Will you be increasing rents?
- Thread starter Prakman
- Start date
When I mean good tenants, I mean pay rent on time, undemanding - dont ask to repair this and that..basically tenants where I hear nothing from the agent for month on end about anything. Hi Maint tenants aren't worth the trouble, whether or not they pay the rent. At least not for me.
I wont be raising my rents.I have good quality tenants who never complain and pay on time every time.That in itself is worth $20 to $30 per week.I have thought about getting rid of the property manager as these tenants would be just icing on the cake for them.
at $30/wk your missing out on $1500/yr. reletting fees might be around $500, so your giving away $1000/yr. doesn't sound like much but when you have a dozen properties, it's a whole 'nuther wage.
losing $1000/yr is okay in the short term but by not increasing the rent in small increments as the market dictates ($10-20/wk), the crunch comes when - in a few years time - your rents aren't $30/wk below market, but $100/wk below market. the tenants ain't going to move because they're on such a good wicket.
all of a sudden you have the choice to either increase the rent by a huge slog, kick the tenants out so you can get new tenants in who will pay market rates or wear the increased loss of $5000/yr.
personally, i'd rather increase by small market increments and stay close to what is a realistic rent for the property - then have to do a large increment because i was being a softie.
also, when you assume the tenant is going to leave, if you're charging the right price for your property, where would they leave to? why do you think they would pay $500-1000 to move to something the of the same quality and pay the same rent as what you are putting yours up to? doesn't make sense for the tenant either ...
Lets say Rent = $20,000/yr and rents are going up 10% per year.
Option 1 - Raise rents 5% per year to keep good tenants
Year 2: Rent = $21,000
Year 3: Rent = $22,050
Year 4: Rent = $23,153
Option 2 - Raise rents 10% a year but lose 4 weeks of rent per year (re letting fees and vaccancies)
Year 2: Rent = 22000 x 48/52 = 20,307
Year 3: Rent = 24200 x 48/52 = 22,338
Year 4" Rent = 26620 x 48/52 = 24,572
After 3-4 years, option 2 starts looking better
Option 1 - Raise rents 5% per year to keep good tenants
Year 2: Rent = $21,000
Year 3: Rent = $22,050
Year 4: Rent = $23,153
Option 2 - Raise rents 10% a year but lose 4 weeks of rent per year (re letting fees and vaccancies)
Year 2: Rent = 22000 x 48/52 = 20,307
Year 3: Rent = 24200 x 48/52 = 22,338
Year 4" Rent = 26620 x 48/52 = 24,572
After 3-4 years, option 2 starts looking better
rates up = rents up?
Have you guys worked out that the amount you hae to put up rents to cover interst rate rises depends on your level of gearing?
$250K property, 200K loan IR goes 8.0 - 8.25, rent goes from $240/wk to $247/wk (3% increase).
$250K property, 250K loan IR goes from 8.0-8.25, rent goes from $240/wk to $256/wk (6.7% increase).
So from a calc point of view the higher your loan vs rental income the more you have to try to get out of your tenant!
Those with lower debt will survive this much better.
Have you guys worked out that the amount you hae to put up rents to cover interst rate rises depends on your level of gearing?
$250K property, 200K loan IR goes 8.0 - 8.25, rent goes from $240/wk to $247/wk (3% increase).
$250K property, 250K loan IR goes from 8.0-8.25, rent goes from $240/wk to $256/wk (6.7% increase).
So from a calc point of view the higher your loan vs rental income the more you have to try to get out of your tenant!
Those with lower debt will survive this much better.
What you 'need' or 'want' doesn't always translate to reality. I just look at what comparable properties are renting for, talk to my PM and come to a figure. If I ask for too big an increase, no one would rent the place.
Would you rent out your IP as below market just because your gearing is lower and so you don't 'need' as much of an increase?
Alex
Would you rent out your IP as below market just because your gearing is lower and so you don't 'need' as much of an increase?
Alex
In 2003 I fixed @5.94%...today I fixed @ 7.74% - thats a 30% increase in interest rates. Rent for that IP was $195 back then, $260pw now - a 33% increase. It's been a steady rise of $10pw each year. With IP you've got to think medium to long term.
For many IPs the market either won't stand a rent rise, or a rent rise won't filter through until the end of the lease.
And I think any landlord not raising rents (provided the market will bear it) is doing the RBA (& consequently the economy) a disservice.
I'm not suggesting that rents be increased by 10% every year. It was just an example.
