The "Good Tenant" v Rent Increase Dilemma

While you were only joking it actually brings out a very good point.

If I were to charge a family member rent at below market value you would have posters falling over themselves to tell you that the family member is liable for CAT on the difference between market value and what is being charged.

What's so special about family members over a normal tenant being let off without paying full market rent. Shouldn't they be liable for tax also on the gift the LL is giving them every month.

fits

Sure why not throw a few bunk beds into the rooms and add a few hundred more onto the rent while you're at it. you're only doing yourself out of a luxury holiday by not doing so.

tomwaits48

I'd give a 5% discount below market rates for exemptions tenants. Anything more is naive.

Fkall

Increase the rent to market rate.

Offer to abate the rent for 12 months perhaps to the mid-way point.

This way you have the option to increase the rent 12 months down the road.

Villa05

davo10 wrote:

Is what you describe above not what all tenants are supposed to do? You don't deserve a bonus for paying your rent on time and looking after the property.

Most businesses I know looks after good customers and has reward systems to retain them.

Not all landlords/lady's purchased their properties in 2006 and current rent levels are probably deriving significant profits for people who purchased at sensible prices.
In such circumstances it would make business sense to reward good long term customers with a small discount on the market rate.

Its a business decision, some see the benefits some don't and some unfortunately are not in the position to offer discounts

davo10

Villa05 wrote: »

Most businesses I know looks after good customers and has reward systems to retain them.

Not all landlords/lady's purchased their properties in 2006 and current rent levels are probably deriving significant profits for people who purchased at sensible prices.
In such circumstances it would make business sense to reward good long term customers with a small discount on the market rate.

Its a business decision, some see the benefits some don't and some unfortunately are not in the position to offer discounts

True, but most businesses who only have one item to sell and only sell one every couple of years and who may depend on that sale to cover their outgoings, look to sell to the highest bidder.

EagererBeaver

davo10 wrote: »

True, but most businesses who only have one item to sell and only sell one every couple of years and who may depend on that sale to cover their outgoings, look to sell to the highest bidder.

On top of that, criteria for good customers generally goes above "meets legal obligations".

Again, I am a renter, not a landlord, but I do not feel that I am entitled to any special treatment simply for paying the landlord the contractually agreed price I signed up to. People who do baffle me.

Fian

There is an inefficiency that does need to be borne in mind when increasing rent with good tenants.

Bottom line - only a quarter of the benefit goes to the landlord.

The tenant must earn twice the increase in before tax income to fund the rent increase from after tax income (assumes top marginal income tax rate, but at this rent level that is a reasonable assumption.)

The Landlord will only receive a little under half of the increase, the rest going in tax. Therefore the increased income received by the landlord is funded by a pre-tax income of four times that net increase from the tenant.

Where you are only receiving a gain of a quarter of the loss imposed on the tenant it is rational to charge less than market rent in order to retain a good tenant - because the reduced rent is subject to a fourfold multiplier in terms of the pre-tax income the tenant needs to fund it.

Of course the net gain to the tenant in terms of spending power is less than this since they will be paying income tax on the pre-tax income regardless of the rent they pay, nevertheless the fourfold multiplier applies in respect of what they can afford and rents are clearly reaching the limits of affordability.

I am annoyed that I couldn't increase rents this year, and I will be bearing in mind that the next rent increase will be fixed for a further two years when i can impose it. I think it would be better for tenants if rent could be reviewed annually so that there is less of a shock in respect of each review.

Even so I will be sanguine about allowing a discount to market rents when the next increase comes along. I will also point out that the increase will ultimately be spread over four years in that four years after the rent was originally set they will be paying the original rent plus whatever increase is next imposed, assuming market rents do not fall in the interim meaning I am obliged to reduce rent before the four years have elapsed.

