Hi everyone,
I have an investment property in perth that has had the same tenants in since 1999. the rent is always paid 2 weeks in advance, the house is kept tidy and the tenants cause no problems.the tenants are an older couple who want to live there for the rest of their life.
the problem is the house is starting to look tired and needs new paint,carpet,bathroom and a general modernisation. with the changes I could easly increase the rent by $50 / $75 a week. this would help my situation out alot.
the tennants dont want any changes to the house nor would it be possible to complete the works unless the house was vacant.so should I realise what good tenants I have and leave the situation as is (this is the kind humane side of me wants to do) or turf the tenants out and renovate to increase the rent and the value of the property. (this is what the investor side of me wants to do).
what do you think I should do?
thanks
Grim.
Hi Grim,
Hard call!!!
No doubt the older couple know the rental situation is not too hot in Perth at present and know they would probably be hard pressed to find anything else comparable out there. However you do need to make sure your not putting your needs last. Ask yourself the question – why did you buy an Investment Property in the first place?(to make money and carve a future for yourself and your family!!!!)
If your not putting yourself and your family under any strain, maybe a compromise of some sort could be worked out whereby you both win a little. Its a toughy!!!
good luck
sqWhat about a compromise – do a little of the improvements and put the rent up slightly.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It's a hard one.
If you get rid of the terrific tenants to renovate and put up the rent to market value there are trade-offs.Negs:-
1. You lose a great tenant and may replace them with a not so good one.
2. You pay a few grand to do the renos, and will eventually will recoup the cost through increased rent and tax deductions, but you still have to come up with the cash now to do them, or use equity dollars which increase your loan repayments slightly.
3. In the short term most of the rent increase will be swallowed up by the cost of the extra money spent on the renos.Pos:-
1. You get more rent long term
2. Your tax deductions increase
3. The property will gain a little more value
4. The above points can help with being able to afford another I.P in terms of serviceability and property value.I agree with Terry though; a compromise of some renos and a rent increase. Especially if the market has risen and you know the tenants won't be able to find anywhere else as good for the same rent.
Just because tenants are good payers and keep the place in good condition doesn't mean they shouldn't get an increase. They are supposed to keep it nice and pay on time – it's in their contract.
We had this situation only late last year. I asked the P.M to make the decision on how much (if any) to increase the rent, and she delivered the bad news to the tenants. Of course, they weren't overly happy that the rent went up, but they knew it was coming and they also knew they couldn't go elsewhere and get a better deal. That's life. They stuck it out for another 5 months, moved out, and the rent went up again for the next tenant.
You think you're a mean landlord? How's this; I talked to an ex-property manager of an apartment building over here last week. I asked her why she was an "ex" manager. She told me the owners of the apartment building she managed and lived in for 20 years told her to close the office door on the day the rent was due so no tenants could pay their rent on time.They also asked her to not process the cheques until 4 days had elapsed. This would allow the owners to send the late paying tenants an eviction notice for late payment.
Over here, if you are late by I think 3 days they can evict you (most landlords would never do this of course). This would allow the owners to get rid of the rent controlled tenants (some buildings have rent controls where the rent can't be increased by more than C.P.I until you move out) and get new ones at the current market rent. Here in L.A where the rents have soared in recent years (along with house values), sometimes this can mean an increase in rent of nearly DOUBLE if you can remove the long term tenant.
The manager wouldn't do it as she is a lovely lady with a conscience, so they sacked her on the spot.
As everyone else has said, "this is a tough spot to be in when you are a softy". Why not do some of the renovations and when it comes time to renew the lease put the rent payable up just a little? If the oldies love the place so much they will pay the extra and if they can't you will then have the opportunity to completely do your renovations and secure a new tenant at a market-value rent. I've taken the softies route too many times and I have found that at the end of the day "if it's to be, it's up to me". I have also found that with I.P's they either attract great tenants all the time or bad tenants all the time – it must just be how they resonate after a good or bad experience. I am talking about the property here by the way. I have even ended up moving into the homes where the bad tenants have been to give the place a break. It seems with a clean break the property then heals its soul and good tenants beat the path to your door.
May you be guided to make the right decision.
I wish you well.
Debbie
I'm in a similar situation, call me gutless but I thinking about telling my tennants that my nephew is going to the area to study at the uni so 'unfortunetly' they will have to vacate the house.
good luck.
The trouble with putting the rent up for older tenants ie pensioners is that they may not be able to pay the increase . I have looked at units in a town nearby where the good steady long term tenant on the pension with no other income just could not afford a rental increase . I don't see this senario producing a positive cashflow outcome….How old are your tenants ?
Hi every one,
thanks for the feedback. I think the compromise looks the answer. the wife is on a pension and the husband works a low income job. maybe just a new bathroom as it needs it badly and a fair rental increase would be a good compromise. the money saved from having a zero vacancy rate will help offset the lower rent.
thanks
Grim.
I think your decision to compromise is a good. Good luck with it all.
sq
Grim it gives one good heart to know that not every property investor has no heart when it comes to caring for their tenants – whatever their age and situation.
May good karma be coming right back at you.
Debbie
If you never put up the rent it can be bad also. ! when a long period of time has passed and the rent is below the market rent too much that you have to increase the rent in one hit that the tenant will not be happy about it.
My present financial position was caused from some bad luck.
But it was seriously multiplied by an earlier mistake of a good heart.
I am not saying to up the rent but realistically if you don’t do it to some extent when you encounter a problem both of you will be victims.
Be nice about it because as funny as it sounds it’s benefiting both of you.
If something happens to your financial situation down the track your tenants could be out with no place to go.
My suggestion is to give them a little holiday.
Renovate while they are away.
And up the rent enough to cover the costs.
Over time the higher rent will be to your advantage but there is nothing to stop you giving your tenants a holiday every 2 or 3 years, talk to them they may have ideas as well. 'All problems become smaller if you don't dodge them, but confront them. Touch a thistle timidly, and it pricks you; grasp it boldly, and its
spines crumble.' Richard Denny.
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