Hey all,
Long post ahead.
Our family has had an investment property in our name for about 3 years now. The value of the property has fluctuated between 450-480k over that time and it has been rented out to tenants for $480/weekly through an REA. I've recently become interested in property investment and just started to look into the financial side of the property and have discovered that it has been tenanted for 480 per week for the last 3 years! I thought the number was a bit low so I rang around other REAs in the area and everyone said at least 520 up to 580 per week.
Stupidly (this is my first time doing things) I went straight to another agent and requested them to transfer management from the existing REA to their company and have already given them the 30 days notice.
I then realised that the rent would still be stuck at 480 for at least another few months, so wanting speed up the process I phoned and emailed the current REA requesting a rent increase for up to 560 per week thinking that they would comply, give the notice right away, the tenant would probably move out after 3 weeks with an 80 dollar per week increase and my relationship with the current REA would be terminated after 3 weeks instead of 4.
The reply from the current REA, argued with me saying that the market rate was only 520 because there was another 2 bedroom place (ours is a 3 bedroom place) in the same building advertised for that amount. I then asked him why he had mismanaged our place by having it for only 480, and he couldn't give me an answer. On the phone he expressed concern that the tenants would have to move out if I increased the rent to 560. In my mind I was thinking he's probably in cahoots or done some kind of deal with the tenants.
In short he said ".. you better go with someone else". I requested on the phone to still increase the rent to 560 and he said "…yeah, we'll see…" and hung up. So now I'm basically stuck waiting for the 4 weeks and hoping that the REA don't tell the tenants to damage the property or throw the keys away or forcibly not move out or stop paying rent etc. It seems I have absolutely no recourse. Plus the property has no landlord insurance at the moment. I was thinking of getting a policy but the rent is always in arrears (or I'm not sure how to check because the statements they send are always behind). So now I have to wait for the switchover before getting a policy. I'll admit right now it was a huge mistake to order the rent increase AFTER giving REA the 30 days notice. And also obviously our family members listening to 'advice' given by the REA. What else could I have done differently to avoid such a situation? Is there any way I can make the current REA care about the situation or is it all lost?
TLDR; PM is refusing to increase the rent because he says it is above market rate and that the tenants will suffer, has not suggested a rent increase for the last 3 years. Edit: In addition, they NEVER return phone calls or emails and whenever you visit there is no one you can talk to besides the receptionist.
Terrible PM…terrible landlord more like. You've been asleep at the wheel and now that you've woken up you're climbing over everyone to get this sorted. I'm with the current PM on this and if I was the tennant you'd be told in no uncertain terms if you came at me with a hefty rent increase like the one you're proposing.
PM's manage properties they don't run your business. It's your job to be on top of the financials.
My bet is you'll roll out of this one after a new tennant and accompanying letting fees at about square one. Whole lot of drama for sweet fanny adams.
An $80 increase is very Steep! The most I would have increased it is $10. Once the tenant leaves then increase it to $560.
I could imagine the shock your tenant would get being told the rent will increase by $80!
Agree with the others – while the PM should be proactive, the landlord still needs to be clued up on what their property is currently being rented for.
Like Joe said – an $80 increase is massive.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Dennis,
Which state is the property in and is there a lease in place on the property? Answers to both of these will determine what you can, and cannot, do.
Make sure you refer to Department of Consumer Affairs (or similar) of the state you are in and grab a copy of legislation to guide your actions moving forward from here.
As an interim comment – while the PM does the grunt work for the property the owners need to actively engage with the whole process too. Monitor monthly statements, check inspection reports, monitor asking rents in the area and so on. After all property investment is a business.
Given the rent has been allowed to slip behind market rates it is possible there are some maintenance issues requiring owner's attention. It is time for the owners (your folks?) to get in the game too.
Hi Dennis and all.
Have to say you may have just had an attack of "Bull in a China Shop" !
Recently becoming interested in property does not mean that you can break laws trying to remedy situations that you may thing are wrong.
The first step to do is get a market appraisal of rent from a couple of real estate agents. This means getting a property manager through the property first. Over the phone they can give you general numbers but only by seeing the property can they tell you exactly.
It's possible in a SLOW RENTAL MARKET (yes there is such a thing) that the PM will be very conscious of keeping a good tenant rather than trying to find another tenant, and have a possible rent drop.
It's important to keep a level head, and put your emotions to one side when viewing property as a business. If you have come in part way through, not really done much research, then blasted away at a PM then you may need to take a step back and really think about what you want to achieve.
It's no use you burning through 3 PM's saying "I want the rent at $560, coz that's what I think it should be!" because you'll lose your (or your parents, by the sounds of things) good long term tenant, and you'll end up with an empty property for a long time. This will cost your family money, possibly be vandalized etc. Not the way to go.
Legally (in Vic at least) you can only increase the rent every 6 months. Doesn't matter if it has never gone up, or if they aren't paying market rent.
If your PM does follow your instruction (they may be in trouble if you are not the owner) then the tenants (once again in Vic) can take you to VCAT claiming that your rental increase is unjust and you may end up with no increase.
