I recently received a phone call from my PM in regard to renewing the lease on my IP. The PM had secured a tenant on a 12 month lease and managed to increase the rent from $190 per week to $200 per week, the only caveat was that the tenant wanted to pay monthly instead of weekly, which I accepted.
Then I received the lease agreement in the mail which stated that the rent per month was $866.66. So, doing a quick calculation (rent / 7 days * 366 days (leap year) / 12), which is the ATO accepted method, the monthly rent comes to $871.43. Even using 365 days in the above equation the monthly rent comes to $869.05.
So, how did they come to $866.66? When I spoke to the PM about it, she advised that they used the VCAT (Vic Civil & Administrative Tribunal) accepted method, which is (rent x 52 weeks / 12 months). Guess what? 52 x 7 = 364 days, not 365 (or 366 in a leap year). So, based on their calculations a tenant is better off paying monthly than paying weekly!
The PM also advised that they have never been questioned on their method of calculating monthly rent as they have always done it this way.
Anyhow, I had a look on the VCAT website to see if this is indeed the accepted method of calculating monthly rent (as this would differ from the ATO accepted method) and this is the only page I could find:
Has anyone else come across this type of scenario with their PM?
What would you do in this situation?
Forget the Leap Year.
It's a weekly rent; not daily. Have you ever seen a property with a permanent rent advertised by the day?
Just multiply the weekly rent by 52, then divide by 12.
$200 x 52 = $10,400 / 12 = $866.66
That should be the monthly payment.
True, but the additional day/s roll over into the following weeks rent.
In the scenario above, the tenant gets 1 or 2 days free by paying monthly compared to paying weekly.
Don't sweat the small stuff. Really.
Sure, but I'm in the game to make a profit!
I have simply used the ATO approved calculation that my accountant will use when working out my TAX return at the end of the year. By the way, I still have to pay Interest on the mortgage for the full 366 days. Do you think the ATO will excuse me for 1 or 2 days of the year?
The tenant has specifically asked to pay monthly, which is not a set number of days, so the calculation has to be different.
Should I accept this just because you do? Every little bit counts.
Good one – this reminds me of the one that goes like this:-
3 MEN GO INTO A MOTEL. THE MAN BEHIND THE DESK SAID THE ROOM IS $30, SO EACH MAN PAID $10 AND WENT TO THE ROOM.
A WHILE LATER THE MAN BEHIND THE DESK REALISED THE ROOM WAS ONLY $25, SO HE SENT THE BELLBOY TO THE 3 GUYS' ROOM WITH $5.
ON THE WAY, THE BELLBOY COULDN'T FIGURE OUT HOW TO SPLIT $5 EVENLY BETWEEN 3 MEN, SO HE GAVE EACH MAN A $1 AND KEPT THE OTHER $2 FOR HIMSELF.
THIS MEANT THAT THE 3 MEN EACH PAID $9 FOR THE ROOM, WHICH IS A TOTAL OF $27, ADD THE $2 THAT THE BELLBOY KEPT = $29.
WHERE IS THE OTHER DOLLAR?
Jon
Subtract the $2 the bellboy kept from the $27 the men paid and there is $25 to the room rent.
Your agent should have multiplied the weekly rent by 52.14. Don't sweat the small stuff
maybe read trakka's comment a few times
not sure how you value your own time and energy but it will take a long time at a few $ a month to recover what you have already expended……..how will you react when something goes belly up? (eventually something will) and you have to kick in a grand or two quickly to get the property back into shape for a tenant….unless of course you enjoy working at this level of detail.
good luck with the new lease
steve
I find it absolutely unbelievable that you all just accept this as the norm! The ATO must be just an@l retentive, because it seems everyone else on this forum believes a year is 52 weeks. I bet there are a few forumites out there that still believe that the world is flat.
Does anyone here just accept 6.98 days of rent for the week rather than 7 days? No! So, you expect the agent to accurately calculate the weekly rent, but then just come up with a completely fictitious number when calculating monthly rent.
L.A Aussie wrote:Forget the Leap Year.It's a weekly rent; not daily. Have you ever seen a property with a permanent rent advertised by the day?
Just multiply the weekly rent by 52, then divide by 12.
$200 x 52 = $10,400 / 12 = $866.66
That should be the monthly payment.
Rent is charged on a daily basis, it’s just a matter of convenience that the tenant pays the agent on a weekly basis.
By the way, this is not a matter of whether the tenant signs up or not. It’s more a matter of accuracy.
If you want to talk accuracy, you're absolutely right. But this isn't about accuracy, it's about keeping your eye on the big picture, and realising that setting rents and sale prices is not and never will be such an exacting science. Notice that your rent went from $190 to $200 per week – not from $189.54 to $201.62? That's because we round off and figure it will all "come out in the wash".
These few dollars are incredibly trivial in the context of the magnitude of dollars in and out during ownership of an investment property. Assuming your property is worth, say, $250,000, you're talking about an average effect (over 4 years, 1 leap year and 3 non-leap-years) of less than $3 per month, or 0.0143% per year. Given that residential yields vary between, say, 2.5 and 12%, and CG between -5 and 35%, I just can't imagine on what basis you could argue that 0.0143% will ever be of any significance.I can just imagine the PM ringing the tenant and explaining that they now have to pay $871.43 instead of the previously advised $866.66 because of the vagaries of the Gregorian calendar etc…. I expect the result would be that both tenant and PM think the landlord is a – – well, politeness prevents me saying the word!
The PM is managing, and the tenant occupying, my very valuable asset. I'd rather they feel motivated to look out for my best interests than get the few extra bucks. Not even a remotely close call in my view.
Stupid as it may sound, why isn't the agent charging 4 and 5 week months? ie $800 and $1000 that way you will make up your precious $26. You scored a 5%+ review, why complain about peanuts? Maybe you can educate your PM for the next tenant.
Well, if the tenant isn't happy with the "accurate" calculation used to establish monthly repayments, then they are welcome to go back to paying the rent weekly and pay the same amount anyway!!!
I think I will take your advice Scott and ask the PM to use the more accurate calculation when establishing the rent on the next lease.
Sigh.
Wouldn't the length of a year, averaged over the full millennium cycle, actually be 52.1774285714286 (this is accurate since it recurses to zeros beyond this point) weeks?
Every fourth year is a leap year unless it happens to be 2100, 2200, 2300, 2500, 2600, 2700, 2900 or 3000. So I make that 758 normal years and 242 leap years. That's a total of 365,242 days. So at $200/wk, you'll have to charge $869.62/month. You've spoken of "accurate" calculation, but I haven't seen this figure mentioned yet!
Just curious, do you intend to reduce the rent next year to compensate for the relative shortness of the annual lease?
Cheers, F. [cowboy2]
F, what about the fact that the earth's rotation is gradually slowing, by about 0.75 seconds a year? Did you take THAT into account?
Traceyremember there are 13 – 4 week months in a year but only 12 calander months, so if paid on the same day each month you will get 12, make sure the tenant understands this, as some of mine have been too stupid. and the agents not much better.
Tracey
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