The "Good Tenant" v Rent Increase Dilemma

April 73

It won't be too long before I am in a position to issue a rent review to tenants.

I'm not looking for advice on timings or notice of an increase.

I'm interested in people's opinions on fair increases for good tenants. They are currently paying €1050 for a two bed in Dublin 15 where the currently advertised rents are €1400-€1500. My property is a two-bed, 1,000 sq ft with outside space, close to the train line so could command closer to the top end looking at available properties on daft.

it seems like a huge jump from the current rent to the going market rate & while I would like to increase the level, I don't want to screw the tenants I have. They pay on time, look after the place and are pretty self-sufficent.

How do landlords strike a reasonable balance?

Baby01032012

April 73 wrote: »

It won't be too long before I am in a position to issue a rent review to tenants.

I'm not looking for advice on timings or notice of an increase.

I'm interested in people's opinions on fair increases for good tenants. They are currently paying €1050 for a two bed in Dublin 15 where the currently advertised rents are €1400-€1500. My property is a two-bed, 1,000 sq ft with outside space, close to the train line so could command closer to the top end looking at available properties on daft.

it seems like a huge jump from the current rent to the going market rate & while I would like to increase the level, I don't want to screw the tenants I have. They pay on time, look after the place and are pretty self-sufficent.

How do landlords strike a reasonable balance?

A good tenant is worth quite a bit. Maybe meet half way between current rent and market value. At the same time you want to ensure a reasonable increase that you will be satisfied with for the next 2 years. And it is an investment where returns are at their highest and it may be a different market in 2 years where your return could be a lot lower.

My example is a property I've let for 3 years now at 1800. Market rent is up to €2500. I gave an increase to €2150 and they were happy with that. They're excellent tenants. Low maintenance. Very pleasant to deal with. Rent always on time. Never come to me unless there is a real issue to deal with.

davo10

<deleted quote snipped - Mod>

Op. tenants are supposed to pay on time and respect your property. If that is what they are doing then they are being as good as they are supposed to be.

€450 is a huge amount to lose every month by not having rent at market rate, that is €10k on a two year cycle. You would be insane not to charge market rate.

The Bully, the market sets the rate. I doubt you had much sympathy for property owners in negative equity or who are unable to pay their mortgages. This is a business, not a charity.

Gmaximum

Better to hang onto a good tenant than go to the market and risk a bad one moving in.

The fact that half of your increase will go to the state anyway hardly makes up for the chance of tenants not paying or damaging your property

Without knowing the personal circumstances of the tenant ie do they have kids is everyone working etc it's difficult to judge what to set the rent and get then to stay

Personally is go for a 150 or 200 increase and use the additional income to invest back in the property so you can right it off against your tax bill. Refreshing furniture/carpets or doing up a bathroom etc will make it easier to rent in the future especially when the market adjusts to more normal levels

April 73

Baby01032012 wrote: »

A good tenant is worth quite a bit. Maybe meet half way between current rent and market value. At the same time you want to ensure a reasonable increase that you will be satisfied with for the next 2 years. And it is an investment where returns are at their highest and it may be a different market in 2 years where your return could be a lot lower.

My example is a property I've let for 3 years now at 1800. Market rent is up to €2500. I gave an increase to €2150 and they were happy with that. They're excellent tenants. Low maintenance. Very pleasant to deal with. Rent always on time. Never come to me unless there is a real issue to deal with.

Thank you. In the past I have lowered the rent when that is what the market dictated & tenants have benefitted from that. The swing has gone the other way now.
While technically I could ask for an increase to the market rate, it isn't my intention to do so. Meeting around half-way might be a good option.

c montgomery

I have a good tenant very similar to you.
Pays on time every time. No complaints and very little if any hassle.
Rent is 800 per month. Market rate is now about 1050 if you can even find a place.

To keep this tenant I will do whatever it takes. Rent will not change if my costs remain unchanged. A rent increase of 100 euro is a big cost to my tenant buy after tax I only get 48 euro.

