I'm scared to increase the rent



Question: I own an investment property (unit) in Sydney, about 15km from the CBD. I’ve had the same tenant for three years and they’ve been ok, although they have been late on paying the rent a handful of times. I haven’t increased the rent for the whole time that they’ve been there but I’m feeling the pinch financially with my own mortgage and really need to put the rent up now to the market rate. 

My problem is that the tenant has said that they’ll move out if I increase the rent, and I don’t really have the buffer in place to deal with a rental void while I’m finding a new tenant. My property manager says that I can easily increase the rent by up to $30 a week and have a new tenant lined up by the time my current tenant leaves, but I’m not sure if I can take the risk.

Is there any way that I can manage this situation to increase the rent and get a new tenant in, without running the risk of running out of money myself! 

Answer: As a property investor it’s important for you to make your property and your money work hard for you, so you don’t have to.

It sounds like part of the reason you may not have cash in your kitty to handle a vacancy is that you’ve missed out the increased rents most other Sydney landlords have enjoyed over the last few years.

I know of some investors who manage their properties themselves, thinking they are saving some money, but then find they’ve actually lost out by not getting an appropriate return from their property.

Don’t let your tenants hold you to ransom, if they can’t afford the market rent now, they may never be able to and in the meantime you fall further and further behind by losing income.

Don’t be concerned about the tenant vacating the premises. Your property manager should be able to find a suitable tenant quickly for you. The increase in the new rental should buffer any short term vacancy period, and will add value to your properties as an investment.

And of course the tenant may decide to stay on when they calculate relocation costs: connection of utilities, removalist fees, new bond payment commitments. When you think about it, all these expenses add up and may total more than the yearly increase. Not to mention that the tenant will need to pay current market rent for another property!

Let your professional property manager negotiate and manage this for you.

- Answer provided by Peter O’Brien (www.metropole.com.au)

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  • Frank says on 26/04/2012 09:24:34 PM

    like you, I wimped out on raising rent for years with tenants becoming friends (or were they just using me) until I finally bit the bullet and followed agents style - simply prepare a professional notice letter same time each year to deliver a bit over 60 days before end of lease (make them expire around Feb. when most people move so you'll have tenants lining up)

    - research current market rentals for comparable properties, quote a few current examples in your note, then show why yours is 10% below what they'd pay elsewhere, thank them for looking after their home, invite them to continue, and state that you'll need a new lease signed (and make sure you have the paperwork ready and follow through - they won't ask to renew), advise that they need to give you x days written notice if they don't wish to renew, then just drop it in their letterbox or slip it under their door !

    A week before the rent increase takes effect, sms them a reminder, and lo - increased rent paid into your bank account on time next week - no awkward face-to-face conversations necessary.

  • Gordy says on 28/04/2012 10:59:20 AM

    Talk to your Bank about missing a loan payment or doing a redraw (if available)? If you have been making your loan payments on time this should not be a problem! This will give you the buffer you need should your property be empty for a few weeks!

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