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How to increase rent without losing good tenants?

Tuesday, March 15, 2016

Increased vacancy is one of the biggest reasons why some landlords hold back from raising rent regularly. Yet tightening yields in the Auckland market is pushing a lot of landlords to start questioning whether they are maximising their rental returns.

Unlike other types of investors, landlords do not have the luxury of playing a sheer numbers game. When we deal with residential tenancy, we are dealing with people’s homes, there is an inevitable human element to the equation. That is not necessarily an impediment to a profitable investment. So in today’s discussion about rent increases, lets turn this around and ask ourselves how can we make use of this human element in order to further our investment goals?

Here are some tips for you to consider:

  1. Be realistic - Set a realistic level of expectation. No one ever respond to price increase with careless joviality so don’t expect your tenant to write you a thank you note when you put rent up. Take their initial reaction with a grain of salt, after all you wouldn’t like it if the bank puts your mortgage interest rate up.
  2. Happy tenants don’t move - A rent increase is normally the last straw, rather than the sole reason, that pushes a tenant to give notice. Just as you don’t want to rock the boat with a rent increase, your tenant is not likely to want to uproot his entire home for one single reason. If your tenant is generally happy with the tenancy then he is more likely to stay irrespective of the rent increase. How do you keep your tenant happy? Deal with maintenance and repair issues promptly, do not intrude on your tenant’s privacy, handle disputes and issues professionally. How do you know if your tenant is happy? Does he pay rent on time? When he calls about repairs, is he relaxed about it or is he aggressive? Is he personable or cagey during a rental inspection?
  3. Take away the shock - While there are specific legal requirements for you to give notice for a rent increase, you have no obligation to notify your tenant when you carry out a rent review. You should anyway. By letting your tenant know that you are reviewing the rent with the view to increase it you are giving your tenant advance notice and ample opportunity to make plans for the eventual rent increase. That way when you do increase rent, your tenant is in a better position to accommodate the increase within her usual budget. Click here to download a copy of the APIA Rent Review Letter Template.
  4. Tenants go on Trade Me too - The easiest way to lose a tenant is to raise rent to a level that is over what the nice house down the road is charging. Chances are the market information you have access to in order to determine your rent is also available to your tenant who will use it to determine his other viable accommodation options in the face of a rent increase. At the end of a day even a happy tenant will probably be just as happy two or three blocks down the road where the other landlord charges $50 less a week.
  5. Put some goodwill in the bank, now - You have an ongoing relationship with your tenant that is shaped by every word you have ever uttered to each other and every single issue that has ever arisen. So even if you are not thinking about a reviewing rent, just know that you will want to one day and when that day comes you really wouldn’t want a good tenant to leave. So what can you do now to build up that goodwill? Treat your tenant professionally but fairly. Understanding that your tenancy issues are her home issues. Let your tenant participate in certain decision making process such as new shelving units to increase storage or redefinition and allocation of communal parking spaces. All of these gestures go towards building your tenant’s overall satisfaction in the tenancy and decrease the chances of they quitting the property.
  6. Word your rent increase letter carefully - No one likes the idea of giving more money to an out-of-touch-and-feckless-fat-cat so don’t be one. Stick to the facts, use phrases such as ‘to be brought in line with current market and costs’ and ‘the new rent level has been determined by thorough market research’. Whatever you do, do not plead poverty in your rent increase letter! Click here to download a copy of the APIA Rent Increase Letter Template.
  7. $10 a week twice a year beats $40 a week once every two years - Help your tenant be in a better position to absorb the rent increase by increasing little and often. A small increase can easily be managed by a few little lifestyle tweaks, a big increase becomes an affordability issue that can easily push your tenant to look for a new abode.
Do you regularly increase rent? How have your tenants reacted?


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