Obviously after tax rental income is insufficient to fund my mortgage repayments - this is presumably the case for anyone who bought a mortgaged residential property in the last decade or more. That is ok, it is a long term investment and eventually I will have a mortgage free property that I can pass on to my kids. But given that I am taking a hit to my disposable income from being a landlord I don't feel particularly guilty about trying to reduce that hit where I can, although since I have decent tenants I will not charge the maximum the market would bear at the moment.

The_Conductor

Fian wrote: »

Bottom line - only a quarter of the benefit goes to the landlord.

I'd be interested in your reasoning behind this (keeping in mind- if you have no mortgage on the property at all, are self-employed, and have absolutely no allowable deductions- your tax on the rental income will max out at 55%).

Fian

The_Conductor wrote: »

I'd be interested in your reasoning behind this (keeping in mind- if you have no mortgage on the property at all, are self-employed, and have absolutely no allowable deductions- your tax on the rental income will max out at 55%).

Probably that line is badly framed, what i was getting at (as is set out in the remainder of my post) is that only about one quarter of the pre-tax tenant income required to fund the rent increase transmits to the landlord. So rather than "benefit to the landlord" I should have said (pre-tax) "cost to the tenant."

Bearing in mind that it is the marginal rate that applies >50% will be the tax take on the increase (rather than on the rent overall) even if the landlord has mortgage or other allowable deductions - you can claim those deductions against the pre-increase rent anyway so the increase is transmitted to post tax income at the marginal rate.

allibastor

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.

This is actually the best rent related statement I have EVER read.

It is so true. for the sake of some more money a month to run a huge risk sometimes isnt worth it.

And this is from a guy who turned down a 15K a year increase for a new job, so know the feeling !!!!!!

Fian

Fian wrote: »

Probably that line is badly framed, what i was getting at (as is set out in the remainder of my post) is that only about one quarter of the pre-tax tenant income required to fund the rent increase transmits to the landlord. So rather than "benefit to the landlord" I should have said (pre-tax) "cost to the tenant."

From a LLs point if view this is irrelevant though. He will get at worst roughly 45% of any increase. Its none of his concern if its only "one quarter of the pre-tax tenant income".

Villa05

Villa05 wrote: »

...............

Not all landlords/lady's purchased their properties in 2006 and current rent levels are probably deriving significant profits for people who purchased at sensible prices. ................

I think that would only apply to people who aren't paying tax at the higher rate on their rental income or who have tiny mortgages (tracker rates perhaps), I posted some crude calculations in a different topic recently to illustrate how property investment is a very tough game for most.

€125k mortgaged property rented at €1400/month.

http://www.boards.ie/vbulletin/showpost.php?p=100717752&postcount=8

Augeo wrote: »

......

using crude enough figures...........

€25K deposit + €10k other initial costs
€100k mortgage over 25 years is €585/month at 5.2% APR (investor rate)

€190/month will be deductable expense for mortgage interest, say €100/month management fee & pretend a letting agent is charging 6% so €105 ish........ that's ....

Annual income (we'll use an 11 month let) €15400, €4740 expenses so that's €10.5k ish to be taxed income with mortgage costing €7k year so the landlord if after borrowing €100k will have €10k after tax income from it to pay €7k/annum mortgage, €1.2K management charge & €1200 letting agent fee. Basically after the €35k upfront it might all going well pay for itself going forward.

Not quite the pocket liner folks think it is though and €125k properties with €1400/month incomes aren't easy to find.

Again, all above presumes borrowing €100K over 25 years and I've lazily done linear interest over the period as I couldn't be arsed doing it anyother way !!

Tombo2001

Fian wrote: »

There is an inefficiency that does need to be borne in mind when increasing rent with good tenants.

Bottom line - only a quarter of the benefit goes to the landlord.
...
I will not charge the maximum the market would bear at the moment.

By that logic reduce the rent to zero because the saving to the tenant is actually double what the landlord would lose out on.......:rolleyes:

Tombo2001

I really don't get the 'good tenant' deserve a big discount thing.

