Would you put the rent up?

[pitstop]

Evening all
A question for you: I've got a little cottage, not flash at all. Rent is only $120 a week. Other houses in the town are much better and charge $130-$150 a week. If I could put my rent up to $150 a week I would almost cover my mortgage payments and my rates. At the moment I'm $1700 short a year - money that I could have for my own family.
If I put the rent up, people will say that it's daylight robbery etc and ask how can I charge so much when such better houses charge that much. They will be truly shocked, think I'm very greedy and gossip about it. The thing is, we don't have a lot of money (our joint employment income was about $45k last year) - we are doing this property thing one little fibro shack at a time.
The key point is that there is not a single other house to rent in this town. If I put the rent up the tenants will not be able to move anywhere in this town. People will bag me but I think the tenants will pay it grudgingly.
So, do I be kind to the tenants, (who do nothing to improve my place, barely mowing, would never change a tap washer) or do I create a scandal and cover my costs? Would you feel obliged to make improvements to justify it or not give a hoot?
Your advice please.

 

[NataleaK]

If you are confident that you'd be able to find a new tenant at the higher rate, should your current tenant up and leave, then yes I would put it up.

As far as the heating thing goes. Who cares if they complain all over town about you or their power bill. You offered them an alternative solution, they choose to turn it down.

 

[SeafordSunshine]

Dear Pitstop

Market rental.
What is the fair market rental?
Sounds to me like you have all the balls in your court.
How much maintenance does this house need?
How long have the tenants been living there?
How long do you want them to stay?
Have they ever been late on the rent?
Is the house covered in garbage, old vehicles etc.
How much will it cost (time , energy and money) you to put your house in the same category as the other ones?
Are there other people (I mean potential good tenants) looking for somewhere to rent in you town?
Are there jobs in you town?
Are you starting to get the picture?
You have a valuable commodity!
These are the kind of questions you need to be asking!
You are in this for business!
Keep it business like and you wont go wrong.
Best of luck
Seaford Sunshine

 

[Pa1nter]

You are in a good position,however if for some reason they found other accommodation,you could loose that income you have for a month or two,and still end up renting for the same money you are getting now.

Don't be greedy,that's my opinion,I try never to be greedy,it usually never pays.

If you can talk to the other landlords and get them all to put their rent up,then you wont loose ,

Thats the thing I would do,everyone wins (Except tenants and the hotel where they drink)

 

[pitstop]

NataleaK: thanks. That was exactly my defence on the heating issue.

SeafordSunshine; those are a lot of good questions. I do get asked regularly if I have any empty houses. On fair market rent - I don't know if it would be fair. How do I know. It would be the same price as bigger places, and whatever work I do it will still be two bedrooms. My advantage is that there's nowhere else available. They have been regularly late with their rent.

Pa1nter: to not be greedy is also a good point. I just didn't want to miss out on money by acting through emotions rather than being businesslike. My husband says it's not worth $150 because he is comparing it to other places, but I said what a place is worth is only determined by what someone will pay for it. Talking to the other landlords would be funny, but they all own their places outright.

 

[Fudge]

1. Operate investment property as business.
2. Raise rents to market rents only. You say your competition are much better houses peaking at $150. Why not consider $130 - $135
3. In some states, it depends on when you last put up rent? (with same tenant)
4. At the end of the day when demand is there (as in your case), prices rises and when demand falls, so does price.

A vacancy rate of 0??? It must be a very small town?

F

 

[pickle pickle]

You are planning to put the rent up by 25%?

If your tenants challenged this at a tribunal (at least in Victoria) it may be reduced as it would be deemed excessive. A call to the tenants union by the tenants would set them to the path of appealing your rent increase.

I would increase it to $130-$135 a week. You seem to indicate $150 a week is not what the market can bare. It seems like you live in the town so people's opinions do matter as you have to live there and get along with the people.

Also you don't want the place to be vacant and have to deal with the hussle of finding a new tenant. How long would it take to find a new tenant? One month, 6 months?

