Howdy everyone, my property is currently rented at $220pw, the tenant has just signed the lease 2 weeks ago but i would like to get $10 a week more pretty soon. (The recent interest rate rise being the cause of my decision) So i guess my question is – when can i raise it without being too unfair to the tenant ? This is my first IP which you have probably picked up by now, i'm 23 from perth doing it by myself so I dont exactly have money coming out of my arse.
cheers,
Phorsha
hi phorsha,
I believe that you have to honour the existing lease now… is it a 6 or 12 month lease agreement??
you can review the rental price when you renew the lease (or get a new tenant)good luck though & well done getting into property so young…
Mackar
Hi Phorsha. Painful as anu rate rises are, they are not a legitimate (or legal) reason to increase rent. If the lease is only two weeks old, it would have been based on the market rents in the area, (also affected by demand) and condition of the property. Both your tennant and your property manager would look at you like you were from mars if you requested that after 2 weeks.
Rent can be increased during the lease if needed, but only when it can be established the market rent is above this. You may well find that rents sneak up anyway, and you will be able to get $15 extra instead when the lease is renewed. all the best, and congrats on getting the property in the first place.maybe have a think about the long term value of having a good tenant. trying to gouge more rent aggressively will cause turnover and that usually costs you money. Up to you of course, but at a minimum you will need to honour the lease you have signed.
congrats for getting in the game.
Phorsha – I am unsure as to whether or not the laws are different in WA as to NSW, but i was a property manager for a few years in NSW and can tell you that here, you can not up the rent in a lease period unless it is agreed to by the tenant and put in the lease and signed by all parties.
I wouldn't suggest following market value. Unless you have something that greatly sets your property apart from the rest? I agree with yarpos… A good tenant paying less rent is much more economical than a poor tenant paying bad rent.
I know when i was a tenant, i would look for the best deal, with criteria that suited my needs. The cheapest place in the area that met my needs, i applied for and i never got knocked back with my credentials, and always paid rent on time and looked after the house. The bad tenants with bad records are more desperate and against my credentials weren't accepted, they were forced to pay market rent or above for landlords hanging out for the extra few dollars…
Just something to think about…
yarpos wrote:maybe have a think about the long term value of having a good tenant. trying to gouge more rent aggressively will cause turnover and that usually costs you money. Up to you of course, but at a minimum you will need to honour the lease you have signed.congrats for getting in the game.
Never be afraid to Increase the rent even if they are good tenants, after all you have to atleast keep up with inflation, It doesn't take much investing skill to accept a below market rent the only one who will suffer is you, especially if your investment is neg geared, what kind of idiot sits there letting there weekly rent get eaten up with inflation over the years as they fork out more for increased costs each month just because they like there tenant, a good tenant is one that looks after the property, pays there rent on time and accepts annual rent increases of inflation rate + 1.5%. if they winge about an increase inline with inflation and the market they are not a good tenant in my books.
Having said that, you must honour your lease just as you would expect your tenant to honour it,…. and Interest rate increases are not a valid reason for increase it is one of the costs that the investor must absorb, an interest rate increase is one of the risks you signed up for when you became an investor with a leveraged portfolio, would you lower your rent if interst rate decreased.
Increase in the interest rate is not a reason to legitimately increase the rent especially if the lease is only 2 weeks old. However, you could look at adding some value to the property/tenancy (airconditioning, providing a TV, furniture, etc) and increase the rent to cover the cost of new feature plus recover some interest rate increase.
In response to Tysonboss1
A good tenant wont whinge, they will just put their notice in to leave and find another property if the rent gets increased by a money hungry landlord. As i said previously… I believe you shouldn't over price your property, however, annual CPI increases are fine, just keep in mind turnover for finding a tenant. When i was a proeprty manager, winter would have an average 5 week turnover and summer 2 weeks.
To miss out on $5 a week or $10 a week is relatively good value as for asking over market rent and gettinga tenant who doesn't pay rent, wont leave and going to tribunal to try and get your money back, (which doesn't always happen) and having to take the day off work to go, or if it is managed by an agent, paying them to appear for you, (not part of the management fee)
Good tenants are worth keeping! Doesn't mean you can't increase rent. But ask them first and maybe do as Steve says and offer an extra service for more rent and build the increase into that….
