market to know if they are losing potential rent due to lazy REA? If you have great tenants, is it better to leave the rent slightly below market value to secure them?

I'd love to hear your thoughts!

Cheers,

Tom

 

[weg]

I doubt it's slighlty below market if rent has only gone up $65 in 10 years.

It's not that hard working out roughly what the market rent should be for a particular area.

Obviously the RE hasn't done it's job well.

I would quickly work at rectifing this but would be concerned with the RE's ability to undertake the process.

Have a talk to them and if they don't seem to see the importance of the problem, or are not keen on a plan of raising rent at regular intervals then get another agent than can do their job.

 

[The Fence]

We have great tenants in one IP and rent increased from $180 to $290 over 11 years and they are still paying slightly unders, only because they have been excellent, no fuss, always paid in advance, perfect tenants.

They will stay till death do us part (their words) and are totally happy.

You simply must keep up with the times, it's not a charity, unless you think agents need a helping hand that is.

 

[Dazz]

"Best Tenants" only get to retain that title if they pay over market rates IMO.

If they are paying under market rates, then in my opinion they are not good Tenants.

 

[Sharon g]

Even if you have great tenants you should still be looking at increasing rent. We have just resigned tenants on 2 yr lease with 6 monthly review. We don't have property manager and were way under market on rent have just increase on the renewal and will do again in 6 months. We will finally be up to market rate.

If you continue to charge under market value you are missing out on money. Have to look it as a business PM should be making sure you are getting market rate.

If you continue to be way Nader market does make it harder to increase so do it in increments. That way the tenants won't freak out and they know that they will have to pay more if they move.

 

[wategos]

I never increase the rent on good existing tenants, only when the tenancy changes. Particularly with interest rates falling there is little justification for increasing rents.

 

[The Fence]

"Best Tenants" only get to retain that title if they pay over market rates IMO.

If they are paying under market rates, then in my opinion they are not good Tenants.

Self managing saves us plenty and we still receive more in the hand than we would if paying a PM. Works both ways, win win.

 

[chilliblue]

I never increase the rent on good existing tenants, only when the tenancy changes. Particularly with interest rates falling there is little justification for increasing rents.

Really?

How are the good tenants going to feel when you whack them a massive rental increase beacause interest rates have gone up - or are you going to take a loss?

We treat our properties as businesses so all tenants receive regular increases and our PM's are quite clear on that.

In answer the first questions, small regular increases are better than none. Keep an eye on the rental properties coming up and compare. You may even have another agent in the town to have a discussion with.

 

[wategos]

Really?

How are the good tenants going to feel when you whack them a massive rental increase beacause interest rates have gone up - or are you going to take a loss?

Yes really, my Sydney tenants have been on the same rent for 4 years. Regular rental increases beyond inflation is a particularly Australian trait, in most countries this would be considered unacceptable landlord behaviour and could be legally challenged. If tenants are good raising rent by inflation is not worth it to me. Perhaps after 5 years I might increase rent by an amount no more than inflation, but no more frequently than that on an existing tenant, normally I only reset the rent between tenants.

 

[alplant]

A good PM will usually know where the market's at and advise accordingly, but when a lease is coming to an end I always check on RE dot com to see what is available in the general area anyway. It's the market that dictates the rent in the end, not our expenses, and the market has been pretty static around here for quite a while now.

I agree with whoever it was who said that small regular rises are better than a huge jump. It's not a good idea to let the rent fall too far below the market but we like to keep it just a little under for existing tenants.

 

[fisherman]

Yes really, my Sydney tenants have been on the same rent for 4 years. Regular rental increases beyond inflation is a particularly Australian trait, in most countries this would be considered unacceptable landlord behaviour and could be legally challenged. If tenants are good raising rent by inflation is not worth it to me. Perhaps after 5 years I might increase rent by an amount no more than inflation, but no more frequently than that on an existing tenant, normally I only reset the rent between tenants.

You have not had any increase in overheads in that time, such as for insurance, local government rates?

 

[jim1964]

in most countries this would be considered unacceptable landlord behaviour and could be legally challenged.

Unacceptable ? I seriously cant get my head around your logic,and to be legally challenged??? give us a break,this is not the USA here.

 

[The Fence]

I agree somewhat with wategoes. Raising during changeover of tenants is the go for the big rises but where I disagree is why not sneak the rents up by inflation rates along the way...?

Little rises once a year are far better than the big catch up after 5 years surely?

You do have costs that are rising forevermore dont you...? Do you legally challenge them..?

 

[wategos]

Unacceptable ? I seriously cant get my head around your logic,and to be legally challenged??? give us a break,this is not the USA here.