Even if it's for a month, it will take 10 weeks of renting at $150 a week before you make up the difference, if you rent at $135 a week. And that's not even considering the potential cash flow issues while not rented.

I have been putting the rent up yearly on our property. However I consider the decision very carefully as I do not want to loose our tenant, while at the same time do not want the place being extremly under market value for rent.

 

[pitstop]

Hi Fudge - yes, truly 0 vacancies. It's really a village.

Thanks pickle pickle. Yes, 25% does sound a lot. I am going to try for $135 with some house improvements that add lasting value and also please the tenants.

P.

 

[sanj]

You have mentioned that they are regularly late with rent, why not use this opportunity to get someone else in? No point trying to ease people if it isnt a 2 way street

 

[Fudge]

You have mentioned that they are regularly late with rent, why not use this opportunity to get someone else in? No point trying to ease people if it isnt a 2 way street

No mention of tenants being late??

Depends where the property is regarding the amount you can push it up. I am fairly sure in Qld, you can push it up to whatever the market rent is. The frequency of rent rises is to be controlled however. (Last year I pushed my rent up an extra $60/ week, and this was more than 25%)

If there are controlled rises in your state, it only relates to the same tenant. Therefore, give notice to vacate at end of lease agreement and rise it up to what ever you want (preferably market rent, otherwise it will be a vacant property if pushed up too high)

F

 

[tobe]

I like the idea of doing a cottage at a time, on a low income. My first 2 IPs were little cottages in a largish regional town.

At first I self managed, at market rental. Over the years, while I did some maintanence, the property got even further run down, and the tenant could not afford to pay the market rental. (I had increased it slightly each year, but not to market rental).
Anyway, it was awful. Long term tenants, going onto skid row, cause I needed to do major reno's. While they could stay while the renos were going on, they didnt want to/couldnt afford the market rent afterwards.

Always charge market rental, sometimes its kinder to be cruel.
Dont worry about what the rest of the town thinks.
a)they arent property investors, even if they werent in a country town,most people who dont invest have similar thoughts, regardless of the actual rental amount. their opinion doesnt matter.
b)its not their nest egg/investment on the line
c)disregarding 'what other people think' will help in changing your mindset to be able to grow your income.

 

[skater]

If it is at $120 now and better homes are at $150, I would move it to market value, which is probably $130. An increase of more than this would be a lot for a home with such a small dollar value. I would, however, make small increases on a regular basis.

At the moment mine are all going up every six months. Some $5, some $10, some more. It all depends on what the market value is in the area the IP is in.

 

[kathryn d]

Pitstop,
Don't worry about what your tenants or others think.
You are providing a service, for which you are permitted to make a profit.
As soon as you raise your rents, the other "nicer " properties will raise their rents. All landlords win.Nothing greedy here.
Should anyone say anything unkind to you, just ask them what properties they are offering to rent.
Your already stated your current tenants are bad mouthing you now.
You have nothing to lose.

I remember the first time we rented out a house.I thought $800 month was a lot.My daughter said it was too low.I put it up to $1000 month. We have never had a vacancy.
Next lease will be increased to $1200 month

We tell problem tenants if they don't like it, they should buy their own place.

 

[sanj]

No mention of tenants being late??

My advantage is that there's nowhere else available. They have been regularly late with their rent.

.

Hi Fudge - yes, truly 0 vacancies. It's really a village.

Thanks pickle pickle. Yes, 25% does sound a lot. I am going to try for $135 with some house improvements that add lasting value and also please the tenants.

P.

i think the figures of $130-$135 seem ok but you have to ask yourself if these improvements you speak about will actually add any value or lead to increased rent. it appears there is a ceiling on how much rent you can get and if you can get $130-$135 the way it is at the moment i wouldnt be inclined not to make further improvements since 3 bed places are only $150

you might also find that 3 bed places were $150 but arent any more if there is not a single property available,.

 

[our obsession]

Evening all

G'day back and welcome to Somersoft forum Pitstop

A question for you: I've got a little cottage, not flash at all.

