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Hm, new tenant or keep current tenant?

Discussion in 'Property Management' started by EN710, 6th May, 2016.

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  1. EN710

    EN710 Well-Known Member

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    So

    I want to renew the current fixed term rental and increase rent to market (currently under market)
    Current tenant doesn't want to sign the fixed term unless the old carpet in living area is changed
    Options:
    1. let rent roll to periodic (and increase will still apply)
    cost: $0, waiting time 2 months (in Brisbane)
    potentially unhappy tenant and risk of not having fixed rental in place

    2. let them out, redo carpet for entire place and rent it out
    cost: letting fee $500 + downtime assume 2 weeks if PM is on the ball + replace carpet cost I reckon at $3K (haven't got quote yet)
    Market rental would be about the same

    3. redo carpet in living room and hallway to vynil plank
    cost: $1800 (assuming tenant will remove their stuff from living room)
    no downtime, fixed rent in place

    What would be your suggestion?

    Tenant has always been on time with rent, so no issue on that front at the moment, they signed lease with previous owner early 2015
    Suburb vacancy rate per sqmsearch is 1.3%
    Per PM note, the carpet is old (cream carpet and it's dark and dirty) and will need to be replaced when the property is empty
     
  2. Marg4000

    Marg4000 Well-Known Member

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    If the carpet is old and dirty, then a request to replace it seems entirely reasonable. Why risk losing a good tenant over some necessary maintenance?
    Marg
     
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  3. Ezzo

    Ezzo Active Member

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    If you are going to have to change the carpets at tenant changeover anyway, I would just do it now and lock in the tenant.
     
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  4. EN710

    EN710 Well-Known Member

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    @Marg4000 have no issue in replacing as long as they agree to remove their furniture from living room. Some of my consideration would be whether it's better to have the entire house done all at once (which is not possible with the tenant inside), I also incurred some unexpected expensive maintenance so was hoping to delay some cost if possible.
     
  5. Barny

    Barny Well-Known Member

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    Carpet guys can move tenants furniture around for additional 200
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    I think redoing the carpet (if its as old as you say) in exchange for a fixed lease and a rent increase is a pretty good deal.
     
  7. wylie

    wylie Moderator Staff Member

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    I agree that replacing the carpet is worth keeping a tenant and not paying at least a week (probably two) for a new lease, plus the down time whilst searching for new tenant.

    Especially if they leave and you have to replace it to get a new tenant anyway.

    How much under market are you now?
     
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  8. EN710

    EN710 Well-Known Member

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    Approx $20-30 per week under market @wylie
     
  9. wylie

    wylie Moderator Staff Member

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    Using $25 a week under market, that is $1300 rent you are losing per year. (I'm assuming you mean market rent with reasonable carpet, and not with dirty carpet?)

    I'd do the carpet (pay a little extra to have furniture moved so whole house can be done, or go with floating or vinyl planks if you prefer it - not tenant's choice but your choice).

    If you lose this tenant you lose more than you need to due to being under market rent. But get in writing that they are happy that someone moves their furniture and that they will move the small stuff to make the job easier.
     
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  10. Xenia

    Xenia Adelaide Property Manager Business Member

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    Here are my ideas which off course have to be different to everyone else. :p

    I would do the bare minimum required by the current tenant to renew the lease. Ensure that you are renewing it at current market rate and for a further 12 months.

    I would do the rest of the house once the property is completely vacant and that would be when this current tenant decides to move on. In 12 months, 24 months, whatever it is.

    If I was going through the expense of recarpeting a house or repainting or doing some other improvement I would want the benefit of being able to advertise that feature and use it for premium rent and also new marketing photos. If you do it all now it will not be new in 12 months and you cannot advertuse it as newly laid carpet and cannot get the benefit of attracting a better tenant later.

    It's my own personal choice but I like to take the opportunity to improve properties between tenants for the benefit of attracting higher rent and better tenants.

    I would not recarpet an entire house for a lease renewal. Just the minimum negotiated amount to get it over the line.
     
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  11. EN710

    EN710 Well-Known Member

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    got it :) Just need another quote to compare then we can chat with the tenant on how it can be done
     
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  12. Xenia

    Xenia Adelaide Property Manager Business Member

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    Definately do not just let it go to periodic, get fixed term lease or terminate.
     
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  13. Xenia

    Xenia Adelaide Property Manager Business Member

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    Also don't forget advertising for new tenants is done before current tenant leaves so vacancies can be minimised this way.
     
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  14. Befuddled

    Befuddled Well-Known Member

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    This. Learnt it the hard way with tenants deciding to move out in the middle of December
     
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  15. wylie

    wylie Moderator Staff Member

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    I agree with what Xenia is saying, except for this part of your post (above).

    Is it right that a tenant doesn't "have" to sign a new fixed lease? If so, then you need to find out if they will sign a new lease before the lease finishes or you risk them leaving and having to replace the flooring anyway to get higher rent. And that will cost you more than you are losing in having the rent lower than market.

    I don't like the "holding you to ransom" part of that quote (above) but the reality could be that if they refuse to sign the new lease, you have to give them two months' notice to leave and they can leave giving you only two weeks' notice. (This is Queensland rules, not sure of where your IP is and what the rules are there.)

    So in a way, they do hold some power here. What my son used to do when he was a property manager was issue a notice to leave at the same time as the lease renewal, so that if they didn't sign the new lease, they had been given appropriate notice to leave.

    Which means you could call their bluff. But be prepared for an empty house and then finding a tenant with dirty carpet or replacing it at that time. If they are good tenants in every other way, perhaps do the new flooring (carpet or whatever you want) and increase up to full market rate, which might be even a little more with new carpet?
     
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  16. EN710

    EN710 Well-Known Member

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    Thanks peeps,

    @wylie thanks yes i should request this to be part of their future process
     
    Last edited: 6th May, 2016
  17. D.T.

    D.T. Adelaide Property Manager Business Member

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    Correct. Tenant can choose not to renew and they go into periodic. This is the same across all states.

    The amount of notice / deadline for renewing varies across states. Its 28 days in SA so we negotiate and juggle this process very carefully so as not to let an investor find themselves on an unstable cash flow.
     
  18. Pumpkin

    Pumpkin Well-Known Member

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    This is so similar to what happened to us!
    Current tenants "hold us ransom" to say the previous PM promised them new carpets, which Owner denied, but agreed to give in because they are long'ish term tenants. As new PM we were quite taken aback because the carpet is not so bad; we have other units much worse than this. Also we feel the tenants' behaviour is not quite pleasant.... Anyhow, carpet done, 6-month lease signed, but 3 months later, they want out! Will spare you the other details but just thought we would share this with you.
     
  19. EN710

    EN710 Well-Known Member

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    That is not very fun ... did they break the lease?
     
  20. Pumpkin

    Pumpkin Well-Known Member

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    Nope not fun at all. They just casually have the Notice and the Owner is not going to release them from the Lease.
    Another problem is carpet clean. In all our leases, tenants need to have professional carpet cleaner. Since the carpet is so new, they are resisting but we still need to have some standard for the next person.