How much should I put up the rent on my investment?

Discussion in 'Investment Strategy' started by luckyone, 11th Sep, 2018.

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  1. luckyone

    luckyone Well-Known Member

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    So I have an investment property in Canberra which is due for lease renewal. The rent in the area has really skyrocketed in the last 12 months and the rent now seems very low. The current tenants are paying $540 a week where comparables are now all going for $600-$620 per week. Last year I put it up $10 a week and the tenant really kicked up a stink as he said he's done a lot of work on the place (I've asked the property manager a few times for photos of his work, but he hasn't sent them. He's going for an inspection later this week so has promised to get some for me). So how much should I put up the rent? I think putting it up $60 a week is a bit rough, but I also don't want to be too far under market value. Once I see the photos from the property manager, it might make my decision easier I guess.
     
  2. Depreciator

    Depreciator Well-Known Member

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    Hopefully the work the tenant has done on the place has been done well. I would be nervous about that. Were you told about it?
     
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  3. yorkie

    yorkie Well-Known Member

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    how long has he been there?
    is he a good tenant?
    both of these are questions only you know, what does your agent think??

    if your confident you could get the higher figure bang it up there and see ?
     
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  4. hobartchic

    hobartchic Well-Known Member

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    Are the comparable properties vacant, or rented out?

    I would hesitate to increase the rent, it's not that low at the moment.
     
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  5. Stoffo

    Stoffo Well-Known Member

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    In business there is a lot to be said about customer satisfaction
    A happy customer keeps coming back and spending money :cool:

    Your tenant is a "customer", so you are better to retain them :), than have it sit empty for 3-4 weeks plus re letting fee :confused: ( over $2K loss)

    Ask your agent for their opinion, if they recommend $20, take it and sleep soundly :D

    A rise of more than $30-40 pw is $1,560-$2,080 a year increase :eek:
    I'd shop around too if I was handed that sort of increaseo_O
     
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  6. Toilandtrouble

    Toilandtrouble Well-Known Member

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    Agree, if it was a good tenant I would increase by $20. You will be able to do it again in a year assuming rents hold anyway. If the tenant is bad or gives you headaches then perhaps shoot a bit higher at $30 and take the risk on them leaving.
     
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  7. Marg4000

    Marg4000 Well-Known Member

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    What “work” has he done?
    Did he ask permission?
    Marg
     
  8. skater

    skater Well-Known Member

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    A tenant should not be doing work on your IP unless it was approved by you prior to it being done.

    I'd go for $20pw and a 6mth renewal, then another $20pw. When rents are moving fast, it's easy to get behind, and can take a long time to play catch up. Many years ago, we had a rental boom here where a similar thing happened. We put the rents up $20pw every 6 months for a few years until we were back at market rents.
    This would be my concern too.

    So, $60-$80 is not that low? You are kidding, aren't you? You are not a charity, having IPs is a business & good business is to keep the rents at market prices.

    Risk them leaving? To me there is no risk factor. If you are asking market rents, then everywhere they go, they will be paying a similar amount, plus if rents are going up fast, that means the supply/demand ratio is in your favour and another tenant easy to aquire.
     
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  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I’d leave it to the property manager to decide.

    I’d be aiming for market value - the rental market is reasonably tight so it shouldn’t be difficult to find another tenant if the current one leaves. The rent will have to go up at some point.

    Cheers

    Jamie
     
  10. Stoffo

    Stoffo Well-Known Member

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    Very true Skater, "IF"

    How often do we hear of people getting emotionally invested in "their" IP, later suffering buyers remorse? :oops: People often have a grand plan or vision initially

    The same may apply here, "my IP is mostly the same as" so is a comparable, and they charge more......:rolleyes:

    I recently let a superior apartment (north facing, better view, private) for $10pw less than another in the same complex, why, because the younger couple were the better applicant's :cool: (than others that made higher offers).
    I guess what I am saying is not to get greedy o_O
     
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  11. Shogun

    Shogun Well-Known Member

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    You can ask or put the rent up as much as you like. Ultimately it is only worth what "renters" can afford to pay. Better the tenant you know than the one you don't. Finding new good tenants can be an expensive exercise.
     