Good tenants deserve to be treated well IMO. Once you get a bad tenant you will realise have valuable a good one is.

If your costs have increased then I think it's fair enough and this can be explained to your tenant by if your just looking to take advantage of situation I would advise to thread carefully.

This is just my perspective, I'm sure many would disagree. At the end of the day it's up to you.

davo10

c montgomery wrote: »

I have a good tenant very similar to you.
Pays on time every time. No complaints and very little if any hassle.
Rent is 800 per month. Market rate is now about 1050 if you can even find a place.

To keep this tenant I will do whatever it takes. Rent will not change if my costs remain unchanged. A rent increase of 100 euro is a big cost to my tenant buy after tax I only get 48 euro.

Good tenants deserve to be treated well IMO. Once you get a bad tenant you will realise have valuable a good one is.

If your costs have increased then I think it's fair enough and this can be explained to your tenant by if your just looking to take advantage of situation I would advise to thread carefully.

This is just my perspective, I'm sure many would disagree. At the end of the day it's up to you.

Big difference between €100 per month and €450, €1200 per year and € €5400.

If your mortgage was higher and you were struggling to pay it, would you put the rent up if you could rather than having to pay part of the mortgage each month out of your own pocket?

Every situation is different.

The_Conductor

Guys- TheBully is on a little holiday from this forum.
If you see more instances of outright trolling- please report them- engaging with the poster seldom achieves anything.
If anyone would like to contribute to April's query- please do so.

Regards,

The_Conductor

c montgomery

davo10 wrote: »

Big difference between €100 per month and €450, €1200 per year and € €5400.

If your mortgage was higher and you were struggling to pay it, would you put the rent up if you could rather than having to pay part of the mortgage each month out of your own pocket?

Every situation is different.

If you read my post you will see that my property is 250 a month below market, 3000 per year.

I currently do pay some of the mortgage myself, a bad business move perhaps but after having a tenant for hell in the past its a price I'm happy to pay.

4ensic15

April 73 wrote: »

It won't be too long before I am in a position to issue a rent review to tenants.

I'm not looking for advice on timings or notice of an increase.

I'm interested in people's opinions on fair increases for good tenants. They are currently paying €1050 for a two bed in Dublin 15 where the currently advertised rents are €1400-€1500. My property is a two-bed, 1,000 sq ft with outside space, close to the train line so could command closer to the top end looking at available properties on daft.

it seems like a huge jump from the current rent to the going market rate & while I would like to increase the level, I don't want to screw the tenants I have. They pay on time, look after the place and are pretty self-sufficent.

How do landlords strike a reasonable balance?

Remember if you increase now it will be more than 2 years before you can increase again. You should be looking to get about 80% of market rent, from a good incumbent.
Any less is cheating yourself.

davo10

c montgomery wrote: »

If you read my post you will see that my property is 250 a month below market, 3000 per year.

I currently do pay some of the mortgage myself, a bad business move perhaps but after having a tenant for hell in the past its a price I'm happy to pay.

Perhaps? I appreciate what you are doing and your concern about a changing of tenants. But others may not have the luxury of being able to pay themselves when there is an opportunity to cover more of the mortgage with rental income.

Again, different circumstances but the op said there is a "need" for the increase.

OldMrBrennan83

This post has been deleted.

handlemaster

OP . Put the rent up to the market rate . You will get no thanks by playing the I want to be fair card . When rent come down will they fork out more to keep you happy !! I think not. The norm should be that tenants do pay on time and are no hassle as in not demanding what they are no intitled to.

Gmaximum

Patww79 wrote:

This post has been deleted.

True the OP not a charity but the time cost and effort of getting your property ready for rental along with the possibility of getting difficult tenants. Any increase has a tax implication. I definitely think that having a good tenant at a percentage less than market rent is worth it.

I'm purely commenting as someone who's learnt the hardway with bad tenants.

