Hi all
I joined yesterday and this is my first post. I have asked a few other peoples in real life what their opinions might be, but I guess I would like to know what the hardcore investors have done when in this situation.
Ok the situation is:
I currently own a duplex which has 2 x two bedrooms. I saw another duplex in a similar area which was renting for $185 a week for both units.
My duplex is currently renting to an older lady at $125 and the second flat to a couple with a baby renting at $145. Also which is important is that the old lady is related to the couple next door. So I believe she baby sits for them when they need it. (Possibly worth allot more)
When I saw this I started to ask the questions why my flats are not achieving the same price or even more than this.
When I asked my real estate manager why this was the case they mentioned that I could value add to my duplex to get a better yield.
These included: Air con, lock up side gate, renovate etc.
My problem is I want to make as much cash as possible. I am not sure the old lady will be able to afford the price hike from $125 to $185 a week. And I don’t want to lose her as a tenet because she has been living there for the last 10 years. Always pays the rent on time and she doesn’t knock the place around. If she moves out the second tenant might also move out with her as their arrangement not longer suits them either.
Has anyone else been in this situation? If so please give me some incite how you solved the problem. Did you boot the old lady out and bump up the rent or did you work with her and come to a mutual conclusion?
Cheers
G
Hi.
I am also a new member, and have experienced a similar situation. As we had a lot of equity in the property and didn't plan to sell we did let the rent fall behind somewhat, but at the same time the tenant is great and lets us do things when and if we can, etc. and at the moment we are too busy elsewhere to put a lot of time and effort into that property. We just keep putting up the rent annually gradually.
In your case you could be faced with a period of vacancy if you wanted to do a full upgrade which might be ok if there are plently of tenants available at the higher rental. Otherwise how about doing things to a budget, gradually? I think if the tenants see you improving the properties on an ongoing basis they will not be surprised at gradual rent increases. Personally I like to keep good tenants as it helps me sleep at night.
Regards,
GG, I haven't had to 'boot' a tenant out to force a rent increase but I have had to increase the rent on my properties, sometimes considerably. I often have trouble with the idea of bigger rent increases because I'm philosophical about it, I already have a good steady stream of income, good tenants, regular payments and a house that's looked after. If I increase the rent, the tenant might move out, my property could be vacant for a while, I could end up with the tenant from hell and the list goes on …
My husband is more matter of fact; his view? If the tenant doesn't like the increase, someone else will rent the place and he's quite right.
However, I think there is a balance between being 'businesslike' about it and 'emotional' as he calls it!
Are you asking the question because you really want more for your rental income? Or is it just because others are getting more and it made you think about it? Are you happy with the rent you're getting and the tenant you have?
There is definitely a danger in letting the rent get too low on a property and I think you've struck it … you possibly haven't kept up with market values and now you've got a big gap to fix up. My way around it was to increase the rent about $20 for six months and then again another $10 after that (and again after that until I achieved market value). I only ever do six month leases now so I can factor in the changes in market value.You could perhaps suggest to the 'old' lady that you'd like to put the rent up. Sound her out over it and see what she says. She may well be getting rent assistance which will help with any increase. You might ask her if there's anything she'd like improved so you could add value and get the rent increase. If she's old and been there ten years already, she's not going to want to move. $125-$185 is cheap rent for most people.
At the end of the day, it is your property … your investment and your business … put the rent up (in increments as I suggested if you prefer) and if the tenant doesn't like it, she can move on, someone else will rent it at the value you want. Take into account the tenants' situation but don't let it influence you into losing money.
Cheers
MichelleIf your older lady is on a pension she would be entitled to rental assistance, maybe make some discreet enquiries with centrelink 'mystery shopping if you will' to find out how they determine rental assistance for pensioners. You may find that your tenant is not 'out of pocket' at all because centrelink will meet the difference, or alternatively, she may only pay a smaller increase than the amount that you raise the rent by.
How long have your tenants been inplace for and when was the last rental increase? Most agents suggest six monthly rent reviews, not necessarily increases, but just being aware of what similair properties are renting for. I don't think there are many tenants that expect to be paying the same amount for twelve months or more. So they may be quite okay with reasonable increases in rental payments. Once you have increased the rent or simultaneously install aircon and any other small works that improve the property and the tenant's 'view' of the property. Elderly people and a young family with a baby would greatly appreciate airconditioning.
There was another poster on this site who has an ebay store or online store that supplies materials and appliances for landlords at good prices. You may find them of benefit. you can also pick up a reasonably good aircon for about $700 from Bunnings.
Sonya
Oh great good advice. Thanks for your help here guys.
