Renewing lease with no rent increase

I self manage my properties. The lease on one of IPs had finished and the tenants agreed to renew the lease for another 12 months at the same rent of $270 PW + water usage charges.

Looking at their track record of always paying the rent 2 days before its due and a very low maintenance tenants, i agreed for the renewal. If we would have gone out looking for a new tenant, we could get $15 per week rent extra ($760 PA).

I preferred sacrificing extra $760 for a reliable, stable and low maintenance tenants. What do you say?

Cheers
 
I would probably have asked for $10 extra per week and emphasise to them that it is still under the market rent.

Having said that, if I thought they would leave, I would maybe ask $5 a week extra, or nothing, depending on how I judged their response.

I have renewed leases for the same amount rather than have a house empty for a week or more.

However, moving costs would be more than the increase.
 
So you have a tenant that you trust, pays the rent on time and is not high maintenance just signed up for another 12 months......... congrats I wish all on mine were like that.

At present I have a couple who stayed in the rental property before mine for 10 years (only moved because the owners sold) they pay on time, keep the lawn looking like a bowling green and are happy to do the upkeep and minor repairs themselves this couple did not get a rent increase last year. However one of my other tenants skipped out on christmas eve being 2 weeks behind in rent with looking at having to get the insurance claim in to cover cleaning, carpets, lawns and back rent. It's a good thing they left as they wouldn't have liked the rental increase they would be getting :).

Assess each property or tenant on a case by case basis, it does not take long to have a $ 10 rental increase blown on a bad tenant.


Cheers,


Fourex.
 
I'd put it up at least 5%.
That's how I do my renewals. Match market or increase 5%, whichever is the greater.
In your case, it will cost them more to move than renew. Also, they will likely end up with an REA as a landlord, who will do intrusive and impersonal inspections on a regular basis.
Dealing with someone sensitive understanding, like yourself, is a real bonus for tenants. Don't underestimate the value in that.
I've never had a tenant vacate due to rent increase. I've only ever had a couple of vacancies in total and for legitimate reasons, so they must be happy.
 
We never stay under market rate by choice and increase all rentals at every opportunity including at the 6 month mark if rents have continued to rise.

So yes, always increase rents to market rate and haven't had tenants leave due to a price rise yet. And if they did, don't really care - my PM's will find another one. To me a 'good' tenant is one that pays market rate, not $20pw under.

Here's some food for thought - sacrificing $15-20pw (or much more in some cases) which so many self managing LL's do to 'keep good tenants' would cover the cost of a PM and having no interaction with tenants yourself. We've seen many 'good' tenants over the years leave to be replaced by new 'good' tenants, so to live in fear of that 'bad' tenant is counter productive and costing you money.
 
Thanks a lot for all the replies. The tenants actually got the very next door house for $250 PW. Still they prefer to stay in my IP. So I guess I am charging market rent or even higher.

I guess one reason the preferred to continue was because they like dealing with me (thanks Rob :) ) and don't want to deal with an intrusive PM.

a PM had done the appraisal for $235 rent.
 
Thanks a lot for all the replies. The tenants actually got the very next door house for $250 PW. Still they prefer to stay in my IP. So I guess I am charging market rent or even higher.

Do you mean the house next door is available for $250 and they are staying in your house for $270? I wonder if your house is better, and they may have been in the one next door to see that they are better paying a little extra?

I guess one reason the preferred to continue was because they like dealing with me (thanks Rob :) ) and don't want to deal with an intrusive PM.

This is a huge factor in my experience. I know many tenants try to rent privately because of past issues, but I have found that many people don't want regular inspections, or to have to deal with a third party. If I was renting, this would be my choice too. We have good relationships with most of our tenants. It is a two way street.

I also believe that when the tenant knows the landlord, they are a little more accountable, as they know that anything they do that may damage the house, or anything they break will be having to be reported direct to us rather than hide behind that third party PM.

I cannot tell you how much money we have saved when hubby nips around to check on a hot water system and the problem is something that takes him five minutes to fix, but would otherwise have cost us a few hundred dollars for a plumber.

Of course, not increasing even a little each lease can mean things get behind. My parents have a house with a tenant who has been there for about twelve years. It is under market rent as Mum didn't increase each year, though there were increases. The rent has been increased substantially when the last two leases were negotiated, and the tenant was not happy at the big jumps, but it is still under market. We have chosen to leave things as they are for now because if he leaves, we will be faced with a new kitchen and bathroom and a total repaint, and right now, it is easier to leave him there below market than tackle those jobs.
 
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Here's some food for thought - sacrificing $15-20pw (or much more in some cases) which so many self managing LL's do to 'keep good tenants' would cover the cost of a PM and having no interaction with tenants yourself. We've seen many 'good' tenants over the years leave to be replaced by new 'good' tenants, so to live in fear of that 'bad' tenant is counter productive and costing you money.

