Managing rent increases

Hi Ashley

There is a very fine line between managing rent increases and managing rental voids.

The last thing you want is an extra £25 rent for the sake of a one month void, additional letting costs and probably the need to redecorate a property in order to freshen it up to make it attractive to the next tenant.

The starting point is keeping a close eye on the local rental market. How many similar properties are available to let in your area and are they all letting for more than you. What is the typical tenant turnaround time if you do need to re-let?

You can check the above by entering your property postcode into our Property Research Tool and then clicking the related links to see what similar properties are being advertised for on Rightmove and Zoopla, see >>> http://www.property118.com/property-reseach-tool/

If you have a good letting agent, such as LettingSupermarket.com (see http://www.property118.com/letting-supermarket-full-management/68829/) they will keep an eye on this sort of thing for you and advise you accordingly.

If you are looking to increase rent then I suggest a meeting with your tenants so that you can gauge their reaction. If that is not possible then a telephone call is the next best thing. I do not recommend a cold approach with a new tenancy agreement or section 13 notice because you will not be able to gauge the reaction of your tenants.

If you find that you are massively under-charging then you might want to risk a void period. However, if the differential isn't that big and you've got a good tenant who pays on time, respects the property and respects the neighbours then it may well be a false economy to push for a rent rise.

At the end of the day it is a commercial decision.

I wish you well.
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I never cease to be amazed (grateful) that one can buy properties where the rent has been (mis)managed on full delegation to an agent who may now be under instruction to sell; some vendors have been structured as to make a loss. We are finding rents as low as two/thirds of market and which are untenable. The risk of voids does of course vary according to location, competition, and timing; around 14-21 days is a fair bet and allows for some refurbishment in the interim.

Reply to the comment left by "Mark Alexander" at "25/05/2015 - 10:44":

I think this is very sound advice. I started out with a clear (unwritten) policy of letting tenants settle into their home fur two years. I then increased the rent by 5%. Depending on market conditions, I will look to now annually increase rents by 2.5%.
With regards to gauging their reaction, I preferred to write a nice warm letter, telling my tenants that I had no plans to sell up and that they could stay in their home (because that is what it is) for years to come, however....all tenants seemed to appreciate the stability I was offering. That said, the tenants who have been in my houses for two years were being undercharged by £75pcm such is the uplift in rents in my area, so they are still getting a bargain. Should they decide to leave, they can easily be replaced without a void and within five months I will have recovered my finders fees with the agent. To my little brain, everyone feels comfortable and is actually better off and more secured with this increase. The alternative is to issue a section 21 every two years and hike the rents up. I know which route I prefer

I nearly always look at increasing, if appropriate, at the end of a tenancy and not during. Some of my rents have not increased over the past 6 years but I also don't suffer any lengthy voids.

I tried increasing the rent on one of my properties during a tenancy a few years ago and the inevitable happened and had a void period of a few weeks. Lesson learnt!

I think it also depends on what is going on in your area with similar properties but as already mentioned, is it worth a costly void period for the sake of a few extra quid?

And another factor for me is that if there is a single occupant in a property a rent increase obviously has more of an impact than it would on a working couple or a house share of more tenants so I would be careful if this is the case.

One things is for sure though and that is if a certain political party had got into government, capping rent increases to the CPI rate for instance, I would seriously have considered raising my rents each year in line with the maximum allowable rate!

Thank you all for your comments. DC, I am surprised you have not increased one of your rents for 6 years, it must be massively under it's yield potential given the rental revolution of the past few years. At the end of the day as much as we love providing good quality homes with an excellent level of service, we are running a business and a balance must be established.

Reply to the comment left by "Ashley Fett" at "25/05/2015 - 21:48":

No the rents in question are not massively under their yield potential. The last time I checked an identical neighbouring property (about a week ago) the advertised asking price was £30 per month more than I charge.

May I refer you back to Mark's opening comments, which make perfect commercial sense.

Good luck with your strategy.

Reply to the comment left by "DC " at "25/05/2015 - 22:54":

How do you know the others have got it right? I certainly review the market, what other rental agents are asking and also the sale pricesbut I won't neccessarily be driven by it and indeed have on at least two occasions obtained a market leading rent (somebody has to so why shouldn't it be you?). I try to make my own valuations based on a combination of fact and suppostion. Firstly, the rent level isn't just about gross yield you have to be making provisions for reserves (refurnishing, repairs and yes Mark, thank you very much! a boiler replacement programme), you are not doing anyone any favours by not factoring in such issues. There are also the known and prospective cash flow costs and increases (interest rate changes, service charges etc). The total sum of your "calculations" should be an understanding, better anyway, of what it is costing you to provide your product, for that's what it is and sentiment, neither bad nor good, should sway. There is no "right" answer, rents and yields will vary hugely. e.g. is the area due for a rerating? My city central market boomed and crashed about 10 years ago when many purchasers massively overpaid (even two flips on the same property) and landlord tenants got burned and have clung on to ANY tenant. Many vendors and agents are still living with that mindset without taking proper account of the massive fundamental changes that have taken place. ergo We believed that cap values and rents were being undervalued on the simplistic basis of "comparables".

Many landlords have a problem with when to raise rent and by how much. The first important thing is to realise that renting is a business however large or small it is and you must be in it to make a profit. Do not shy away from making an annual increase as otherwise your profit margin will be eroded as other prices and costs rise around you. I write the fact that there will be an annual price rise into the contract. I state that this will be in line with the annual RPI, whatever that is two months before the rent rise date. However, I look at very recent rents for the same type of property as mine in the area and then decide if I will increase by that amount. I have excellent tenants by and large so I want to keep them. I tell them what the rent rise should be but generally raise it by a lesser amount. This serves two purposes. Firstly it raises the rent and secondly by not taking the full potential amount it gives my good tenant a small saving and my rents just below the local area threshold so it does not pay them to move. This is not being deceitful but sensible business practice as no landlord wants to lose a good tenant.

RENTS SHOULD BE REVISED YEARLY IN LINE WITH THE MARKET. WE SEND DETAILS OF COMPARABLES MONTHS AHEAD OF THE YEARLY ANNIVERSARY. THERE MAY BE A BIT OF NEGOTIATION BUT WE HAVE NEVER HAD A TENANT LEAVE BECAUSE OF THE RENT INCREASE. THIS IS A BUSINESS AND WHEN INTEREST RATES GO UP, YOU WILL STRUGGLE TO PLAY CATCH UP IF YOU HAVE BEEN OVERCAUTIOUS. SUCH AN UNBUSINESSLIKE MENTALITY CAN LEAD TO REPOS. WHEN RATES FINALLY RISE.

With a tenant in place and low inflation, I do not consider a rent increase more frequently than 2 years after start of tenancy or an increase, and normally do not increase rent within 3 years of a previous increase. I then apply an increase of CPI since the last increase.

When a tenant leaves, I seek the highest rent possible rent on the next let.

If inflation takes off, then I will look at more-frequent increases.