My own property will be going back on the market as my really good tenant is moving on. I will be seeking market rates for it now but would have settled for less if they stayed on

c montgomery

davo10 wrote: »

Perhaps? I appreciate what you are doing and your concern about a changing of tenants. But others may not have the luxury of being able to pay themselves when there is an opportunity to cover more of the mortgage with rental income.

Again, different circumstances but the op said there is a "need" for the increase.

Agreed

Every circumstance is different but I can't overstate the benefits of a good tenant.

Avatar MIA

handlemaster wrote: »

OP . Put the rent up to the market rate . You will get no thanks by playing the I want to be fair card.

I agree with the OPs strategy.

The OP is getting plenty of "thanks" in that it sounds like he is avoiding potentially time consuming / non paying tenants.

If you don't value trouble free tenants you've probably not been reading these forums very much.

In an ideal world the OP would simply put the rent up to full market rate.

However, it's quite possible such a large jump may be outside the current tenant's affordability and then it's new tenant lottery time.

The_Conductor

Gmaximum wrote: »

True the OP not a charity but the time cost and effort of getting your property ready for rental along with the possibility of getting difficult tenants. Any increase has a tax implication. I definitely think that having a good tenant at a percentage less than market rent is worth it.

I'm purely commenting as someone who's learnt the hardway with bad tenants.

My own property will be going back on the market as my really good tenant is moving on. I will be seeking market rates for it now but would have settled for less if they stayed on

Thats all well and good. What is a reasonable discount to offer a 'good tenant' (keeping in mind- what most landlords consider to be a good tenant- is simply one who fulfills their obligations under the Act). 10%? 15%?

All the while- for a considerable number of landlords- a rental property is a considerable drain on their income (esp. anyone who is letting a property they bought during the boom as a PPR out of necessity- and has to rent elsewhere themselves- of whom there are estimated to be over 34,000 nationally)...........

Add into this- the landlord is going to be locked into this rent for the next two years- whereas the tenant can request a deduction if anything doesn't go according to plan (either for them personally, or the economy at large).

Its very hard to justify a significant discount for the tenant- given the landlord cannot revisit this decision for 2 years- whereas the tenant can. Aka- there is only a downside for the landlord for the next 2 years- the tenant is protected come what may- and as most landlords have discovered, as soon as conditions change- tenants will seek reductions pretty much overnight........

The current situation- is structured such that it really doesn't make sense for a landlord to offer a discount on todays prices- as they won't be able to revisit it tomorrow (whereas the tenant can).

The taxation situation- doesn't help matters (5% USC on gross rental income- is just the icing on the cake)- however, using taxation as an argument against increasing the rent to market levels- is a bit like asking how fast can an apple ride a bicycle uphill if the slope is 15%- i.e. its wholly irrelevant.........

I'd suggest the landlord make a list of similar properties in the area- showing the tenant clearly what the market rate is- then takes the top 10, average the price charged for them- and deducts 10%- so the tenant has a clear roadmap of where the increase is coming from- what its benchmarked against- and they can see that you're giving them a discount..........?

Avatar MIA

The_Conductor wrote: »

I'd suggest the landlord make a list of similar properties in the area- showing the tenant clearly what the market rate is- then takes the top 10, average the price charged for them- and deducts 10%- so the tenant has a clear roadmap of where the increase is coming from- what its benchmarked against- and they can see that you're giving them a discount..........?

I see where you are coming from, but you're not factoring in one crucial element. The current tenant's ability to absorb the several hundred euro per month increase.

If the tenant CAN afford the rent increase then the OP should charge the full market rent.

The_Conductor

Avatar MIA wrote: »

I see where you are coming from, but you're not factoring in one crucial element. The current tenant's ability to absorb the several hundred euro per month increase.

If the tenant CAN afford the rent increase then the OP should charge the full market rent.

Yes- however- market rent is what you could get a new tenant to pay for the property. The current tenants are tried and tested, and the landlord is happy with them. In addition- the 10% discount may be less than it might cost to repaint/refreshen the property- were they to up sticks and leave.