Rent is only $120 a week. Other houses in the town are much better and charge $130-$150 a week. If I could put my rent up to $150 a week I would almost cover my mortgage payments and my rates. At the moment I'm $1700 short a year - money that I could have for my own family.


There you go, sounds like you will be increasing the rent.

If I put the rent up, people will say that it's daylight robbery etc and ask how can I charge so much when such better houses charge that much. They will be truly shocked, think I'm very greedy and gossip about it.

Not your problem Pitstop, people talk and gossip regardless..Opinions are like rectums, everyone has one, the thing is you are having a go, investing, seem to know the market and what rentals are fetching, just do your business thing. I've just finished doing the same thing here, smaller town, bigger regional city, and even bigger regional city rent increases. It's just business.


The thing is, we don't have a lot of money (our joint employment income was about $45k last year) - we are doing this property thing one little fibro shack at a time.
The key point is that there is not a single other house to rent in this town. If I put the rent up the tenants will not be able to move anywhere in this town. People will bag me but I think the tenants will pay it grudgingly.
So, do I be kind to the tenants, (who do nothing to improve my place, barely mowing, would never change a tap washer) or do I create a scandal and cover my costs? Would you feel obliged to make improvements to justify it or not give a hoot?

Property investing, the renting, the conditions that come with that are not necessarily the same, one place in a small town I get premium rent because it is available to transient tenants, scientists from overseas, I provide the gardening maintenance, they have science to ponder and do, they are not interested nor can find time to mow lawns or garden, so I cover that, also my place is furnished, another reason my property is unique, so my rent is accordingly.

Your advice please.

I'm not you, but you seem to have the gist of what you are doing, knowing the rental market, trust yourself on all this, people talking behind your back, maybe tssk, tssking, is not your problem, you are wanting a more financial independence? it is business. Part of the reason I have this one rather unique IP in such a small town is I recognised the shortage for this type of property service, people can say whatever they like about my motives, my supposed greed? the clothes I wear, the car I drive, the politics I vote for the coffee I drink--- ain't my problem.

Go forth and have fun Pitstop, just do your best business possible, and again, welcome to the forum.

 

[willair]

Evening all
A question for you: I've got a little cottage, not flash at all. Rent is only $120 a week. Other houses in the town are much better and charge $130-$150 a week. If I could put my rent up to $150 a week I would almost cover my mortgage payments and my rates. At the moment I'm $1700 short a year - money that I could have for my own family.
If I put the rent up, people will say that it's daylight robbery etc and ask how can I charge so much when such better houses charge that much. They will be truly shocked, think I'm very greedy and gossip about it. The thing is, we don't have a lot of money (our joint employment income was about $45k last year) - we are doing this property thing one little fibro shack at a time.
The key point is that there is not a single other house to rent in this town. If I put the rent up the tenants will not be able to move anywhere in this town. People will bag me but I think the tenants will pay it grudgingly.
So, do I be kind to the tenants, (who do nothing to improve my place, barely mowing, would never change a tap washer) or do I create a scandal and cover my costs? Would you feel obliged to make improvements to justify it or not give a hoot?
Your advice please.

At the end of the day who's problem is it,don't worry about the mowing tap washers the ATO picks up that bill,just look at the bare facts if most are rented around the 150 mark and your property is in the lower end then it may well pays to leave it the way it is,and wait till those properties go up in rental return then put yours up in line,but understand one simple item it may only be a small rundown cottage but it's your Business that you alone control,once you start to worry about what other think about you in property investing or anything then the game is finished..

 

[pitstop]

Wow! Fantastic replies and loads to think about.

Fudge and Sanj: thanks for the advice and sorry for the confusion. I thought the replies had stopped coming and I deleted some of my original post to make the story less identifiable! Coward, I know.

Sanj: what if the improvements increase the actual value of the house but benefit tenants at the same time? Like a wood heater, iron window awnings, paving, shade structure etc?

Everyone, thank you for your replies and encouragement.