Hmm very valid points there and adding a new feauture to the house is a great idea but the only thing i can think of is a new electronic garage but i dunno if that warrants any kind of increase?
The property manager (whom manages my siblings properties) looked at market value and said $220 and I thought 'fair enough' keeping in the back of my mind that my brothers property had a bidding war as well as my sisters plus the neighbor next to my IP but that didn't happen so I really should have spoken up! (I have a 3×1 and they have 4×2's in better suburbs)
At the end of the day I’m not living from one pay to another but these interest rates are of great concern and the fact that it looks like Labor are going to prevail in this years election is even more concerning!
v8ghia wrote:Rent can be increased during the lease if needed, but only when it can be established the market rent is above this.
Yeah, in which state can you alert of fixed term agreement? Unless there is an extraordinary clause in the lease.
For the past 18months I've only been offering 6month leases and renewals and i've increased rents by $5-15 at each interval. My rents have increase 15-35% in the past 18 months.
CPI (2-3%) increases what about the real world and the market.
Noting though that my I areas have been among the top performing in the country for rental returns.
WA well as we would all be aware the WA residential market is pretty poor for returns anyways. Investing for growth or returns.
Phorsha wrote:At the end of the day I’m not living from one pay to another but these interest rates are of great concern and the fact that it looks like Labor are going to prevail in this years election is even more concerning!
Fix your rate if you are worried,….
As I said earlier don't be afraid of your tenant moving out if you put the rent up, your rent should be going up by atleast CPI, I certainly don't mind changing tenants if a tenant refuses to pay what I know to be a fair market rent,
I bought a unit that was getting $150/ week (well below fair market rentt) the tenants lease expired I said the rent was $180.00 they moved out, property was vacant for 2 days and I had a tenant move in at $190,…… lease expired said rent was going up to $210,…. tenanted threatened to move, I let him move,… property vacant for 1 week before new tenant moved in a t$230/week.
these rent increases may seem extreame but were a result of a lazy landlord before me not raising the rent for 5 years as well as the brisbane rents in that area rising faster than I could raise the rent to catch up, I now believe that $230/ week is about right for this property so it will just receive my standard annual rental increases of CPI +1.5%.
The fact that the landlord before me had not raised the rent for 5years may have made him feel secure that he had a steady tenant but it did not do him any favours, all it did was rob him of cash flow, and allow me to purchase the property for less. remember the rental muliplier effect when you increase the rent you also increase the value of the property, and it's much easier to do lots of small rental increases than one giant one when you relise you have to sell your property.
Opportunity In Everything wrote:v8ghia wrote:Rent can be increased during the lease if needed, but only when it can be established the market rent is above this.
Yeah, in which state can you alert of fixed term agreement? Unless there is an extraordinary clause in the lease.
THat is correct Opportunity…..not sure about all states, but in NSW you need a clause, which is quite acceptable, and in Tas too my PM assured me it can be done, but you would normally look at doing this if the tennant required a longer lease, as if they wanted 18 mths, 2 years or more and you and or the agent were prepared to do this, you need to be able to increase the rent to CPI and or market rent over this period of time. I certainly cannot imagine sticking a tennant with an increase during a 6 or 12 month fixed lease. An interesting trend I have noticed is many seem to keep the rent low, and then it gets jacked up significantly when a new tennant goes in – confirms cpi is not a big enough increase for sure, and that some property managers must be a bit rediscent to increase rents to market or what they should be at times….. Cheers
I too am new to this & took the advice of my Property Mgr – puchased for $270k – did nothing really apeart from clean carpets, had locks rekeyed (there were 9 keys in each set!!) and tenants moved in 4 days after settlement at $270pw on a 12mth lease.
Going by the comments above, we maybe should have put them on a 6mth lease & readjusted the rent every 6 mths? Our thought was get someone in, give them & us some stability & see what happens in 12mths – is this also not a reasonable way to go?
Cheers
StellaStella1258 wrote:Going by the comments above, we maybe should have put them on a 6mth lease & readjusted the rent every 6 mths? Our thought was get someone in, give them & us some stability & see what happens in 12mths – is this also not a reasonable way to go?Regardless of the market circumstances starting off with a 6 months lease (new tenant) gives you the opportunity to test the tenant out. Then offering a further term of 12 months is quite reasonable if you are factoring market conditions.