It is so important not to charge in, take the time, ring and APOLOGIZE to the new property manager and explain that you have only just become aware of the issues and no you have further understanding you hope that you can both work together to keep the good tenants and have a moderate increase in rent.
Enjoy, but do make nice with the new PM, if they know you and understand you and you are good to them they will look after your property.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeI got told my rent was going up $50 – so off I went!
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeHi Dennis
Yeah, there is two sides to every story.
First thing that comes to mind is that although time frames differ in each state, you can’t just ‘put the rent up’ without providing sufficient notice…
In regards to the current PM, in the same way that property values fluctuate, so do does rental values.
As mentioned previously, you can put the rent up by whatever amount you desire but you run the following risks;
1) The tenant moves out and then you have to re-let the property (vacancy period + re-letting fees if applicable)
2) If tenant does move out and your property is in fact ‘above market’ rent, the above mentioned vacancy period can become very long and expensive, and you may end up lowering it to below what you originally had it rented for in order to get a tennant. (Yes, i have seen this happen ! )
3) Tennant takes you to the tribunal and proves that the rental increase is not justified, and tribunal cancels your request and you have effectively destroyed your relationship with both the tenant and your managing agent.
Having said that, if an $80 p/week increase is justified – that's $4K per year your entitled to… that'll change the numbers a heck of a lot !
One final thing if i can say;
(Sorry, but one of my real bug bears is the number of investors I talk to who either struggle with / or have been completely turned off property investing because of a poor PM experience)
My PM is my advisor, who is at least certified if not licensed in order to act in that position.
I should not have to follow them up about a rental increase, routine maintenance or be asked the question ‘What do you think / want to do ?’
They should proactively follow me up at all times about all things that relate to the property, and ‘advise me’ on what action I should be taking.
If the lease is coming to an end, they should ‘advise me’ on wether or not a rental increase is applicable, not ask me ‘what do I think ?’
Yes, as an investor I have a responsibility to oversee my investments, and the final decision remains mine to make but there is a very good reason why I pay (above market pricing ) for the PM I have.
The REA rang me today and stated that he would be happy to hand over the management to my new REA right away. Management has already been transferred over to my new REA as of now. It's likely that the original REA didn't want to put up with my demands considering he had already been let go, or that he had seen this thread pop up on the internet.
Probably my poor English in the original post but the rent has not been increased yet and the tenant has not yet been notified of anything that has occurred so far – so hopefully this will be a fresh start for me.
At this stage hopefully the inspection will happen tomorrow and we will make a decision early next week of the rental increase. After all the posts I've seen I'm thinking of increasing to 520 or 530/weekly (which is 30 dollars below market rate), sign a 6 month lease and then increase to true market value after another 8 months.
In terms of the figures provided, I am not making up numbers in my head as many of you believe. I went to 4 other REAs in the area.
– One quoted between 560-580
– One quoted 530/540
– Another 520
I repeat this but there are same properties with one less bedroom renting for almost 40 dollars more so I think that the market value is definitely at least 540 at this stage. Apparently the vacancy rate in my suburb is also extremely low and the demand for rentals it quite high.
Finally, in the past 3 years I have not been overseeing this property. My family has. My family has definitely communicated with the REA in this time and been advised not to increase the rent because they were good tenants. My family are not natural property investors so they listened to the REA. The current REA knew that the market value was almost 50 dollars above the rent we were charging AND knew that the vacancy rates were quite low.
Sorry, when I read the opening post, I thought this tread was about Julia…
rusty05 wrote:Sorry, when I read the opening post, I thought this tread was about Julia…LOL, don’t worry mate she’s full of surprises. Every time shes on the news I have to sit down just in case.
I purchased a property late last year which was being rented for under market value so I immediately gave the tenants notice that the rent would increase by $30 per week. The tenant did not move out. I will soon be giving notice to increase the rent by another $30 per week so it is inline with rents in the area. I don't expect the tenant to move out. The reason for this is that they would simply be moving to something that has the same or similar rent anyway and have the hassle of moving from a second floor 2 bedroom unit. So in short if you only increase the rent to market value (even if that is $80 per week) it is a hassle for the tenant to move when they will probably pay the same elsewhere (of course they could always down size or go to a less expensive area).
Other people on this post have said that it is up to the landlord to put up rent and be in tune with market rent. Really? Why then do people pay for a property manager that includes in the contract 'rental reviews.' If you have employed a good property manager then they should be contacting you to increase the rent. Obviously people on this forum don't have property managers that are doing their job.
Remember property investing is a business just like a bank is a business or woolworths is – they don't care if they put up there fees/charges/prices just as long as there is a market that is willing to pay for it. So as a landlord the same unemotional rule needs to apply. We pay interest, rates, insurance etc. on our properties and they need to be covered by rent. You wouldn't hear woolworths saying oh we can't put the price of our products up, we'll just foot the shortfall for wages and utilities. They make a PROFIT.
Great rant Lila.
Oh and your snide comment on forum members pm's is not appreciated. We're all friends here.
It is a business, and like anyone running a business sometimes you need to take advice from one of your team. I have had property managers explain during slow rental times not to put the rent up, and after checking some of the other properties I have agreed.