Actually I was thinking of Northern Europe - Germany, Switzerland, Netherlands, Scandinavia, where rental increases have to be justified by increased costs and will be rejected if they can´t be.

I think raising the rent by $5 or $10 every 6 or 12 months is a little ridiculous & just annoys the tenant. I won´t do it.

 

[skater]

When you invest in property, you are spending a considerable amount of money on an asset. I expect that asset to perform. I treat it like a Business.

If you are running a Business you maximise your income & minimise the outgoings where possible.

I don't do charity for tenants! That is the job of the Housing Department. My rents increase each six months, if the market is going up. My rents are always at market rates. No 'ifs' no 'buts'. In return, I provide suitable accommodation that is well maintained.

A good tenant pays their rent on time every time and keeps the place in good order. That is the contract they sign. They don't sign a contract that says "i'll pay my rent if I feel like it and if I'm good, then you (landlord) won't increase my rent".

Tenants might not like it, but they realise that, just like everything else, rents rise. If you regularly increase the rents by a small amount, they come to expect it. It will cost them more to move than it will to cop a $5 or $10 increase, so if they like the place, they will stay.

As for 'unsuitable landlord behaviour" well, last time I checked, we are in Australia, not USA, or Europe. What is the norm in other Countries is not the norm here. If I was investing overseas, then obviously I would follow the rules for that country.

 

[fisherman]

<I think raising the rent by $5 or $10 every 6 or 12 months is a little ridiculous & just annoys the tenant. I won´t do it>

Unfortunately the City Council, insurers, trades and others who take a chunk out of me agree with you because they always make their rises substantial. They don't wait for any reason to do it, the rises just keep on rolling in.

I would once have agreed with you about leaving the small changes for bigger ones when tenancies change. However years of doing that showed that there were none of the benefits claimed by some and we just recorded higher losses. Before I hear the nonsensical refrain from others that 'It comes off tax', nothing recovers lost income and the owner's lifestyle and viability are at risk.

It is important that profits are made from residential housing to keep it sustainable and to ensure that shelter is available. No, you shouldn't have to sell property to make a profit (although that is always over-estimated too).

 

[mattysavager]

I push for rent increases when I feel it's in the owner's best interests.

Some owners who use the "well my rates have gone up" method of rental market assessment really have no business owning a rental property. Some do it smartly and factor those increases into their decision process of course.

Many just decide that the property now costs them an extra $30 per week to hold, and try and increase the rent $30 per week. Many investors I know have lost a lot of money operating this way.

CPI indexed increases for do not take into consideration that for example, a developer has built 300 units next door to yours, and they are newer and better and $5 per week cheaper. In that case, you'd be a well advised to decrease your rent to keep a good tenant.

Recently in a Brisbane suburb in which we manage around 50 properties, we have been trying to convince owners to either decrease or leave rents. The fact is that many were lucky to be getting their current rent at all, and the tenant could move into the identical unit next door and save up to $25 per week. For some of these properties, I know that if the tenant realises they're paying way over market value and leaves, the owner will be taking a $25/week hit plus vacancy and re-letting costs. Unfortunately many owners are 'experts'...

It's about the market. Do your homework on realestate.com.au and be informed. There is no blanket approach to rent increases.

Matt

 

[skater]

It's about the market. Do your homework on realestate.com.au and be informed. There is no blanket approach to rent increases.

Matt

That is exactly right. I review rents each 6 months, if they CAN go up, they do. How much they go up is dependant on what the market is doing. Of course, if rents aren't moving, or worse still, have gone down, then I do nothing. Other times, when the market is moving, they might go up $20.

It's all well & good to believe you are 'nice' and keep your rents low for a 'good' tenant, and sure a $5 increase isn't much to crow about if you've only got one or two properties. BUT that $5 increase suddenly becomes $50 if you've got 10 properties or $100 if you've got 20.

Leave the rents alone & it's easy to be $50pw under market for one property (yes, it happens all the time. I like buying these ones as it's easy to bring down the ask price because the yield is so poor). Have 10 of those & you are behind $500pw. Ouch!

Take a look around at the Landlords that have a swag of properties & you will find they treat investing like a Business.

 

[Coconutwheels]

It's about the market. Do your homework on realestate.com.au and be informed. There is no blanket approach to rent increases.

Matt

Kinda of topic......but what else do people use when researching the rental market?

I've found On The House ok as it gives an idea of previous rental listings, anything better around in that regard?

On topic, personally I push for small increases whenever I can. Sometimes there will be a small increase when not supported by the market, but it would only be $5.

Cheers,

Ben

 

[The Fence]

Kinda of topic......but what else do people use when researching the rental market?

Rent and Sales reports.
There is lag time but its a good overall indicator.