Age Old Question - To Increase Rent Or Leave As Is?

The agent let me know it's time to increase the rent (if I want) and they suggested a $15-20 weekly increase.
These are my second tenants and I'm looking for some advice. First tenants were a nightmare so I'm apprehensive about making changes and its clouding my judgement.

Factors to consider:

- My property is rented at below market value in a high-demand area. It's the cheapest rent in the area. Old house, decent condition. Could use some work to freshen it up, nothing major, mostly cosmetic.
- I made several expensive improvements to the home when the tenants were there, some at their request, and have always responded quickly to maintenance.
- The tenants are pretty good (compared to the past ones) and handy too...but they act quite entitled and start doing their own modifications without ever running it by the PM. Like installing a doggie door in a security door (which I never consented to and didn't know about until inspection).
- Last inspection was recent and overall they were taking care of the home. Aside from the stuff mentioned above which crossed the line.
- I was due to make a small rent increase last year but they were very unhappy with that news. The pandemic hit almost immediately after that and I left the rent as it was out of concern for the state of the rental market.
- Tenants are on a month by month lease, the fixed term has already ended.
- They are decent tenants so far. They made several requests and communicated quite frequently with the PM in the early stages but have since settled down, and have been pretty quiet since settling into the home.


I'm in two minds and not sure what to do. Increase the rent and risk annoying or losing the tenants. Or leave as is at below the market value. I'm literally 50/50 on the fence.

 

Why did you let them go on month by month in the first place?
Most of this seems to be a problem on your end. Run it like a business.

 

To clarify for you: it wasn't in the "first" place. This was the choice they made after the initial fixed term ended. I can't force them to sign on to another fixed term lease.

 

Well you can.... By removing or threating to remove them, getting a new tenant and therefore a new guaranteed X months rent.

That's business.

That might be harsh for some people though. So just raise the rent. Especially if they're modifying your property without your knowledge or just generally being painful.

In my opinion though I'd be raising the rent, if they don't like it.. so what. You said yourself you're in a high demand area..

Hopefully your pm checks out those modifications if they leave.

 

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Good point, I considered this. Question: if the doggie door has damaged the security door and compromised it in some way, is this something I can get back from the tenant's bond at the end of the tenancy? Since I never approved it and would never have approved it.

 

Renting properties out is a risk we take for financial gain (fund retirement, etc). To offset the risks and the hits we take, we do need to keep the rent price relevant, I think. I'm not for all-out greed, but just keeping in line with the market. If the area was low demand you might think twice about keeping (or even reducing) the rent amount. But since it's a high demand area you shouldn't have a problem finding new tenants if the current ones decide to leave. Maybe just do a $10 rise if you're concerned. Tenants don't really move on because of small rises in rent, especially when they have the place all set up for their needs (doggy door .... yes, so annoying when they do that ... don't get me started ). Sometimes it takes a bit of Dutch courage when you are a cautious landlord.

 

You had me at below market value in a high demand area. Increase for sure.

 

To keep the rent in context.
What percentage return is it?
Comparable rentals?
Vacancy factor?
I hope this helps.

 

Were there covid rules that meant you couldnt issue a notice to vacate with the lease renewal?

 

5% net rental yield. Currently the house pays for itself with these tenants, even with all the expenses incurred.
Comparable rentals all achieve $45-75 pw higher.
Low vacancy area from what I understand, at this point in time

This is me here. Cautious because of a past bad experience

 

[QUOTE="mike_hunt99, post:

This is me here. Cautious because of a past bad experience[/QUOTE]

Ah, I hear you. Part and parcel of being a landlord. Where are all the tenants like us when we rented (hehe) ... respectful, followed the rules, paid on time. Geez we were good!

 

You gotta let the past go so you can grow.

2 issues you need to rectify.

1. Any agent who allows you to go to a month by month lease needs to be fired, and then you need to slap yourself for doing it.

2. If you are significantly under market rent, you need to fix that over time. Being a little below market value for good tenants is fine (all my properties are a little below for good tenants who save me a ton). But if your too much under value it needs to be fixed.

At the end of the day you need to run it as a business. I hope you have LL insurance.

