Hi everybody!
Our tenant has just told me he's keen to sign a long lease of 2 or even 3 years. The property is currently rented for $280 a week, i was thinking of raising the rent to $290.
Has anyone out there got any ideas on this? He's a great tenant so i don't wanna scare him off by raising the rent too much. Is $10 a week fair? It means he'll be protected for future rent increases for the longer term.
Any ideas will be greatly appreciated.
Cheers,
gmnicho
Hello gmnicho,
How ab out a clause in the long term lease saying you reserve the right to adjust rent in line with the market, each half year? You don't have to do it each time, but I think they would see that as reasonable.
G
I would just only do a 12 month lease only- no 2- 3 years in case you need to sell, circumstances change, or the tenant doesnt become too great then they are a nightmare to get out. I once did a 2 year lease, my tenant was great for the first year, then she met a looser boyfriend, started drinking, fighting, getting behind in rent, then fighting more, police coming around regularly, and was very very hard to get out and when I didnt extend her lease she got drunk, put about 8 holes in the wall, smashed the front door, and left the house in a total filthy mess and the bond did not cover it.
You can never assume a good tenant will always stay a good tenant as often circumstances change and if you are stuck in a 2 year or 3 year lease it will be hell on earth trying to evict also should you need to.
Don't know where the property is but here goes.
Suggest you regard the request as the tenant saying – "I like it here and don't want to move, and I don't want you to be able to move me or increase the rent, it costs to move, and it's a war out there amongst the homeless tenants competing for available properties".
Hold onto your options to raise the rent in case interest rates increase, the market moves, there is very high demand for rental properties in some areas, the housing shortage is well publicised.The tenant may lock you into low rent, then break lease when he feels like it and all you get is a replacement if you're lucky.
Suggest 12 months max, with regular rent increases every 6 -12 months, move with the market.
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
I would probably have to agree with what everyone else has said. 2-3 years is a long time and a lot can happen in the rental market in that time.
In the last 3 years rents in some parts of Sydney have increased by over 15%. If market rent is $290/week in 3 years it could be $335/week. meaning you would be renting your property for $45/week under market value. That is a whopping $2,340/year that could be going into your pocket and is instead going into your tenants pocket.
Don’t be scared of vacancies. If your property is good quality and in line with market rent, then what are you worrying about? In my opinion people tend to stress too much about vacancies.
In 3 years time, if market rent is $335/week you can afford to have your property vacant for almost 7 weeks a year and still earn the same amount as if you have 0 vacancies at $290/week. That is a figure to chew on.
Good luck with your decision.
Ryan McLean | On Property
http://onproperty.com.au
Email MeHey businessglobal – sounds like you and me had the same tenant
I think geraldien has the right idea, if you are happy with all the checks on tehant then why not allow them a loner lease, but make sure that you have in writing the reappraisal of rental payments every six months, and if necessary rental increases in line with market factors. If you have done all the necessary checks and you have an efficient property manager it shouldn't be an issue. I can understand that some people would like to know that they are not going to have to move every six or twelve months when leases expire and landlords choose to sell the property or do a knock down redevelopment etc. Maybe they have been in this situation in the past and would simply like some stability.
cheers
Sonya
You can do all the checks in the world- but you can never check or be sure of peoples emotioinal/ mental state/ life circumstances. I did all the checks had a perfect good tenant, then it turned into a nightmare and about 19k of damages- due to tenant going a bit haywire with boyfriends, drink, fights with neighbours and making stupid decisions etc etc
Insurance only covered a small portion of this and then applied an excess to each room, and also said some was caused by the ladies kids so they do not cover any damage done by kids, so they did not cover the carpets kids weed on, vomited in, rubbed nappies into, crayons on walls, textra everywhere, etc broken kids toys everywhere in backyard – we took out about 4 huge mini skips of rubbish, it stunck so bad no one would clean it up that came to quote- so I asked the insurer choose a quote, Ill quote and well clean it up and you pay us as no one wants to touch all the rubbish/ filth, rats, poo nappies- it was a sickening job, and I was cursing rentals this week that I was out there with flies, rats, vomit, yukkkk, rotting garbage, fleas.
I only build and sell now, or reno / sell, subdivide, had enough of rental properties, tenants and in 18 years very rarely found a long term good consistent property manager- they change every year or so.
It depends on the location of the property.
In innerwest sydney, the rental property is like 'hot chips' and you will have 10+ good applicants.
I always rent it out in line with market value.
I never had problem with tenants trashing the property before, unless u r investing in the small rural/regional town.But… just above to tread the Moree's property market
Ive had nearly 25 properties as holds all in good areas in the last 18 yrs in property- we still have about 10
Parramatta, Leichardt, Stanmore, and good areas of Gold Coast/ Brisbane and in 18 years this has been what has happened, we have used very good property mgrs, Im a principal myself- but I only buy/ sell I dont manage.1 House burnt to the ground by the tenants ex wife- cost about 300k to rebuild and 1 yr for CGU to rebuild it, CGU were always 2 months behind in their rent chqs to us, so had to go to solicitors to sort this out, pay solicitors, and also top up the mortgage account for 3 months until rent chqs came through- the tenants ex wife broke in, and lit 18 fires and blew the house and pool up, got charged and convicted by the police and insurers. Caused us 1 yr of stress, paperwork, property mgrs were incompetant and couldnt be bothered really to take the time to do all the claim correctly so I had to take over- as it is a 600k plus home in a good area of Brisbane, tenant was great but the pscyh ex wife appeared. Property Managers were not legally competant enough or even up with their paperwork correctly and would have put our asset at more risk by mistakes.
