What happens if rates keep rising?

If you can raise rents, why wait for rate rise?

 

A statement like this coming from buyers agent is scary.
Do you really believe that you can pass on the rate increase to tenants as an when you like? without running the risk of not letting?

Rental market is a function of supply and demand at that point in time, IR hikes do not drive rent hikes.

 

I usually raise rents on a regular basis as lease periods of 6-12 months come up for renewal. It is done only after doing a bit of market research on comparable rentals. Rents are increasing in SYD atm. Tenants expect to be paying more.

 

Are rents in Sydney increasing because of IR hikes?

Why are rent in perth falling? even with IR hikes?

 

As a LL I don't care why. There's always a different reason, but for me this falls into the category of "it's a beautiful thing".

Dunno, don't care, as I don't own any IPs in PER currently.

 

Wow, As a buyer agent.... aren't you into the business of advising your clients making property investments?

 

Hope you're right Propertunity, but personally I'm not seeing this. Things haven't really changed since, gee, 2008??

 

If you have not increased your rent charged since 2008, I'd be looking at why not????

 

In context yes of course I have (modestly over the years/each yr), but I haven't noticed any material 'heat' in the rental market in a looong time - apart from the usual flurry in Jan-March around uni/hipster areas.

 

We need every other investor hit with similiar rate hikes to raise their rents too. Totally not collusion just responding to a shifting business environment. Also need to lease to end

 

Maybe on your micro level, maybe. Rental prices are set by supply and demand in the market, not your costs.

 

When I use to hear this "Oh but they can pass costs on to tenants" from Real estates lobbyist on news... I use to wonder... are they real? who believes this? ....but after reading some of the posts here, I think quite a few actually do.

May be... Some actually believe, LLs can raise rents as they wish....and the rental falls(in perth) are not because of Supply/demand... its only coz LLs wants it to decrease.

 

Contradicting my last post...
If a LL is charging stlighty below rents then a squezze on them might mean they can jack up rents a bit.

 

I've been on both sides - LL and tenant when rental increase letters are issued. I think if a good tenant is already in place, the result should be that only significant rent increases are made (say 10% or more) despite any small increases in the interim that might be justified.

Take for example a scenario where a $25/week increase is sought on a $500/week inner city apartment. For a 6 month lease it equates to an increase of $650 and for a 12 month lease it equates to an increase of $1300 (all before agents' commission and tax implications).

As a LL, any increase is great but is offset by the risk of tenants moving out. If the apartment is vacant for 1 - 3 weeks as a result of a changeover, the risk is that the benefit of the rent increase is lost anyway, and the hassle and risk of new bad tenants replacing existing good tenants. Many 12 month contracts are terminable after 6 months anyway.

As a tenant, any increase of this size is annoying and I'll be considering whether to move elsewhere. Logically I should wear the increased cost because the cost of moving out is almost always more expensive and I could do without the hassle of moving. But many tenants don't act rationally and there is definitely the risk of tenants considering moving on.

Of course, every situation is different and circumstances can vary but in general I feel that if the existing rent is significantly below market then LL and tenants should expect rent increases. But for smaller increases (like the example above), as a LL, I'd like the agent to ask but not be too hard-assed about it if the tenant pushes back. As a tenant, I would expect the request but think the agent should expect pushback or negotiation. Too often I think agents play hard-ass when LL doesn't feel this way (or don't even know about it). Nobody really wins in this situation (except the agent).

 

The point we are discussing is whether rental rise or fall is purely a function of supply/Demand or is it a function of cost incurred by LLs as inferred by statement "Oh but we can pass the costs on to tenants"

I usually am happy with 5% under market rent from my tenants then to risk few weeks rent while on market in hope of top of the market rent.
My holding cost doesn't dictate what my tenant pay as rent.

 

That may not be possible for many though, especially the flood of newer inexerienced investors who bought high and into oversupplied areas (in terms of new finance we've been hovering at around 50%-60% of new loans going to investors for about 5 years, which is unusually high).

If these investors own say a Melbourne CBD apartment or a new house in some crowded city fringe development, and they see their capital growth stall or they're struggling to service a loan with rate rises, rents might be the only thing keeping them afloat. In the oversupplied, new-development heavy portions of the market, raising rents could make them uncompetitive. If there's too much on the market, tenants will just find something cheaper. For those investors, raising rents would make their already vulnerable position even worse.

 

Elon is preparing to open up markets on the moon and Mars for those opposed to 7% rates.... lol

 

A cash buffer is good for this. Those of us who have been squirrelling surplus funds away into offset accounts will do well.