$80 per week is a lot. A property manager who encourages a landlord to do such a huge jump in rent (20%ish jump) is not doing their job property. Unless the market rent really has done a huge jump like in mining areas etc.
Your example is great, I also bought a property and immediately increased the rent, but this is not what has happened here. The rent has stayed at a certain level and the tenants have been in place for 3 years. Lila, in your example you did not put the rent up $60 in the first hit. You are doing two increases. Why didn't you put the rent up by $60 in the first place? Because it was too big a jump?
You have to be smart as a property investor and weigh up the pros and cons in any situation. That is what myself and the other investors here have been trying to explain.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeLol!
Went to the shops today and these two guys were handing out Labor fliers and wearing Labor shirts. They looked very dejected, I don't think they were having much luck.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeI didn't mean my remarks to be snide but our PMs work for us not our tenants, WE pay them. I put up my property $30 in the first instance as that was what other properties were getting in the same complex. Due to rental demand and high turnover of tenants similar properties in the area now get $380-$390 so again I'm putting the rent up. I'm also changing property managers because my existing one went on maternity leave and I'm not happy with the service I'm now getting from them. Property managers for my other properties suggest when a rental increase is warranted and this agency didn't notify me (also many other issues that have made me change).
Yes $80 is a lot to go up, but being $80 out of pocket is also a lot for the landlord.
I'll just say this again:
I have not given the tenants any notice of increase as of yet. I'm still planning my moves with my new REA (after he inspects) and I am considering two rent increases of 40 dollars each.
That's ok Lila, sometimes the text is no substitute for a person!
And yes I totally agree that PM's being paid by us, need to always be working for us. And as investors we need to be super vigilant, and make sure they are.
Good that rent is going up in your area too!
Cheers
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeMaybe do the inspection with the PM Dennis, then you can see exactly what the property is like in person.
You can then decide – hey $40 is a small price to pay, or wow I wouldn't pay the extra $40 to live here!
If you really want to dig deeper, head to a couple of rental properties that are open and see what competition you have.
Do the maths, $40*52 = $2080 extra per year. So you only have to have a vacancy for 1mth at that $500 pw mark to make a rent increase not worth it.
Just playing devils advocate here really. It's all these small factors that make up the big picture when being a landlord. You really need to view from all angles to make sure you make the right decisions.
Keep us posted, and keep learning.
Cheers
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeWell as I said, I'm not pulling these numbers out of thin air. I'm not sure why people keep assuming that.
– The market rate (a fair rate, what everyone else is paying etc) is AT LEAST 520 for the exact same room, features, etc
– The vacancy rate in Lidcombe is quite low at the moment and rental properties (at least good ones) are hard to come by at the moment
– There seems to be a waiting list of people ready to move in
– I am losing money on my mortgage for no good reason
It was a combination of these factors which lead me to want to increase the rent, I didn't look at anything in isolation. From what I've heard these are currently good tenants and they look after the property, but at the end of the day real estate investment is a business.
For example a business like McDonalds, yes you definitely need to have good service (fast, efficient, friendly etc), but you can't be selling stock at less than the market value. Let's say if Burger King, KFC, Pizza Hut (I'm only making up the names because I can't think of anything else) all around you were selling the same burgers next door for 5 dollars a pop like hot cakes and we were only selling for 2 dollars a pop, then no one could blame us for putting up the price. It's not like I'm putting up the price of the burger to 10 dollars a pop, then people could vote with their feet – fair enough. I'm increasing to market value which is 5 dollars a pop and getting crucified for it. Why don't you go out and crucify the other stores for selling at 5 dollars a pop to begin with? In fact I've essentially given them a huge discount by selling for 2 dollars.
This is what I don't understand. Sure I realise most of the people on forums are renters, so fair enough an 80 dollar increase (17%) is massive, but the tenants were getting a huge discount for a significant amount of time and from the available data and statistics it looks like I could get a tenant quite easily.
But all in all I appreciate the replies to my thread, even though some have been abusive, I've learnt a little to say the least.
Yikes!
Dennis – which posts have been abusive? Please report any abuse to the Moderator, it will be deleted.
The comment "Sure I realise most of the people on forums are renters" may or may not be correct, do not let emotion cloud your judgment of seasoned property investors advice.
That's cool that at 17% increase is small to you. If your power bill went up 17% suddenly, you may be upset…… maybe?
Did your tenants get a discount? A discount is "A deduction from the usual cost of something, typically given for prompt or advance payment or to a special category of buyers." (Google) Did your tenants get a a deduction from the usual cost? Who ever was managing the property prior to you owning the property and the real estate agent decided that this cost was fair. Tread carefully.
No one has suggested that you are pulling numbers out of thin air. And I'm not sure who you think is crucifying you, the suggestions made are to help you learn as you said in your very first post that "this is your first time doing this".
Please take friendly advice exactly as it is meant. If you want to learn, really want to, you might hear some things that you don't necessarily like, or want to hear. Everyone on this forum is here to share and learn.
Good luck.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email Me
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