Hello All,
I have a few question
Situation is this. We have a IP where we have friend renting, she has been there for over five years. We are about to put the rent up for the second time.
1. We have no formal contract with this person. Should we put a PM in place?
2. How much notice to we need to give her to raise the rent? 60 days, 90 day? (remembering we don’t have a contract)
3. If, two years ago, an IP was worth $200k and now worth $250k, is that reason enough to raise the rent because you still want to achieve 4.5% return ??
4. In Melbourne (Strathmore), what income return should we be getting? IP is worth ( according to rates notice ) $250k !
Hope some of you can help with any other advice
Gordon
“Greed is good”
Gordon Gekko (Wall Street)Hi GG,
1) Yes, i’d generally do this to save myself time and to keep a buffer between the tenant and myself. But since it’s a friend of yours they may feel that you are snubbing them somehow, and wonder why you’re doing it now all of a sudden after 5 years.
2) If you’re in Victoria, they need 60 days notice in writing if they are now on a periodical (month-to-month) lease.
3) No it’s not. You don’t raise your rent to maintain a 4.5% yield based on the perceived value. The 4.5% yield is based on YOUR purchase price, not what the property is worth now.
Imagine if rents were increased in line with what market sentiment says a property is worth… that’s right it’s not realistic.
Wage growth cannot possibly keep up with property prices which shows that the market is unrealistic in it’s valuations at the moment.
Rents are based on wage growth, not property price increases. If a property is yielding less than the average yield for the property, it’s valuation is too high and you are paying too much for the property.
One of the first signs of an over heated market is dropping yields.
If you want to increase your rent by 25% based on what you think the property is worth, i think you’ll find your tenant giving notice, and you may lose a friend. Have a look at comparable rents if you want market value.It’s actually better to offer a lower rent than the local average because:
– you get more tenants to select from which gives you a better quality tenant.
– they will make an effort to maintain the property because they know they’re getting a good deal and want to stay on.
– increased rent means paying more tax which means you need to find another loss to offset it… unless you’re happy paying full tax and think the government is doing a good job spending your tax money.4) It’s what the market will pay. You need to contact PM’s in this area and ask them what the average rents and yields are for your particular type of property.
Don’t use your rates notice to value your property – it’s not very accurate!Hope this helps and gives you some things to think about.
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