All Topics / Value Adding / recovering costs in rent.

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  • Profile photo of fingerscrossedfingerscrossed
    Participant
    @fingerscrossed
    Join Date: 2005
    Post Count: 81
    February 15, 2007 - 11:49 pm

    Hi all

    I have a tennant that has requested that we put air conditioning and heating in our Retail IP.

    We are very happy to do this, but I was wondering what the acceptable time period would be to recover the cost in rent.

    Is there an Industry standard ??

    He has just requested a 3 x 1 year lease.

    We expect the outlay to be around $2,000. The tennant pays $1,250.00 pcm at present.

    Any help is appreciated.

    Thanks

    Debbie

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 16, 2007 - 2:22 am

    You would probably want to recoup your money within 12-24 months. Also factor in any increase in value this would add (if any) and any tax savings.

    Terryw
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    Profile photo of KuadeKuade
    Member
    @kuade
    Join Date: 2006
    Post Count: 84
    February 16, 2007 - 6:26 am

    I’d see what it looks like on your figures. Though I would be aiming for 18 months.

    Given the current rental market I’m curious as to why the 3 x 1 year lease, rather than 6 x 6 month to account for the rising rental investment market. 2 small rises in rent over 12 months is more manageble for a tenant that 1 big one after 12 months, and you have additional opportunities to reasses the market more regularly. Obviously this is a case by case situation as the $ rental return isn’t the only consideration.

    Profile photo of elkamelkam
    Member
    @elkam
    Join Date: 2006
    Post Count: 722
    February 17, 2007 - 1:32 am

    Funny how different people have different reactions.

    My reaction was that I thought that a 12 month lease for a shop was a short lease, Good for the tenant of cause but not for the landlord.
    As far as rent increases go, that’s usually built into the lease agreement. Typically CPI increase each year with a rent review to market price at the end of each lease period.

    The cost of $2,000 does not seem very much to me. My preference, in your situation would be to ask him if he would accept a longer lease rather than an extra price increase to cover the aircon.

    Just an opinion.
    Elka

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