I'm trying to illustrate the difference between keeping rents at market vs discounting the rent to keep good tenants. For the first 1-2 years it is both financially worthwhile (discounting) and it also can reduce headaches. After that, there starts to be a financial cost which gets bigger with time.
How much people are willing to pay sets market rates.
My bet is that rents will rise faster than wages. Some individuals may need to lower their expectations on what they can afford to rent / get a flat mate.
I recently had to rent out a room within my house. I had a fixed amount p/w in my head, however, after seeing what was on offer, (local competition) I upped the amount. With the number of respondants, it could have easily gone up more too.
I fully agree that tenants/renters have to change their views on the rental "crisis". I have lived in many large cities, within many types of accomodation and believe strongly that we have it too good in our big cities here in Australia. When you can live in a house only 2 kms from a city center like Brisbane and have a back yard to cook a barbie - still only paying $100 pw - people are selfish to complain.
People just have too high of expectations. Times change, peoples attitudes and expectations need too as well.
My bet is that rents will rise faster than wages. Some individuals may need to lower their expectations on what they can afford to rent / get a flat mate.
I recently had to rent out a room within my house. I had a fixed amount p/w in my head, however, after seeing what was on offer, (local competition) I upped the amount. With the number of respondants, it could have easily gone up more too.
I fully agree that tenants/renters have to change their views on the rental "crisis". I have lived in many large cities, within many types of accomodation and believe strongly that we have it too good in our big cities here in Australia. When you can live in a house only 2 kms from a city center like Brisbane and have a back yard to cook a barbie - still only paying $100 pw - people are selfish to complain.
People just have too high of expectations. Times change, peoples attitudes and expectations need too as well.
I didn't vote because I don't see the connection between interest rates and rental rates. Whenever I let a place I let at market rent (or a tad more if I can) and I review the existng rents at end of each fixed lease (usually 12 months). I am not changing anything just becuase interest rates have.
Almost everytime I do a rental increase it is around the 10% mark. I have just given notice of the next one which is 12.5%. (mainly because it's due - it's been nearly 15 months) This is for existing tennants, between tennants the increases are normally higher than this... last one was 25%.
I don't find this unreasonable as I never do 6 monthly increases, 12 months at least.
It's hardly worth doing it for anything less than 10% in my opinion.
PM just rang me to ask if I wanted to put the rent up $10pw ($230-240) on one of the IP's. Just a coincidence though.
WA - I put my tenants rent up 20%, they decided to move out so I've put the rent up 30%. Easily tenanted. It's about time Perth rents moved up!
I agree. Where is the connection? They are independent events. If your IP is already at the top of the marketable rent then you may do yourself a disservice by tryin g to raise it. If your property is below the marketable rent then you should have addressed this earlier.
If petrol goes up do you raise the rents then?
Is all supply and demand.
Yeah OK GoAnna I know where you are coming from on this BUT what factors determine "market rent". Isn't this just determined by comparable rents? (just like comparable sales when we are valuing an IP for purchase). IF (just a scenario here) all landlords were like me and moved the rents up in line with interest rate rises (in this part of the cycle at least anyway) wouldn't THAT be a factor in setting the comparable market rent?
I know they don't ,as others here have said they wouldn't. But it 'might' be considered a 'driver' factor.
Cheers,
Aimy
Sorry but I can't agree. Its to do with demand and supply. At times landlords or PM's may advertise properties below the real market rate and keep rents artificially low but as is seen in Melbourne recently tenants will bid the rents up voluntarily as they compete for insufficient stock. If we all raised rents in Melbourne to say $1,000 per week tenants would move elsewhere and those that remained would have more stock to choose from and landlords would then decrease rents to compete for those tenants.
If we move rents up beyond what tenants are prepared or capable of paying then we will price ourselves out of the market. It's a risky move.
Don't get me wrong I love high rents and I often achieve more rent than comparible properties in the same area but to achieve a given rent we must find some-one willing to pay it week in and week out! Similarly I don't lower rents when interest rates fall or my PM gives me a discount. What I pay in interest etc is of little interest to tenants except when they are directly comparing the cost of buying and even then they are competing with other tenants who may have different motivations.
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Yes, but the market that everyone refers to is the sum total of everyone's individual decisions (renters and landlords alike in this example). So if landlord's costs are moving upwards, then there will be pressure on rents to increase.
Whether those rental increases cover your costs or not, will also be influenced by the aggregate decisions made by renters.
Our individual decisions are not made in isolation and contribute to the market price.
Whether those rental increases cover your costs or not, will also be influenced by the aggregate decisions made by renters.
Our individual decisions are not made in isolation and contribute to the market price.
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