1 House trashed by a lady thta hooked up with a bad boyfriend- see story above about poo nappies, vomit, mini skips of rubbish
1 House teant got 7 weeks behind in rent as split up with his girlfriend and lost the plot- left his job, packed up, left the house open, keys thrown on the floor, no cleaning done and took off- bond did not cover the cleaning/ loss of rent- so wastes my time again with paperwork to sort claims out/ loss of rent/ cleaners cant turn up for 5 days as all booked out, so I have to clean so we can get tenants again asap.
1 Unit in Parramatta tenants cook a lot with curry/ chillis and one of the neighbours got pissed off so had a fight with the tenant, smashed holes in wall and kicked unit door
All these tenants were correctly scanned initally, passed all tests, income, references, jobs, stability- just things happened in their life that threw them off couse and my properties lost out.
So I made a decision to only buy, sell, develop, subdivide, and do furnished corporate rentals which I manage myself, get rid of all property managers and their poor service, weak excuses, incompetance and not put up with tenants anymore- life is so much better, easier and making more money with less stress.
So I did have very good areas, good PM paying them 9- 11% fees, I believe in getting very good people/ team and paying for them- but this strategy didnt get higher results.
No I dont have any regional properties at all- I build in regional and sell sell sell – no tenants/ no stress, and I learnt something at Steves discussions, bank the money, do not let the property own you, you own and control it for your needs/ goals. I was not happy holding a large rental portfolio, I apired for it as a challenge, did it, sold it and now life is easier for us and we really like better our different strategy.
thecrest, I love the way you think …
businessglobal … wow, you've got some stories to tell. I totally agree over the PMs. The come and go and are often so unreliable. All the checks in the world won't save you from a bad tenant or a good one gone bad. Worthwhile advice you have there!
gmnicho … my opinion on your query regarding a long lease … I wouldn't give a long lease in the current climate. Like others have pointed out, things change with tenants and so does the market. We used to offer a maximum of one year lease but the market went up a LOT in that year (in Perth) and we had to put the rent up a LOT at the end of the year. It has to be done but hard on a tenant just the same. Small increases more often are easier to take. You could offer a one year maximum lease with a provision for market increase, or simply offer six month leases and up the rent each time. It depends on the market as to the increase. I think most tenants can cop a $10/week increase … maybe even $20. If they don't like it, you'll get someone else, especially if its market price.
If your tenant is trying to secure some future with you … perhaps you could just explain your situation and reassure them that provided the rent is paid and the place is looked after there's no reason for you to look for another tenant.
Yes, 2-3 years is a long time, for a tenant and a landlord. Anything can happen so don't lock yourself into it. Maintain your flexibility.
Leases, if it's a new tenant 6 months. If they seem ok after this then a max of 12 months. I often lock in a rent hike at the same time.
What I do is say the rent is $180/wk and I want $190/wk. I get the tenant to sign for 12 months, 6 at $185/wk and 6 at 190/wk. On one lease.This does 2 things, firstly gets me the rent I need locked in to a lease and secondly I dont pay any more fees for the rent review in 6 months.
With interest rates about to jump later this year Im happy to allow for this with simple short leases. After all, if there were 3 or 4 rate rises and your locked in at a rental rate for 3 years you are basically stuffed.
Does this help??
Why does the rent have to be 'locked in' for three years, You can have a longer lease and have the lease worded so that the rent will be reviewed and maybe increased every six months in line with the rental market. Or say rent will increase by $X every six months. If the tenant is happy with this then you will have the rental increases and the stability of the same tenant for three years.
To protect yourself you could even put clauses in such as if the tenant fails to pay rent on time, or mow lawns every two weeks or maintains property in suitable condition etc then the lease will be terminated. there are a number of ways to ensure that you and the tenant aare both happy with the arrangements.
As for lease periods its all dependant of the area.
If in a 1 horse town 2-3 years is good. If for example in sydney or melb i would want short as possible.
I never sign any of my tenants now days on more then a 3 month lease when they move in, one might ask why? Because I have control over rents. In the old market there was too many properties not enough people therefore long leases looked attractive, but if your locked in you cant raise rents at your call. Tenant will stay if they want security. If I look back I have had rents go up on some of my properties by $100+pw over a period of 12 months. Some properties I have had tenants cause ethical issues with me (lying over stuff they have broken obviously etc..) and I have terminated their leases just to have 12 people come through the next day and rent for $50-80pw more. In these cases, who is doing who a favour?
Be careful when locking yourself in when the odds are against you.
Whats the chance of market goingbackwards? well we will need to see massive levels of construction, and a decline in immigration, which neither I see happening anytime soon. Due to economy growth and due to constrction finance is at depressing levels, therefore great times ahead on rents, expecially that renting will become a cheaper option as interest rates increase.
This is my opinion as you have asked for views but DYOR, and goodluck.
Nath.
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