Rent Reduction

The tenant is on a fixed term lease which does not expire until August.  It's all well and good for tenants to cry poor mid lease, but rest assured they will never call you voluntarily mid lease and say hey you know what, I see on the news interest rates went up, and I feel sorry for you, so I tell you what, I'll pay a higher rent, effective immediately.  The purpose of a fixed rent is to enable the tenant to budget.  And you as the landlord do not necessarily put the rent down the second interest rates go down, because sometimes you need a buffer if the interest rates go up again.  Additionally, perhaps you are locked into a fixed interest rate anyway.

As such they are obliged to honour their agreement.  If they choose to default, the following income streams are available to you:

1.  Keeping their bond

2.  Claiming rental default on your insurance (presuming you have appropriate landlord insurance)

3.  VCAT or equivalent

A bit before 60 days prior to the lease expiry, you'd be talking to your property manager about whether you'd like to offer a new lease term to the tenant, and if so at what price.  You would take into account the property manager's advice (which should be backed up with reasons) coupled with your own knowledge.  If indeed at that time the rental market is slow and prices have gone down, you will almost certainly need to put the rent down.  $100 a week is a huge incentive for someone to move house.  Unless there is something super special that your property is offering, you're in the mosh pit with the other landlords, offering your product to the market.

In summary, if it were me, no way in heck I would be putting the rent down mid lease.  Unless I was in a real spot and had invested in a town where there was no other way I could get a new tenant at the end of the lease.

I'd go with Terry but conditional. I'd do $50 now and another 50 at lease expiry on the condition of a further 12 month extension. 50 now costs you basically 2 weeks rent. Small price to pay for what could be an empty rental and a subsequent price drop of 150 plus fees. 

I would agree with Terry, from my point of view I have noticed rents decrease (only talking about melbourne).

if you can extend here lease as well that would be great but I am also thinking this

why are rents decreasing in your area? Why are there so many houses for rent?

In the future do you rents increasing or decreasing further in turn affecting cash flow?

The Market is changing pretty quickly, a few people from work rent in Richmond (Victoria) most of them where paying 700 + a week in rent but they are now seeing houses ten for 400 to 500 a week.

Just ensure you Monitor the long term maker as well. 

Why would you drop the rent in the middle of a lease (don't know if that's even possible anyway). It's a contract.

Do you often throw away $2000???

So if rents went berserk and jumped up $100 a week in the middle of a contract do you think you'd have any chance of upping it? Of course not.

this is business.

Tell them you'll gladly drop it at the end of their contract (lease). They can then sign another one at the lower amount.

An emotional reaction not a rational one. Rents are decreasing in this area and a relet is scheduled for six months. In that time rents may have dropped further because the trend is down and no immediate driver to reverse that trend as this point. So currently one can assume a $100 reduction is almost a given to stay competitive and that $150 is a probable. $200 is an outside possibility but still possible over the next 6 moths. Time will tell. 

You loose $1200 now knowing you could loose as much as an additional $10 000/yr (assumes a $200/wk reduction) over and above an almost certain $100 reduction. 

The tenant is under some financial duress and in all likelihood will be forced to walk at the end of this tenancy if a counter offer can't be made. The reality is that to relet in a falling market is perilous to say the least. Two weeks vacancy will cost $25/yr. Add reletting costs and that could easily climb to $50/yr. If your forced to drop $200 to acquire a tenant then you could be out a total of $12500 for the next cycle.

50 now plus 50 on anniversary at least keeps the rent at the high end of the market. Sticking to your guns could see you forced to the bottom chasing a new tenant. 

As they say, "better the devil you know than the one you don't".

Hi Beaka,

A fair bit of information missing at this stage.

Where is the property?

Why is the rental market dropping?

Is this a short or long term matter with current trends an indicator of a bigger issue manifesting itself in a rental oversupply?

What is your property manager saying about the rental market outlook?

Cheers

Hi Beaka,

Thanks for the update.

Do you know what has caused the oversupply issue? Is it too many properties being built or a reduction in employment opportunities or a combination of both?

Are there expansion plans with accompanying increases in employment levels in the pipeline? Without this, you may be seeing the early indicators of a longer term problem – now I'll be the first to admit that I don't know enough about Emerald at the moment to comment with any degree of accuracy so all I am doing is posing questions for you to consider.

But if you see this 'oversupply' as a blip rather than an early indication of a long term trend then a temporary reduction in rent accompanied by an extended lease as per other posters suggestions may be in order.

Have you considered what your new lease will look like if rents head northwards again in 6 months time? Will your tenant ring you and ask for the rent to be increased – probably not. Maybe consider inserting a 'right to increase rent' clause in your updated lease.

PS i managed to get a 50% lease reduction on our shop i was only 2 years into our 6 year lease lol so anything can happen!!!

PS I didnt even use a solictor hahaha

If you drop the rent it sounds like the tenant will leave at the end of the lease anyway.

But I don't like empty IP's. Given that I don't know the area I'll leave it at that.

Good luck.