I have not put the rent up for about 3 years since I brought the property. Also I have not had any of my flats vacant. I think after about 10 years I had one month when there was no tenant. So I dont think it would be an issue of not finding another person to rent the flat and actually with the flats renovated nicely would probably be easier to find someone to rent it."Are you asking the question because you really want more for your rental income? Or is it just because others are getting more and it made you think about it? Are you happy with the rent you're getting and the tenant you have?"
No I want the top price for rent actually. The place is pretty much cash flow positive so I would like to start saving for another place.
It is hard not to be business like in this situation but you are potentially loosing up to $100 a week with your rental charges. Also if you want to buy more property then the bank is only going to take into account what your receiving. I would gradually do the the upgrades and adjust the rent accordingly.
Maybe start doing work on the outside of the property then up the rent, also if you havn't already do some more research and make sure that you can acheive the price you want.
REMEMBER you are in the property business to make a profit. If you want to give to charity then give to charity, but letting an old lady live in your property for $60/week ($3,120/year) under value seems stupid to me.
If the old lady lived anywhere else she would have to pay market rent there, so why shouldn’t she pay market rent where she lives with you. You are not doing anything wrong by increasing the value of your investment.
Inflation causes the value of money to go down every year. If you are not raising your rents on a yearly basis then you are going backwards.
If it was me, I would renovate the property and bring it up to market rent. Then if the couple/old lady want to rent it out they can…if they can’t afford it they will go elsewhere. If properties in your area are renting well then you shouldnt have a problem with vacancies.
You could even afford to have your property vacant for 16 weeks (almost 4 whole months) per year at market rent and you would make the same amount as if you had 0 vacancies and charging $125/week.
Be smart and look at this as an investment not a charity and then make your decision (whatever that may be).
ps. I am not saying this to be harsh. Charging market value for your product (which in this case is your rental property) is not cruel or mean in any way. It is the norm.
Ryan McLean | On Property
http://onproperty.com.au
Email Meg0biin, as I mentioned in my previous post, you do need to stay on top of the market and cater for any increases so you're not in the current situation.
My advice on the reno's … if you can get market value without it, do it …
If you think you'll get more with some reno's, then taking into account how much you'll outlay vs how much extra income you'll receive (and of course capital gain) consider it …
I'm sure you'll have no trouble finding tenants, its really just the balance of emotion vs business isn't it?
What I usually find from a post like this is that you have become emotional about your tenants and their circumstances and not detached and looking at the bottom line. I achieve rents in a block of units in Kingston of $240/wk. My sister who has paid off her unit in the same block has her tenants paying $180/wk. As she is now divorcing, she needs to sell the unit. As the prices are now about the $210k mark, she either needs to radically raise rent now or take a lower sale price due to perception that the rent is dismal for the area.
Same tenants for 3 years, a retired kiwi couple that have installed ceiling fans and painted at their cost. Theres always a cost but $60/wk in lost rent. Id do the fans and painting and get a real rent.
DD
Change is now an accepted part of our lives.
I believe that older people need security of tenure but must appreciate change as well.
Your tenants deserve favouritism so I would suggest you give them what you can, which is time and options.
Perhaps by working with them, they may decide to stay and enjoy the better lifestyle at the increased rent,
or they may decide to find cheaper accommodation in which case they would appreciate you
giving them the time to do so. When change is inevitable, consideration, time and options are always nice to have.
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
As others have stated here. Its is a business.
Old lady might be nice, however your paying for it. Be fair to her and increase it in stages to get it back to market. I see investors all the time let things slide like this. If they have an emotional reason for being there they will stay your robbing yourself of $5200 pa. over 10 years thats $52k, so your goig to work for a year free because shes a nice tenant who does the right thing?
Food for thought.
IMO rents need to be reviewd quarterly over ones portfolio.
Standing on the side and doing nothing is the worst thing to do.
One of my clients has bought a unit in the same street I own 4. He has been away working so I asked him what his rent is. He tells me $210/wk. Mine that are identical to his are getting $235 x 3 and $240 x 1. So $100/mth hes duding himself by not reviewing the rent regularly. Keep on top of it.
Nathan is on the money with his analogy as well. Like your tenants fine, but its a business and its your business. A lot of agents don't review rent or suggest rental hikes, as they actually have to deal with irate tenants from time to time. Isn't that exactly why we pay them in the first place.
Do a review on places for rent in your investment area and jot down all of the rents for similar properties. Quietly phone other agents and keep on top of your own nestegg. Its so hard to accumulate wealth and so easy to loose sight of all of the small stuff.
Good Luck.
DD
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