 

Pro’s
Tenants are better then the previous bad ones

Cons
Bellow market rent ($2.4K +per year)
Month to month lease
Doing work without asking

Easy choice
Up the rent, improve the conditions. If they move out there are plenty of good tenants out there to choose from.

 

We have decided not to up the rent on our Brisbane tenants, largely because they did experience difficulties during COVID, however the minor rental issues were sorted very quickly. So at the moment my tenants are in a moral kinda 'credit'. They prioritised rent in tricky times ...... even when they read in the media that they could skip rent.

I like my tenants, and the calls to 'run it like a business' i interpret as do what your spreadsheet says. I firmly believe that being a landlord is a people business not a spreadsheet business. Why would i screw someone's life for 10 bucks a week, especially if a job was lost in COVID.

That is my 0.02c worth.

Also we just had a great experience with a tenant willing to do some work. I will keep details to myself but is was very good.

Good luck with what you decide

 

definitely. Make sure your agent is aware of your expectations. Read your lease documentation as it should be stated there as well. That’s why there is an on entry - start of lease report.

 

Completely legal and not even unethical IMO. It's simply saying make a choice - sign a lease or we'll find someone who will. Why should their uncertainty and inability to make decision transfer onto the landlord as financial risk? It's something we used to do every time running a PM business and I continue to do to this day with my own properties. If they leave, so be it - I find a new tenant and get a lease and financial security for the next 12 months.

I would rather pay a letting fee and a bit of vacancy at a time of my choosing and for which I have annual budgets, rather than a tenant vacate 2 weeks before Christmas, leaving me with a vacant property that will cost me more overall. This strategy works very all and 99% of the time you'll get your fixed term lease if the tenant was planning to stay. If you don't, it's just a catalyst for a tenant that was planning to leave anyway in which case, see above.

Provided you have bought well, reletting a property should not be a problem. If an investor is worried about a letting fee and a few weeks vacancy then their cash flow is poorly planned and needs redoing. A letting fee and vacancy should be budgeted for annually with anything better seen as a bonus.

No, it was a choice that you made (via your PM) by not taking control of the situation using the right methods and procedures. As @Trainee has said, you need to run this like a business.

I recently increased the rent on one property in a certain capital city by $80 a week in one go (yes, it was at market rent this time last year) on good tenants. They got quite annoyed, threatened all sorts of things and eventually decided to leave. No problem, I instructed my PM to advertise the property with a $170 a week increase (it changed considerably during those few weeks of 'deliberations' by the tenant) and had 5 applications on the first open.

I take all sorts of calculated risk by owning multiple properties and I continually strive to mitigate that risk through various methods, cash flow management being a big one. No investor ever dropped out of the game or went broke through debt, they went broke through failing to manage the cashflow on that debt. If you don't do it properly and keep up with market rents as and when necessary, it becomes a painful exercise when other costs mount in places unforeseen and often, people get worn out, stressed and sell up before they really see any results.

Property investing can be time consuming and quite tough at times. Don't make the mistake of leaving holes in the very thing that supports the journey.

- Andrew

 

Personally I don't have a problem with tenants rolling over to periodic leases. I prefer them to be on fixed leases but if they don't want to then I don't throw them out.

I would put the rent up by $20 and if they push back then counter offer at $15. Small increments are easier for both sides to manage than one large increase. When it is next vacant ensure that it's advertised at market rent.

 

That is a no-brainer.

What you need to get your head around is that your IPs are a business. You need to treat it as such. Afterall, this is a sizeable asset that you have, and you have strangers living in it. They need to pay their way, and treat your asset well.

So, you've got a property in a high demand area that is hugely under market rent. I'd be putting the rent up at least $30, and since they're on month to month, another $30 in 6 months time to play catch up. Remember that if the rent is at market rates, and your tenant likes where they live, your tenant isn't going anywhere, because they have to pay that much elsewhere anyway.

You SAY the tenants are good tenants, but to be honest they really are not. You can't just go & cut a doggy door into a security door. This is something I would have made a song and dance about in the first instance, but probably too late now. They need to be made aware that if they damage your property, they are financially liable to have it fixed.

As for the periodic lease, I'm with @Westminster on that one. It doesn't bother me at all.