Valid points, Steve.
Not sure where private LL get that "we might lose a good tenant" fear from. Then again, some people are quite fearful of many things which are unlikely to ever happen.
Another bit of food for thought ... translate rent increases into serviceability.
Sure, it might only seem like $10 or $15 per week, but when you multiply this by multiple properties, it adds up to an annualised sum that improves your serviceability.
I was pretty much at my borrowing limit late last year. Then I got my rent renewals signed and returned. Now my borrowing capacity is around $250k plus without factoring in the rent income from an additional purchase.
Small amounts, which seem like the cost of a Big Mac meal to the non investor population, when aggregated, can give you great leverage.
 
agreed to renew the lease for another 12 months at the same rent of $270 PW + water usage charges.

we could get $15 per week rent extra ($760 PA).

The tenants actually got the very next door house for $250 PW. a PM had done the appraisal for $235 rent.

I am confused. First you say the rent is $270, but market rent should be $285, then in your next post you say the house next door is $250 and a PM said your place was worth $235.

Bearing this in mind, it appears that you don't really know the value of your own property. Or, there is a glut of properties on the market at the moment and rents are reducing to get tenants signed up.

We never stay under market rate by choice and increase all rentals at every opportunity including at the 6 month mark if rents have continued to rise.

So yes, always increase rents to market rate and haven't had tenants leave due to a price rise yet. And if they did, don't really care - my PM's will find another one. To me a 'good' tenant is one that pays market rate, not $20pw under.

Here's some food for thought - sacrificing $15-20pw (or much more in some cases) which so many self managing LL's do to 'keep good tenants' would cover the cost of a PM and having no interaction with tenants yourself. We've seen many 'good' tenants over the years leave to be replaced by new 'good' tenants, so to live in fear of that 'bad' tenant is counter productive and costing you money.

Steve, this is exactly the way we operate. Keep rents at market, sometimes slightly above. There are costs involved in moving and a tenant will not move just because the rent is at market value unless there is some other underlying reason. Moving is time consuming and damn inconvenient too. If they like the place they will stay.

You do yourself a huge disservice by keeping rents low. Consider if you have 10 properties, if you like. All rented @ $15pw below market. So, that annual figure of $760 in lost rent now looks like $7600. Even if that figure is inconsequential to you, it might make all the difference in the world to the bank who is looking at your serviceability for the next acquisition.

Also, your tenants get used to having that extra money each week. When they eventually do move, they will have a rude awakening as to what the real market value of properties is. I have noticed some self-managing landlords with rents well below $15pw under market. This is because it is just easier to roll the tenancy over, year after year and not make waves. The first renewal might be $15 under, then the next it creeps to $25, the year after that $40.

Now, that good tenant, who has been on such low rents gets a divorce/new boyfriend or some other unforseen event happens. Suddenly that good tenant turns bad (it happens) and you have to evict them.

You also discover the reason they haven't called you out for maintenance/repairs is not because of the good order they have kept the place in at all. It is because they are lazy and can't be bothered. There are heaps of jobs that need doing, some general wear and tear, while others are damage.

You apply for the Bond, but it only covers 3 weeks rent, not 4. You don't have landlord insurance because they were good tenants, so there was no need, and you were slow at issuing all the notices, because they have always been good and you wanted to give them the benefit of the doubt.

By this time you are not only out of pocket the $40pw, you also have the repairs that need to be done as well as the large amount of time where no rent has been paid, while you have been jumping through the legal hoops to rid yourself of these tenants.
 
Valid points, Steve.
Not sure where private LL get that "we might lose a good tenant" fear from. Then again, some people are quite fearful of many things which are unlikely to ever happen.
Another bit of food for thought ... translate rent increases into serviceability.
Sure, it might only seem like $10 or $15 per week, but when you multiply this by multiple properties, it adds up to an annualised sum that improves your serviceability.
I was pretty much at my borrowing limit late last year. Then I got my rent renewals signed and returned. Now my borrowing capacity is around $250k plus without factoring in the rent income from an additional purchase.
Small amounts, which seem like the cost of a Big Mac meal to the non investor population, when aggregated, can give you great leverage.

LOL! You must have posted while I was typing. My thoughts exactly. Apparently I have to spread it around before I can give you more kudos.:D
 
I am confused. First you say the rent is $270, but market rent should be $285, then in your next post you say the house next door is $250 and a PM said your place was worth $235.

True, figures don't quite add up.

I've found many PM's don't have a clue. They're either afraid to put the rates up, or don't have enough interest to. For example many older houses in Enfield this time last year were asking $260-280pw, a few were asking $290pw. I instructed my PM to advertise for $295pw and got it. We're now in the process of jacking it up slightly to $300pw (despite pleas from the tenant they can't afford it :rolleyes:) even though other PM's still advertising stupid rents of $260pw, though more seem to finally be cottoning on. Market rate hasn't really increased as such, but I knew they weren't moving out for $5pw.

Even the best PM needs to be monitored. They'll usually let the 6 month mark slip by without an increase and the suggested end of lease increase is sometimes not enough. Monitoring the tenants is the PM's task, monitoring the market and the PM's is my task.
 
I self manage my properties. The lease on one of IPs had finished and the tenants agreed to renew the lease for another 12 months at the same rent of $270 PW + water usage charges.

Looking at their track record of always paying the rent 2 days before its due and a very low maintenance tenants, i agreed for the renewal. If we would have gone out looking for a new tenant, we could get $15 per week rent extra ($760 PA).

