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Should I increase the rent... currently £200 potential miss every month


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Hi Everyone,

 

I'm after some advice on whether I should increase the rent on one of my current properties:

 

Background

3 Bed semi-detached bought back in 2011 on a 5 year fixed repayment mortgage

Current rent £595 pcm

I have one lady (and her two children) live there from the time we bought it, she has undoubtedly added value to the house, decorates, maintains the garden, always pays on time and (touch wood) is a great tenant.

 

She has now lived there for 6 and half years and although we have improved our profits by getting better rate mortgages on the property, the current rental figure of comparative properties is £795.

 

Obviously I'm not about to increase her rent by £200 but the potential loss of £2400 p/y is always niggling at the back of my mind.

 

Would really welcome any advice on how to increase rent with a lovely tenant, is it worth it?

The lady has also said she wants to stay at the house 'forever' so realistically we can't maintain the £595pcm 'forever'.

 

All advise/ideas/experience very welcome.

 

TIA

Bryony

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  • 3 months later...

I try not to increase rental costs during a tenancy, especially because a good tenant is worth their weight in gold. That being said, no rental increases in 6 years is a very good deal for the tenant. I'd speak to her and tell her that the going rate is now £795 but can you meet in the middle at £695...

 

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I'm looking at a property which has this issue - so far we've not had that 'problem', as no one has ever stayed long enough.

I'd certainly make the tenant aware what the real value is and that you're going to need to raise it a bit (insurance will have gone up in 6 years, plus it's supposed to be paying you). Raising it to say £650 shouldn't be an issue, maybe even £695, and then look to do inflation level increases each year in future. But you do need to weight up the cost of potential voids compared to the gains - one lost month at £795 and your monthly average over the year is already below £700. Add onto that a letting agent wanting a finder's fee, plus the extra management fee and tax you'll pay and it'll need at least a clean, maybe a bit of paint each time and you could find you're little better off, but with all the other issues related to voids.

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  • 4 weeks later...

I agree with Rob - that a good tenant is worth their weight. 

 

I had a similar situation a while back though not to the same scale. Tenants at one of my properties had been there for 5 years with minimal increase in rent in that time. Agents suggested an increase of £50pcm and tenants countered with £25pcm if could they sign a 2 year lease extension at that rate. So win-win all round. I might receive a bit below market rate but I don’t have the hassle of finding new tenants and associated fees etc. And I’d much rather long term, happy tenants than wringing every last bit of profit from the property that I can. 

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Hi Bryony 

 

Firstly I think Dino’s logic around actual benefit in reality if it causes a void is absolutely spot on. 

 

Perhaps being presumptive, I would say she does sound like a lovely and reasonable person, so as an idea for an alternative approach, how about you explain your predicament and suggest that SHE do a quick bit of research to truly see the rents in the area (getting her to do this rather than you throwing  figures at her will be all the more credible and genuine of you) she will soon see she is getting a great deal. 

 

Then you could explain that you are happy to extend her the benefit of not going to full market value as she has been a great tenant, but explain that you do still need to get some increase owing to your increasing running costs. 

 

Finally, ask HER to come back to you with a figure that is more than what she is currently paying, but which she feels she can still manage.

 

Benefits of this approach: 

 

* You will have shown incredible honesty and integrity which she will hugely appreciate 

* She will automatically agree to the figure as she is the one who has come up with it

* You get more income so will lose the niggle in the back of your mind around lost revenue 

* You keep a great tenant 

 

Everyone wins

 

Agree? 

Sahil 

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Agree with all the above. I also try not to raise rents with current tenants, i usually leave it until they depart and raise to match the market rate to the new tenants. That being said, average stay for me has been around two years.

 

Unlikely the tenant doesn't know the market rate for the property so sit down with her and hammer out a deal. Tell her she's been a good tenant and you don't want to lose her but you've gotta eat! ;-)

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I agree that good tenants are worth their weight in gold, but no one expects their rent to remain the same forever.  So I think it is about managing their expectations in relation to the type of tenancy.  I have a couple of long term tenants where I said from the beginning that I will raise the rent each year in line with RPI (not CPI).  To date that has not been a problem and we always give them 6 months notice so they can find another tenancy if they think we are 'off market'.  Whereas with students I dont increase the rent at all during their 3 year courses if the stay, but will increase on change over.  This has worked well as I get a mix of years, so when 3rd years leave the 1st and 2nd year students tend to get their friends to take a room, which saves me the hassle of advertising.  We are now in our 10th year as a student landlord and have never failed to let all of our rooms.

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In my view - regardless of how good the tenant is, you must increase the rent inline with the market rate.  Even if it is a nominal £20 per month each year.  You can still key the market rent below for a good tenant - but at least it must be in line with inflation - if this is 2% - then thats about £7 on a rent of £595....If you had of raised by just 2% per year your rent would be at £670 ish now.

 

I know this may not help in this instance - but perhaps moving forward you should tell your tenants that rents will rise in line with inflation - or perhaps 3% per year.

 

I would tell her that you have to review the rent but want to keep it below the market value and that you will meet in the middle at £695.... she has had a great idea for the last few years!

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  • 1 month later...
On 9/7/2018 at 6:59 PM, clivedabernon said:

I agree that good tenants are worth their weight in gold, but no one expects their rent to remain the same forever.  So I think it is about managing their expectations in relation to the type of tenancy.  I have a couple of long term tenants where I said from the beginning that I will raise the rent each year in line with RPI (not CPI).  To date that has not been a problem and we always give them 6 months notice so they can find another tenancy if they think we are 'off market'.  Whereas with students I dont increase the rent at all during their 3 year courses if the stay, but will increase on change over.  This has worked well as I get a mix of years, so when 3rd years leave the 1st and 2nd year students tend to get their friends to take a room, which saves me the hassle of advertising.  We are now in our 10th year as a student landlord and have never failed to let all of our rooms.

 

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On 10/12/2018 at 11:17 PM, Diamondz said:

Hi im interesting in student rental snd would like to know where i Can get rental contracts  for student lets . Is there anything I should be aware off? 

 

Hi - don't think this is the right topic for your query sorry. Might want to search the forum and/or start a new thread.

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Thanks everyone for your feedback and advice.

 

I approached the tenant and discussed our predicament, she was very reasonable and accepted she'd had a good deal.

 

We increased the rent by £25, not a huge jump but will increase each year from now on.

 

We also gave her 6 months notice so she had plenty of time to adjust her finances.

 

 

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