Rental increase - Lease renewal

Discussion in 'Property Management' started by God_of_money, 19th Apr, 2021.

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How much should I increase?

  1. $20

    7 vote(s)
    53.8%
  2. $45

    1 vote(s)
    7.7%
  3. > $50

    5 vote(s)
    38.5%
  1. God_of_money

    God_of_money Well-Known Member

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    Today, I received an email from my current PM. My current rental property is based in Gold Coast

    " ... For current tenants we try to recommend a rent increase that is manageable to the tenants but also reflects the current market for your investment"

    Our current rent is $420/week.

    "... In the current market we could achieve between $450-$475/week. We are generally recommending a $20 increase"

    What should I do in this instance? I would like to increase by 10% as per current market rate.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    What will $450/week get a tenant in the area?
     
  3. God_of_money

    God_of_money Well-Known Member

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    The current median rent is $460. I have not increased the price over the last 3 years
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    If you didn't notice,rents decreased last year too.

    What have you done to maintain the property St the same level over the last 3 years?
     
    Shogun likes this.
  5. Shogun

    Shogun Well-Known Member

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    I tend to think a tenent in place is worth a $20ieh week discount on market rate. Saves me the cost of looking for a new tenant. So $20/45 a week increase for me.
    I recently did this it put my property on the lower price range of similar properties in the same area.
     
    Last edited: 19th Apr, 2021
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  6. Momentum

    Momentum Well-Known Member

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    I would offer a 12 month lease at $450. I've got one at $435 which I'll increase to $465 and another at $470 which I'll increase to $540. If they don't want to pay $540, I'll get them to vacate, do a cosmetic reno and advertise for $580pw (it's 3 bedroom)
     
  7. Tom Rivera

    Tom Rivera Property Manager Business Member

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    The South East Queensland market hasn't experienced large scale sharp increases in rent for over a decade. Many would argue that significantly more than $20wk would be considered an unreasonable increase. It ultimately comes down to whether the tenants are able to absorb whatever increase you intend to apply, and if they aren't, is it worth the cost of vacancy/changeover to get the higher market rent?
     
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  8. Shazz@

    Shazz@ Well-Known Member

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    I wouldn’t increase. It’s more of a hassle replacing the tenant than worrying about a few dollars here and there. But that’s just me.
    Have they been good tenants over the 3 years?
     
  9. Stoffo

    Stoffo Well-Known Member

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    Many long term IP owners won't increase the rent, if/when you find a tenant that takes really good care of your investment you want to keep them (as per @Shogun post) so you either don't increase the rent or do so at the minimum ;)

    By the time a tenant moves out, you will incure advertising, letting fee, a vacancy (a few days-weeks....) so an average $800-1,200+ loss, this will take at least a year to make up at the higher rate and you will have a tenant you don't know :oops:

    I voted $20 increase (only because there hasn't been an increase in 3 years ) :cool:
     
  10. Hebro

    Hebro Well-Known Member

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    I have had several lots of long term tenants.

    If you don't increase, moderately, every now and then, you get really behind market values.
     
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  11. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    Disagree with most of the advice here. If you genuinely believe you can get $475 per week then back yourself and increase it to that. If that's what they will pay elsewhere and you're able to justify it, they will go looking online, see that's why they are going to pay, and likely come back and accept it. If they move out because of it, it's a catalyst and not the reason - they were going to move out anyway. Then you'll find new tenants who will pay it and you move on with a higher yield and value because of it.

    If you only increase it to $450 because you're worrying about a letting fee, when you could be getting $475, then you're missing out on $1,303 in rent for the next 12 months on the off chance you will have to pay a letting fee. Unlikely to be vacancy of anything to worry about in that market. Not a good risk trade. Even if you break even on the $1,303 with letting and a bit of vacancy you have now reset the cash flow on the asset whilst increasing its value - both big positives.

    It is not, I repeat it is not being unreasonable to increase to market rent, provided you believe and can justify whatever figure you believe is market rent. This is not greed and there is no such thing as 'unreasonable' - it is either at market or it's not - they will pay is elsewhere anyway. When you last increased it, by how much and what sort of tenants they are is completely and utterly irrelevant - it is what is happening in the market right now that matters. There are amazing tenants everywhere, there are bad tenants everywhere. It's just business and you'll have good and bad ones along the way.

    If I'd have listened to other peoples' fears of vacancy, letting fees, and all the other standard worries that I've heard over the years, I'd be tens of thousands down p.a. in my cash flow across my portfolio. Every dollar counts and you can run a tight ship with strong cash flows without being unreasonable or greedy. Don't let other people's fears get in the way of a solid return. All that will happen is that you'll get behind in rents over the long term, fund someone else's living expenses, and completely the errode the reason you're investing in first place.

    Without going into specifics, I just went through the exact same thing. I offered a rise to market rent which tenant didn't like. Tenant gave notice and I ended up $8,864 p.a. better off in cash flow because of it compared to if I'd just offered a nominal $20 per week increase because I was worried about a letting fee and vacancy - on just one property. The new tenant is due to move in soon and the current tenant now can't find a place because they've realised that everywhere around is actually well above what I offered them in the first place. It's unfortunate, but they've now realised I wasn't being greedy, it was actually at or even slightly below market looking back. I’ve been very flexible with them and fortunately the new tenant is also flexible so current tenant is staying an extra couple of weeks past their original vacate date that they gave. It’s a shame really but in the end, it’s now at market rent.

    - Andrew
     
    Last edited: 21st Apr, 2021
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  12. Hebro

    Hebro Well-Known Member

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    [QUOTE="MyPropertyPro, post: 998555, $8,864 p.a. better off in cash flow because of it compared to if I'd just offered a nominal $20 per week increase
    - Andrew[/QUOTE]

    $170 pw - what's the rent pw?
     
  13. Firefly99

    Firefly99 Well-Known Member

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    I’d go $20-$30 if they are good tenants. Not worth the hassle of getting new tenants that you don’t know. PITA tenants can as cost you a lot more than $50 per week in the long term.
     
  14. MWI

    MWI Well-Known Member

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    Do your own research what the market rate is and then decide. Every time my property managers' review the rent I am still proactive by doing my own research rather than reactive.
    I like to offer between $10-$20 off market rate, but that's just because I have a large portfolio so I prefer consistency in cashflow rather than few $ extra. BUT the key is to do your own research and decide on your personal situation.
     
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  15. Lacrim

    Lacrim Well-Known Member

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    I'd push and go a minimum of $30. You're the 'God of Money' ffs. Live up to your avatar.

    Sihft the blame to your agent ie get your agent to include in the letter to the tenant re: the increase that they're recommending all landlords mark to market.
     
  16. Mel Morgan

    Mel Morgan Sydney Property Manager Business Member

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    It absolutely depends on the current market and how much demand is there for your property.

    In Andrew's case clearly the market has risen sharply, an increase of 34% has got to be pretty rare in the space of a 12 month tenancy.

    Instead of $10 or $20 standard increases, I generally go for $10 or $20 below current market rent in a healthy market and clearly justify this to the tenant. Even with minimal changeover, the letting fee will erode this minor discount, so its worth it for a good tenant.
     
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