Increase rent at renewal (what is too much?)

Discussion in 'Property Management' started by M & C, 7th Oct, 2021.

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  1. M & C

    M & C Well-Known Member

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    Hey everyone,

    My property manager has emailed about our tenants lease renewal and recommended to increase their weekly rent up $80 to be more inline with other rental market compareables in the area.

    Is it fair to put the rent up that much in one go? Especially they are good tenants. I was thinking of a gradual increase of $20-$30 this year and again next year.

    What do you think?

    Thanks
     
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  2. wylie

    wylie Moderator Staff Member

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    What rent are they paying now?

    That is a huge increase, and we tend to creep it up rather than risk losing a tenant over such a steep increase in one go.

    However, if they are $80 under market rate and decide to leave (if you ask for $80 per week more), you'll have to weigh up two weeks of no rent (possibly), a new lease fee (one week's rent + GST), advertising costs and see what you lose if they leave and it is empty for two weeks.

    We put ours up $30 (from $550 to $580) and it is still maybe $20 under market. They pushed back, citing CPI percentage blah, blah, said they would accept a raise of $10 per week. We said CPI doesn't dictate market rent. Said they can accept they are still under market or look elsewhere and we will advertise at market rent.

    They will have looked at re.com (just as I did) and realised they are not paying market rent. They accepted the increase but pushed us to add flyscreens.

    We did that because it's been asked in this house before. Over 30 years of owing this house, and only this past couple of years has anyone asked for screens. We're tough up here in Brisbane. :D

    So we have screens for the next tenant if this lot choose to leave when we increase rent at the next lease renewal.
     
    Last edited: 7th Oct, 2021
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  3. Lil Skater

    Lil Skater Well-Known Member

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    I’ve been having a similar discussion with a client over a $40 increase.

    Much like Wyllie has pointed out, you need to do the math on it. If it’s a long term rental, you’ll probably make back anything lost in vacancy, assuming it’s in an area that doesn’t go up and down (ie. holiday area).

    If you have a really great tenant it’s probably worth doing a larger increase so you stay reasonably on market, but perhaps not up to $80pw depending on the property/area.
     
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  4. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Rents are up across the board so perhaps meet in the middle at a $50/week increase.
     
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  5. Shogun

    Shogun Well-Known Member

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    I wanted to increase my property $60. I went with the $30 now and $30 in 6 months which was still lower band for rent in the area. The tennants left after 4 months (been there 3.5 years). New tennants pay $40 more (not $30).

    I have learnt don't let rent get too low below market rates. Because they were good tennants I hadn't increased rent for 3 years
     
  6. Tom Cooper

    Tom Cooper Well-Known Member Business Member

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    As a property manager I believe in being pragmatic, the fact is that probably the most important thing to have for a successful tenancy is a good tenant. Yes, increase the rent if an increase is warranted, but not to the stage where your tenant decides to go, don’t kill the golden goose. Remember by the time you have the vacancy between tenants, then pay letting fees, inspections and advertising etc, you are going to be out of pocket to the tune of five or six weeks rent.
     
  7. ShireBoy

    ShireBoy Well-Known Member

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    Is it possible your rent was too low for too long?
     
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  8. Tom Cooper

    Tom Cooper Well-Known Member Business Member

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    Your property manager should be suppling you with comparative market analysis and an appraisal prior to the end of every lease so this doesn't happen.
     
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  9. Scott No Mates

    Scott No Mates Well-Known Member

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    I've just completed a round of reviews - all between $300 - $600/month + GST.

    Not a whimper. Gotta love commercial. :D
     
  10. M & C

    M & C Well-Known Member

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    Thanks for the replies so far.

    A summary of the history. I bought the property last year with the tenants already in place on a 2 year lease. At the time of purchase the property manager said that rent was probably $20-30 below appraisal and previous owner was generous with their rent as already mentioned they are good long term tenants. As this is the first time renewal as a landlord with this property. I wasn't quite sure my stance on what would be a suitable rent increase. Risk it with a higher rent with a possibility of them leaving and getting new tenants at a higher rent who may not look after the place well. Or increase it gradually. I like the idea meeting the property manager half way with a $40 increase.
     
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  11. Beano

    Beano Well-Known Member

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    What's the largest increase you have ever done ?
     
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  12. Scott No Mates

    Scott No Mates Well-Known Member

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    CPI +1.5% on a six-digit/month tenancy (not mine though)
     
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  13. Beano

    Beano Well-Known Member

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    I was thinking on a commercial lease ...market review per annum .
    Any million dollar per annum increases ?
     
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  14. Scott No Mates

    Scott No Mates Well-Known Member

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    It occurred after I left, a near full-building tenant didn't have another site finalised and required a one year extension to the lease to ensure adequate time for fitout & relocation.

    There was no possibility of extension as the owner was redeveloping the site. Rent close to doubled.:eek:
     
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  15. Beano

    Beano Well-Known Member

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    after you doubled the rental you retired with your bonus ...never worked again!:p
     
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  16. Scott No Mates

    Scott No Mates Well-Known Member

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    I'm SNM for a reason ;)
     
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  17. skater

    skater Well-Known Member

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    We have a long term tenant in a home in VIC. I believe in keeping rents at market, no matter what, however due to covid and the moratorium on rents etc, the property slipped under market to the tune of $85pw. Due to the large amount, I didn't think it fair to raise this all in one go, so I gave them an increase of $40pw, and they will get another increase later on.
     
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  18. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I'd be hesistant to jump $85 unless it's a rental that brings in more than $900pw. If you inherit a tenant I think you need to have a plan in place to bring it up to market value in the least painful way so it might be $xx now and then a further $xx in 6mths time. As a rule of thumb I think 10% is the maximum most tenants will feel comfortable working into their budget, if it's more than 10% then they will look to move but may then realise that they won't be saving money.
    I've had 2 tenants this year put in notice to leave and then rescind it when they have found it wasn't any easier to find a cheaper rental anywhere else.
     
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  19. M & C

    M & C Well-Known Member

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    My property manager just mentioned that particular strategy $40 increase now and then another in 6 months time... I am more incline to go $40 now and again next year or even 20-30 next year.
     
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  20. Burramys

    Burramys Well-Known Member

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    Keeping good tenants is important. I'd rather have a good tenant paying a little below the market that have the costs of setting up a new lease and the uncertainty of getting a bad tenant. Unless the market is really flat, increase the amount every year, even if it's just $5 a week. This gets the tenant used to increases, and for small increases it's less likely that a tenant would move. I've never been more than $20 a week behind the going rate. If the increase is big, explaining the local going rate to the tenant may assist the tenant to accept the increase. Try to make the increases less than the previous year as this looks better.
     

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