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Your approach on increasing the rent


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Hello All,

I have a property where it’s rented way below the market value.  Now rightly or wrongly I am the type that would rather be below the market value and keep good tenants but when I say below market value I mean massively below. Last year I didn’t verbally mention that there’s a potential price increase this year and they seemed fine with it.

Furthermore the rental agreement is due for renewal so I feel now would be an appropriate time for the increase. 

Just wondering what’s everyone’s approach and procedure of increasing the monthly rent?

 

Any views and advice is appreciated. Thank you 

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Its a tough one. You need to be thinking ahead to the next, remortgage supposing you want to release some equity from the property, so look at whether then rent you have now will enable you to release the money you will want to at the end of the term. I have had tenants move before because the rent went up (remember there are no tenancy fees now so tenants are more mobile). At the same time you are running a business and therefore need to make money.

Try and balance these factors if you can. I go for small rises every 2 years possibly a bigger one in the last year to meet the prospective lender requirements borrow more money. 

I also use agents and they can usually advise on a suitable amount, and have the difficult conversation with the tenant to actually increase the rent.

David M Slater ACMA 

Accufy Accounting  - Proactive accounting for property investors 

0208 242 4926    info@accufy.uk

 

 

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On 3/5/2021 at 1:43 PM, david slater said:

Its a tough one. You need to be thinking ahead to the next, remortgage supposing you want to release some equity from the property, so look at whether then rent you have now will enable you to release the money you will want to at the end of the term. I have had tenants move before because the rent went up (remember there are no tenancy fees now so tenants are more mobile). At the same time you are running a business and therefore need to make money.

Try and balance these factors if you can. I go for small rises every 2 years possibly a bigger one in the last year to meet the prospective lender requirements borrow more money. 

I also use agents and they can usually advise on a suitable amount, and have the difficult conversation with the tenant to actually increase the rent.

Thanks for your reply and sharing your approach it’s much appreciated. 

I self manage at the moment so there’s no agents involved, I have discussed with the tenants prior so it doesn’t come as an unexpected surprise.   

I feel even if it’s just a small increase that way I don’t fall behind too much and stops be trying to play catch up later on down the line. 
 

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Also I’ve just realised I’ve posted this in the “podcast” part of the forum sorry that’s a mistake from my side. 
Could a moderator please move this topic to the property discussion😬😇

 

Thank you in advance. 

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On 3/5/2021 at 10:11 AM, j0e said:

Hello All,

I have a property where it’s rented way below the market value.  Now rightly or wrongly I am the type that would rather be below the market value and keep good tenants but when I say below market value I mean massively below. Last year I didn’t verbally mention that there’s a potential price increase this year and they seemed fine with it.

I am quite cautious about rent rises. Void periods are a far bigger issue than lack of rent rises

However, all my properties are at market value

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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My tenants get a rent review every year and usually a rent rise. If you have been a tenant for a couple of years or more then rent rises bring the rent up to a level a little below market rent. If you have put in a pet without asking or appear to be damaging the property in some way you may get your rent put up to market rent. I prefer little and often rather than a big hike every few years. 

I am not a Housing Association, I am a business. My business model is decent housing for a decent rent. With all the extra charges put on us by the Govt the only way I can justify being a LL is by charging appropriately. I don't believe tenants 'appreciate' you more because the rent doesn't go up, I believe they appreciate improvements in their standard of housing. By charging market rates I have the money to invest in my properties each time they become empty, keeping them to a good standard.

Everything else in the world goes up annually so why shouldn't rent?

 

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This is a tough subject when self managing as it feels like you are taking from good tenants. I have a number of family buy to lets and all tenants are good, all generally pay rent on time and have made homes in our houses. My stance is as follows: When a house is empty I refurb back to standard and then assess market value and pitch it just under that level to attract a family who can afford to live happily. After the first year I would generally not increase rent to reward them for staying on. Year two I would arrange to sit down with them and discuss how they are, there plans etc. I would have done market research and have facts and figures to hand. At this meeting I would establish any works required but also advice them that a rent review is needed and the market rent should be X but I will keep the rent to Y. I usually try to be just below market as we all like to think we are getting a deal in life! Never had a problem increasing rent in this way.

The issues i had were around two houses i purchased with sitting tenants, both rents were at circa £450pcm and the market rent would have been circa £600. Both had lived in the houses for circa 8 years plus. I was spending money on the two properties and had good relationships. I decided rents needed to increase (this was 2020 during covid!) . i am a business not a housing charity. So again i sat down with tenants and explained the market, the work i am carrying out, government added tasks etc etc. In both cases rent was increased to £550 as both tenants could afford it and i was happy to get closer to market rate. I also fixed rent for two years so everyone had a solid position.

My advice on this is that property is a people business and working/understanding each other goes a long way to creating a business relationship that is lasting.

All of our rents were adjusted in this way last year, we had no issues. Interestingly with market conditions increasing both sales and rent values in our area all our houses are under market conditions again! The cycle goes on and we have to get on top of it so we dont have massive increases. One of my tenants has just moved out as they have purchased a house, delighted for them - their rent was £550, when relet it will be £650!

 

 

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I pretty much follow exactly the same strategy as acrefree sets out in the first paragraph above. Happy tenants often = happy LL; in general, the last thing you need is trying to squeeze an extra £25-£50 a month leading to a void period plus often decorating and potentially tenant find fees if you use an agent which more than wipes out any increase in rent. With good tenants, I often don't even increase the rent for the first 3 years because the costs I just outlined often outweigh any benefit from the increase - plus good tenants who pay on time and respect my property are worth more to me than a few extra quid a month!  With respect to your property being well under market however, have the discussion as acrefree outlines above - good luck with it! 

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I agree 100% with these sentiments. As a landlord, I want passive income. I don't want to create stress in my life, by arguing  over small sums of money 

A lot of landlords have empty properties right now 

 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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I'm the same as above.. without wanting to sound like a broken record. Void periods are really expensive not just in terms of no rent but also the checks and maintenance you need to do before it can be re let... for the sake of say 25 to 35 a month I dont risk it... I generally amend the rent when it is re let, I evidently could get more because the most recent one saw it re let at 20% more than I was getting previously... but it comes down to preferences on your side really.

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I think it's a good thread to see what landlords are really thinking. If you read blogs, you would think that we are all doing HMOs and chasing yields 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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