Looking at it from the tenants perspective providing them with the security and stability is worthy of factoring a premium on a 12 month lease of say $10.00.
At the end of the day a vacant property can be very costly indeed. Who wants to be losing $270 a week holding out for an increase of $5 per week with a new tenant. Say the property is vacant for three weeks -$810.
Pegging increases to the CPI +% in some fashion might be prove a good rule of thumb for some. Finding out the market information in the form of median rents for an area is a pretty good reference point too. Is your property managering refering to this sort of market data when making recomendations about increasing your rent.
REI in some states provides this information and is also available FREE from Residential Tenancy bodies too.
Opportunity In Everything wrote:Stella1258 wrote:Going by the comments above, we maybe should have put them on a 6mth lease & readjusted the rent every 6 mths? Our thought was get someone in, give them & us some stability & see what happens in 12mths – is this also not a reasonable way to go?Regardless of the market circumstances starting off with a 6 months lease (new tenant) gives you the opportunity to test the tenant out. Then offering a further term of 12 months is quite reasonable if you are factoring market conditions.
I initially said we wanted a 6mth lease to the agent but they suggested going with the 12 mths (what the tenant requested) as the tenants had a good rental history.
Next time I think I will insist on a 6mth lease to start with – I thought I was being too pedantic & followed what the pm suggested.She also got the amount of rent wrong initially – we had said $270pw on 6 mth lease – when she called me she told me she had an application for $275pw for 12mths – that is partly why we went with the 12mths. When I found out the tenant had paid a holding deposit of $270 the pm told me I'd heard wrong.
Glad at least I insisted on shortening the management agreement cancellation period to 30 days from 90 days because she is not off to a good start so far.
Cheers
StellaHi Stella
Similar Position, just got my first investment. purchased $270 rented at $280 furnished. So far our agent has been useless, i found the tentant etc etc and havent heard a work from her and its been a month. We are logging everythign so we can also cancel our agreement.
Hi Nick7r
Probably good you haven't heard from your pm – means all is well?
I've quickly learned from our experience so far to have all arrangements & discussions in writing (email to my home & work email) just in case I 'mishear' her again. I have also returned the courtesy though & emailed the pm confirmation of our ok for a minor repair that came up – just so I am not asking her to do anything I won't do myself.100% agree email is the best form of communication with today's PMs and request a read receipt
Tysonboss1 wrote:yarpos wrote:maybe have a think about the long term value of having a good tenant. trying to gouge more rent aggressively will cause turnover and that usually costs you money. Up to you of course, but at a minimum you will need to honour the lease you have signed.congrats for getting in the game.
Never be afraid to Increase the rent even if they are good tenants, after all you have to atleast keep up with inflation, It doesn't take much investing skill to accept a below market rent the only one who will suffer is you, especially if your investment is neg geared, what kind of idiot sits there letting there weekly rent get eaten up with inflation over the years as they fork out more for increased costs each month just because they like there tenant, a good tenant is one that looks after the property, pays there rent on time and accepts annual rent increases of inflation rate + 1.5%. if they winge about an increase inline with inflation and the market they are not a good tenant in my books.
Having said that, you must honour your lease just as you would expect your tenant to honour it,…. and Interest rate increases are not a valid reason for increase it is one of the costs that the investor must absorb, an interest rate increase is one of the risks you signed up for when you became an investor with a leveraged portfolio, would you lower your rent if interst rate decreased.
Not quite sure what triggered that tirade. The topic was trying to put up rent after signing a lease two weeks ago.
Dont know how we lurch to idiots sitting there for years with rent getting eaten up, or being afraid to put up the rent for good tenants…sheeesh!
No you can't put up the rent that soon, however, I noticed you said you were in Perth and doing this on your own. Ring DOCEP on 1300 304054 or 08 9282 0777 and request a copy of "The Landlords Handbook". It's a free publication that has all the rules and regulations that a landlord must ahdere to in WA as well as samples of common forms etc. I think you'll find it most helpful.
Regards
PK
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