Monday 4 February 2008

Rental property back in the black

Our rental property has finally been repaired. A tree fell over in a severe storm last July and took out part of the roof. Due to the large amount of work the insurance assessors and builders had to get through it took ages for the work to be approved and repairs commence. Then our tenants went overseas on holiday which delayed getting the ceiling patched and painted.

I'd initially proposed reducing the weekly rent from $400 to $350 while the house was being repaired, but the tenant wanted a $100 per week reduction due to the cold wind blowing through the hole in the roof during winter. I agreed to that, but had expected the rent reduction to end once the roof repairs were done (after 18 weeks). The tenant on the other hand thought the reduction was in force until the house was back in it's original condition (26 weeks). In the end we agreed on a compromise figure of 22 weeks at the reduced rent amount, so the tenant has now started paying the full amount. So for the first time in a long while, the rental property will be cash flow positive again.

The current tenants have been in place for over 12 months now, and their original lease had expired after 6 months, so it was time to do an "annual" rent review. Due to the housing slump in Sydney over the past 3-4 years, the rental market is getting very tight, and rents have increased by over 12% in the past year. I mailed the notice of rent increase last week, seeking a rise to $450 per week from 1 April (60 days advance notice is required in writing in NSW).

The tenants emailed me today saying that the rise was "unreasonable" and proposing a smaller rise (to $425 per week) for the next 12 months. I wrote back explaining that the rise was based on the official rental statistics for this region obtained from the department of housing, but suggesting that the rent could be raised to $425 for the next 6 months, and then to $450.

I'm not too fussed about losing $25 per week income for 26 weeks, as it's still much better than having to get new tenants. The real estate agent charges one week's rent to find new tenants, plus the house could be vacant for several weeks before new tenants move in. However, if the rent was fixed at $425 for the next 12 months it would be very hard to increase the rent back up to market levels at that time. On the other hand, if the tenants have been paying $450 per week for 6 months by the time next year's rent review comes around, they'll suffer less "sticker shock" if there's another reasonably large increase in rent next year.

Copyright Enough Wealth 2007


Anonymous said...

Absolutely. Negotiation is the key. Most investors forget that they are also land lords and keeping your tenant happy is a VERY important thing. As ultimately they are the ones paying your rent, keeping your house clean and undamaged and helping you to pay it off.

Keeping a good relationship with tenants are important.

Debt Dieter said...

To be honest I would have baulked at a 12.5% rent increase in one go myself. That's a pretty big jump.

Nice to see you were flexible enough to stagger the increase every six months, far more palatable. :-)