  12. New Town

    New Town Well-Known Member

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    I would hear that comment about the work he's done as simply a negotiation tactic. It will most likely have zero real value, probably negative if he's painted all the bedrooms black
     
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  13. Ricki barkham

    Ricki barkham Well-Known Member

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  14. hobartchic

    hobartchic Well-Known Member

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    All I said was that the current rent is not low. No, I'm not kidding. A good tenant is worth holding on to.
     
  15. Ricki barkham

    Ricki barkham Well-Known Member

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    Agree.
    Does the rent in cover mahority of your costs etc?
     
  16. Stoffo

    Stoffo Well-Known Member

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    Am not sure for all states

    But isn't there a legislation/law that states you can't increase the rent by more than "X" % ????

    The only way to actually play catch up if your rental income is actually far behind the comparable average is to have any current agreement end and advertise for a new tenancy.
     
  17. willair

    willair Well-Known Member Premium Member

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    You would want to be very care-full about the rise in rent,it will only work 2 ways your tenants will pay the increase -or they leave ..I explained this too one of our daughters recently -lowered the rent by 10 $ within 4 days leased for 12 months,some of those other units within that small area have been vacant for 11 weeks ..
    Like any business model you just go with flow..imho..
     
  18. SeafordSunshine

    SeafordSunshine Well-Known Member

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    Just a few thoughts, before you consider the rent/ market adjustment.
    Was there any permission sought from yourself or your managing agent?
    Did your tenant devalue or add value your flat by renovating?
    Was it carried out by licensed and insured tradespersons?
    If its an unprofessional job, how much will it cost to undo their renovating?
    Even worse did they void your insurance?
    Does their renovations fall within the current rental market demographics desirables?
    Should you just bide your time?
    There are always a lot of things to consider,
    I hope this helps
     
  19. Travelbug

    Travelbug Well-Known Member

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    $60-80 under market rent is low to me. Of course check to see the demabd at that level. Even a $40 increase (to $580) they won't move if comparables are $600

    Why does that matter? It's a business, not a charity.
    If it's still under what they would get by moving, why would they?

    I'm interested to hear more sbout these improvements. Ive seen some scary "improvements" tenants hsve made.
     
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  20. skater

    skater Well-Known Member

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    Getting greedy is asking for ABOVE market rents, not asking the same as similar other comparables.

    Rental prices move up & down according to supply & demand, not what a renter thinks they can afford.

    The fact that the rent is $60-80 below market rent is indeed low for that particular property.

    Lets do a little excercise, shall we? Let's say that you've got a property that is $5pw below market rent, you might say, "well, it's only $5, what does it matter? Why sweat the small stuff?"

    Well, $5pw is $260 per year....not much, right? Now consider if you have 10 IPs that are each below market by $5, over a year you have lost $2600, if you have 20 of them, you have lost $5200. It's not such a small amount now.

    Let's now increase the amount to $20pw. Over a year you are losing $1040. If you have 10 of them, you are losing $10400. If you have 20 of them, you are behind by a whopping $20800.

    Moving on up, lets take the lower amount that the OP says his property is behind market rents. $60pw, over a year is $3120. If you have 10 of these you are missing out on $31200 per year & $62400 if you have 20 of them.

    That's equivalent to a low income earners full wage! Would you go out & work full time, just to give the income to your tenants? I certainly would not do that!

    The fact is, that if your property is at market rents, then a tenant that is happy living there will not move. It costs money to move, & anywhere else that is comparable to where they are living will be a similar price. There's just no incentive for them to move.

    If they truly can not afford it, then I'm sorry, for me it's 'Too bad, so sad' they can move along & find something in their price range & someone else who can afford it can move in. As the market price for this IP is around $600, I'm guessing that it's not a lower end property, so there would be other cheaper options available. Again, using the supply/demand rule, the fact that rents are moving upwards quickly in the area tells me that there is a strong demand for properties of this type & it won't be vacant for very long.

    And before you think that it's unreasonable, or unlikely to have that number of properties, I'll just put it out there, that we have well into the double digits, even after selling off 8 (I think, that was the number) over the last 5 years & we are currently living off of rents. This would not have been remotely possible if it was not treated like a Business.

    Irrelevant.