There is a quid-pro-quo involved all round in giving them a measurable discount- I personally think 10% on the average of the top 10 local properties- is reasonable and fair- perhaps its a bit on the generous side even- however, keep in mind- from the tenants perspective- it means at least a 250 a month increase- that is what they will be looking at- showing them it could well be a 400 increase- however, in light of the established business relationship between the tenant and the landlord- you're not charging the going rate- but there is still a significant increase involved (in the region of 20% on their current rent- which is massive- sure it could be 35%'ish).

At the end of the day- what I'm proposing is a compromise that the landlord will have absolutely no difficulty justifying- esp. if as is becoming the norm, the tenants dispute it...........

CIARAN_BOYLE

A few years ago someone i know who is a landlord came up with a policy that a good tennant is worth two free months rent. IE he charges 10/12s of the market rent to a good reliable tennant.

This was based on the fact that between tennants there is always a small amount of work (acceptable wear and tear) which cannot be charged against a deposit which he estimates as a week less than one months rent. another week for the downtime between lets. The ssconf free month was based on avoiding the risk (which he feels is about 4%) that a new tennant will overhold without paying and force him to spend 18 months in the prtb to evict.

So in your situation with €1500 market rent you would be looking at €1250 a month.

Up to you if hou follow that formula.

davo10

CIARAN_BOYLE wrote: »

A few years ago someone i know who is a landlord came up with a policy that a good tennant is worth two free months rent. IE he charges 10/12s of the market rent to a good reliable tennant.

This was based on the fact that between tennants there is always a small amount of work (acceptable wear and tear) which cannot be charged against a deposit which he estimates as a week less than one months rent. another week for the downtime between lets. The ssconf free month was based on avoiding the risk (which he feels is about 4%) that a new tennant will overhold without paying and force him to spend 18 months in the prtb to evict.

Most tenants are good until they stop paying rent or over hold. Your friend's tenants are good but that might change if someday he has to terminate their tenancy, he might then regret giving them all those free months.

fits

I don't really understand the mentality that you should charge the absolute max, just because it is the going rate. That's greedy. Everyone knows rents are terribly overinflated at the moment and it's not good for the economy, so why feed that? I think half way between current and going rate is somewhat reasonable. They are good tenants, which is worth a lot.

450 is an awful lot of money to be losing out on. Letting out a property is a business and an investment and you should be maximising your profit.

The majority of tenants are good tenants i.e. So what they should and pay the rent. It's well worth the risk of having to get new people of 450 a month extra income. Think about it in the context of your job imagine having the option of a 5400 euro pay rise and turning it down.

If it was me I'd look for the full market rate or maybe if I was being very generous 50 euro a month below it.

Avatar MIA

Emmet Ugly Rice wrote: »

Think about it in the context of your job imagine having the option of a 5400 euro pay rise and turning it down.

That's not comparable.

However, would you take an exact same job for €5,400 extra (before tax), but had to leave a manager you get on very well with and work with an unknown manager - their being a possibility that they would be a nightmare to work with. You might also be able to stay with your current manager and get €3k extra.

Avatar MIA

Avatar MIA wrote: »

That's not comparable.

However, would you take an exact same job for €5,400 extra (before tax), but had to leave a manager you get on very well with and work with an unknown manager - their being a possibility that they would be a nightmare to work with. You might also be able to stay with your current manager and get €3k extra.

I would most likely move manager for the extra 5400. People move companies never mind managers all the time for a few thousand extra.

Also in the job scenario taking the 3k and staying might make more sense as there is nothing stopping you from getting a further increase in 6 months or a year maybe while in the rent scenario it's locked in for the next 2 years.

Avatar MIA

Emmet Ugly Rice wrote: »

I would most likely move manager for the extra 5400. People move companies never mind managers all the time for a few thousand extra.