If they are such good tenants, why do they have such a problem with paying the market rate.

If rents fall 50%, will they be happy to pay over the odds because you've been a 'good landlord'.......doubt it somehow.

Tombo2001

I really don't get the 'good tenant' deserve a big discount thing.

If they are such good tenants, why do they have such a problem with paying the market rate.

If rents fall 50%, will they be happy to pay over the odds because you've been a 'good landlord'.......doubt it somehow.

handlemaster

Tombo2001 wrote: »

I really don't get the 'good tenant' deserve a big discount thing.

If they are such good tenants, why do they have such a problem with paying the market rate.

If rents fall 50%, will they be happy to pay over the odds because you've been a 'good landlord'.......doubt it somehow.

So good the point has to be made twice

4ensic15

Tombo2001 wrote: »

I really don't get the 'good tenant' deserve a big discount thing.

If they are such good tenants, why do they have such a problem with paying the market rate.

If rents fall 50%, will they be happy to pay over the odds because you've been a 'good landlord'.......doubt it somehow.

Ever heard, " if it is not broken, don't fix it"?

Speedwell

Tombo2001 wrote: »

I really don't get the 'good tenant' deserve a big discount thing.

If they are such good tenants, why do they have such a problem with paying the market rate.

If rents fall 50%, will they be happy to pay over the odds because you've been a 'good landlord'.......doubt it somehow.

A good landlord really is worth paying a little more for. That's just one of the things a sensible tenant takes into account when deciding whether to rent from a landlord. And yes, I still vet landlords, even in a "tough" market. Pays to be careful. Certainly a bad landlord is not worth paying any money for.

The_Conductor

Speedwell wrote: »

A good landlord really is worth paying a little more for. That's just one of the things a sensible tenant takes into account when deciding whether to rent from a landlord. And yes, I still vet landlords, even in a "tough" market. Pays to be careful. Certainly a bad landlord is not worth paying any money for.

You are free to buy a service (such as renting a property) from whomsoever you choose. The issue for the vast preponderance of prospective renters- is they do not have the luxury of living in the Northwest like you- and inevitably, do not have choice or say in the matter by and large (through scarcity).

The legislation, as it now stands- firmly protects tenants- with a few caveats (such as the lack of an independent body for holding deposits)- however- if you've spent any time whatsoever reading threads in this forum- you will see the legislation fails to protect landlords, publicly funded organisations willfully advise tenants to overhold or if in financial difficulty (who among isn't?) not to pay the rent- in the knowledge even if a landlord does take a case against a tenant and win it- its completely meaningless- as they will then have to pursue a civil matter through the courts- a process which can take between a year and two.

Making comments about how you 'vet' landlords- when circumstances as they now are- not to mention media commentary- are firmly in a tenant's favour- is inflammatory and entirely unnecessary.

The whole diatribe about a 'good landlord' and a 'good tenant' is meaningless. A landlord is supplying a service to a tenant. A tenant is a consumer of such a service. Their interaction with one another is clearly set down in the Residential Tenancies Act. Neither side should deviate from their rights or obligations under the Act- or seek the other side to do so. Once you compel either a tenant or a landlord to deviate from the Act- its a slippery slope- from which there seldom is a happy ending.

A good tenant or a good landlord- should be fully professional in their dealings with one another- not make unusual or unreasonable demands of the other party- and fulfill their obligations as they are supposed to do. That is the extent of it- nothing more, nothing less.

pwurple

Your decision is reasonable OP.

It's exactly what I've done on all of mine this year.

Increased more than would have normally done, because of the two year rule, but to less than market rate, because the tenants are decent.

I'm in cork, so the money involved is smaller, but I've some unexpected bills to do with one of the properties coming up. None of the money will be coming to me, my family haven't had a holiday in years. I'll be contributing to repairing part of a building frontage in the city with it.