I think that determining market rent is the hardest part. A similar village to us only 30kms away now has rents at $200 and over - nothing lower. The two towns used to be the same. This is a better town and I think that landlords have been slow to increase. Maybe the $150 mark is a psychological barrier. Once a few break through it it might be like a dam breaking.

I forgot to say something important but that I totally forgot about. One house is over $150 and that is actually my other IP which is rented at $180. (Doh!) I had to charge that so I could meet the mortgage but it had to be rented to two income earners rather than a family with one wage earner, so I rented to two young men. Sorry if this irritating that I missed this out. It is still very unusual and a bit of an anomaly here. I guess who the target renters are is a crucial factor too.

Our Obsession, Kathryn D and Skater: I have read many, many of your posts before today. Thanks for the replies. More for me to think about. You once said, Kathryn D, that if your tenants wanted to move out they would do so without a thought for your mortgage and that that is the way it should be. I know that these tenants would do the same - as is normal.

Tobe: I can see the same thing happening with this house. About six months ago I offered them a list of improvements if they signed a one-year lease at $140 I think but they said they didn't want to pay more. Don't ask me why I was doing it like that - I can see now that that is poor business, but I felt an obligation because I know them. I do recognise now though that that obligation does not flow both ways, and so I shouldn't do it either. It stops you improving the place, even though it's your place.

Jeez, this is a novel. Thanks again. Going to get a wine. I'll post again when I decide what to do.

 

[Fudge]

Wow! Fantastic replies and loads to think about.

Fudge and Sanj: thanks for the advice and sorry for the confusion. I thought the replies had stopped coming and I deleted some of my original post to make the story less identifiable! Coward, I know.

Ahhh.... I know exactly who you are now.

I thought Sanj was smoking some pretty good stuff there for a minute.

F

 

[Joe D]

Look after your own

Think about it from one's own personal perspective:

"If I was to accept ANYTHING less than what was reasonably possible I would be stealing from my own family"

 

[skater]

About six months ago I offered them a list of improvements if they signed a one-year lease at $140 I think but they said they didn't want to pay more. Don't ask me why I was doing it like that - I can see now that that is poor business, but I felt an obligation because I know them. I do recognise now though that that obligation does not flow both ways, and so I shouldn't do it either. It stops you improving the place, even though it's your place.

OK, remember in all of this that you are talking about your business. If your business was the local fish and chip shop and you wanted to put the price of chips up to $2.50 from $2.00, but you asked the customers if they wanted to pay that much, what do you expect the answer to be? It is human nature to not want to pay extra to receive the same item/service as they have always had. You set the price, not the tenants.

Regardless of whether you know the tenants or not, do all your transactions in a business like manner. Do not ask the tenants first. Send out a rental increase and be done with it.

FWIW, I have my ex-PPOR rented to an older woman. She wanted this home specifically because her daugther lives nextdoor, and her son was renting another of our IP's directly behind this home. She went in there paying significantly above market value because the home had more features than the surrounding homes. It was quite expensive for her on her low wage.

Now, like you, I know this tenant. I have known her for some time before she moved in. She approached me before it went on the rental market as she knew I was moving. I told her straight that I deal through an agent and she would have to deal directly with the agent, and that the agent will set the rental amount and look after everything to do with the home.

Since she has moved in, I have continued with rent rises (in line with market) and it is now rented at $30pw more than when she originally moved in. I know this must be a struggle for her, but I am not going to let the struggles of my tenant stop me from getting what the market says I should be getting for this home. The home is probably more $$ than she can afford.

Now, I'm not sure if you are self managing or not, but maybe you need a degree of separation between yourself and the tenant. If you use an agent it is so very easy to increase the rents, and then if the tenant wants to complain you just refer them back to the agent.

This is your business. No-one is going to look after it but yourself, so be proactive. Don't spend unneccessay money on the home but keep it well maintained. Things like window awnings, paving and shade structures add little value in the rental $$ you will receive from a property. If the tenant has been there for a long time, even a wood heater won't add value as they probably have their own heaters already.