Also in the job scenario taking the 3k and staying might make more sense as there is nothing stopping you from getting a further increase in 6 months or a year maybe while in the rent scenario it's locked in for the next 2 years.

I'd be dragging the thread too far off course to labour further.

davo10

fits wrote: »

I don't really understand the mentality that you should charge the absolute max, just because it is the going rate. That's greedy. Everyone knows rents are terribly overinflated at the moment and it's not good for the economy, so why feed that? I think half way between current and going rate is somewhat reasonable. They are good tenants, which is worth a lot.

It is pretty simple to understand, you have a commodity which is in short supply and high demand, the market is setting the rate for that commodity and you are therefore losing money by not charging that rate.

The_Conductor

davo10 wrote: »

It is pretty simple to understand, you have a commodity which is in short supply and high demand, the market is setting the rate for that commodity and you are therefore losing money by not charging that rate.

The Minister has issued or is expected to issue- fast track planning for 86,000 units, predominantly in areas of high demand- so the lack of supply is likely to be ameliorated in the medium term........

As soon as supply side issues begin to sort themselves- rents will fall- simple fact of life- and you can be sure as day is day- that tenants will immediately latch onto this and demand rent reductions (we've been there before after all). Landlords do not have the luxury of revisiting rent for a 2 year period- tenants have no such restriction.

That is why landlords charge the going rate- and are increasingly more likely to do so- because they can't revisit it in 12 months time..........

The rule about only reviewing the rent every two years- is unfortunately- a two edged sword- it makes landlords less likely to look favourably at a compromise that is clearly in a tenant's favour today- when they know the tenant can have them over a barrel tomorrow.........

fits

If the rent is covering costs now (or close to it) that's hardly likely to change in two years is it? All I'm seeing are poor excuses for gouging people tbh. Especially after good will has been built up such as in op's case.

newacc2015

fits wrote: »

I don't really understand the mentality that you should charge the absolute max, just because it is the going rate. That's greedy. Everyone knows rents are terribly overinflated at the moment and it's not good for the economy, so why feed that? I think half way between current and going rate is somewhat reasonable. They are good tenants, which is worth a lot.

So would you tell a Farmer who is selling milk at a loss to the local Co-op that accepting the full market rate is greedy? Or that the all the shale oil producers in the US pumping oil that cost $60 a barrel to produce to somewhat pay his debts, but is selling it at a massive loss at the market rate is greedy too? Why is it that in every other business in Ireland you can charge the market rate for your goods and services and it is normal business practice. Yet a landlord shouldnt/cant? You dont know OP circumstances, he might be massively in negative equity and losses hundreds on his mortgage a month. Yet him going to charge the market rate is entirely rational and norm in every other business is being greedy is ridiculous

Who says rents are overinflated? Because IMO if they were overinflated you would have every pension funds from NYC to Tokyo building housing here to take advantage of these "overinflated rents", as there are very few money making assets out there at the moment. Yet there is minimal construction of properties at the moment, which seems to indicated that these "terribly overinflated rents" are not actually that overinflated and are indicating the high level of taxation and the cost construction in Ireland. If owning and renting property was as profitable as you seem to think it is, there would be a ton of investors dying to build here in the morning. The only construction of apartments in Dublin is for luxury apartments, as they are the only ones that have the rents to support the high cost of construction

People seem to forget that when rents were at rock bottom in 2011, we had one of the worst recessions a development country ever experienced. We had 15/16% unemployment,a non-functioning banking system and an economy that only seemed to be going downwards. Rent recovering from that dont indicate them being overinflated, it is them converging to a somewhat normal level(plenty of Economists will back this up). Being able to let a 2 bedroom luxury apartment in one of the richest cities in the world for around €1100 a month was never sustainable.

athtrasna

fits wrote: »

If the rent is covering costs now (or close to it) that's hardly likely to change in two years is it? All I'm seeing are poor excuses for gouging people tbh. Especially after good will has been built up such as in op's case.

Charging market rate is not gouging, it's business. Charging significantly below market rate is charity.