I preferred sacrificing extra $760 for a reliable, stable and low maintenance tenants. What do you say?

Cheers

I agree with you. I also self manage my IP. My tenants have been in their since i purchased it, approx 17 months ago. I have not lifted the rent once nor do i intend on doing so. It is about $20 pw under market rent bit that doesn't bother me one bit as i couldn't ask for better tenants. They are low maintenance and the house is always kept in immaculate condition.
 
What do you say?

I'd say with an opinion like that, you'll have no problem racking up your firstmillion in debt. Your firstmillion in equity might take a while longer though.

Of course, the poor buggers who are immediate Landlord's in your locale around will have your house and the low rent continually pointed at....by PM's and renters alike....as an example of "the current market", and so in your own small way, you've hindered and retarded their chances of achieving a decent rent.

I'm always amazed how investors can classify low-paying renters as good tenants.
 
The PM appraised the property for $235 rent giving reasons like, its on the main road, old building, no central air con etc. etc. The next door is available for $250 and I am renting for $270 pw. The tenants also pay all water usage. So we are charging market rate / above market rate. My maintenance bill for period during self managing is 3% of the total rent ( This might give an idea about the condition of the house :)). When it was managed by the PM the bill was 7% of the rent.

I will negotiate the rent increase after 6 months though. Thanks for the tips guys.
 
Of course, the poor buggers who are immediate Landlord's in your locale around will have your house and the low rent continually pointed at....by PM's and renters alike....as an example of "the current market", and so in your own small way, you've hindered and retarded their chances of achieving a decent rent.

If it is self-managed (or even with a different agency) how would anybody know what the current rent is???

I'm always amazed how investors can classify low-paying renters as good tenants.

Of course you can classify low-paying renters as good tenants. They are not setting the rent amount..... you are. Everyone knows that you get good and bad tenants, whether they are paying market rent or not :rolleyes:.

The long term tenant in one of Mum's houses is an extremely good tenant. The fact that she kept the rent low is not his fault. I'm sure he likes the under market rent he is paying, but it is not too far under market, and the fact that he is happy to stay there with a pretty ordinary kitchen and bathroom makes us happy as well. See.... everyone is happy :D:p.

In fact, if he left tomorrow, if we didn't do something with the kitchen and bathroom, we would probably only get around what he is paying now anyway because it will look pretty shabby, and shabby houses don't generate high rent generally.
 
Of course you can classify low-paying renters as good tenants. They are not setting the rent amount..... you are. Everyone knows that you get good and bad tenants, whether they are paying market rent or not :rolleyes:.

In fact, if he left tomorrow, if we didn't do something with the kitchen and bathroom, we would probably only get around what he is paying now anyway because it will look pretty shabby, and shabby houses don't generate high rent generally.

Spot on...

I am in the same boat, if the current tenants left, i would end up spending couple of hundred dollars painting and repairing.
 
I also have a good tenant.
6yrs ago I painted the interior and layed new carpet and got a new tenant in. This lady is no problem at all, the house is spotless the yards are clean. I have a PM and we have been increasing the rent each year but just staying under the value (PM's recommendation) because she is a good tenant.

Lately I have been looking at the rentals around the area and It seems to have jumped a fair bit as I know I could get an extra $20 to $40 pw..and yes I need the extra cash flow, But I would hate to see this tenant move on as this IP has been hassle free for the past 6yrs.

I will see my PM this week and ask for a rental appraisal and see what they suggest. But I will definately be putting the rent up.

How do you know the rental value? is it just by looking at rentals in the area??
 
Align your rents to the market rate

Look at all the organisations you pay money to as part of your resi IP expenses; banks, councils, utility companies, insurance companies, real estate agent, maintenance companies, owner's corporation management companies, state government (eg land tax) to mention a few. None of them give you a discount for paying on time. (Well they may spin that they do, but you don't get anything for nothing).

Why would you then treat the only income source for your property any differently? :confused:
 
I bought a unit renting for 280 a week - i offered it to the existing tenant for the new market rate of $320 and she initially refused, but after taking a look at the market she changed her mind and accepted a new lease. This sounds all well and good for us, although she got put off by this large increase and then preceded to complain about every chip or paint, rust spot on grill, carbon build up in her oven, vent holes in her walls, gust of wind in her curtain ect that it became ridiculous. I then stopped being 'nice' to her and sent a frank email saying if she didnt like the apartment, maybe another property would be better to your suiting, and also offered a release on the remaining 8 months of her contract. The moment i clicked send my problems were over and shes been a 'dream tenant' ever since, always paying on time, no complaints ect. Weird huh, a bit of tough love helped.

I dont think it helped that she knew i was the owner, also the fact that i asked her allot of questions about the property when i was inspecting it the 1st time. While it helped make my decision easier by hearing the blunt truths about the property, that bond i created with her in the early days of purchasing ended up biting my on the bum, to an extent. Next time its nothing but professionalism when dealing with potential tenants. My other tenants don't know im the owner and treat me with a surprising about of respect. Anyways sorry it was a bit off topic, just thought id share it with you guys.
 
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