Investors are often scared to increase their rent, but it’s not always as difficult or complicated as you might imagine.
Question: If I knew of a method of spending $1500 over the next three years on my rental property upkeep while being reimbursed every dollar, keeping my investment in tip top shape and earning top rental returns, why would I give away more than $1500 during that time and let my property age without any upkeep?
Over the years, I am always surprised by the number of investment owners who are reluctant to increase rent in line with normal Consumer Price Index (CPI) increases, and reluctant to spend money on the cosmetic maintenance of their investment. I have met many owners who are so fearful of losing a tenant that they even offer discounts. While kind hearted, this is short-sighted and ultimately negative, unprofessional behaviour.
I am convinced it only achieves a tenant paying you less than they would elsewhere for the same type of rental. What it definitely does achieve is a rental (investment property) not returning its full potential – this is a poor investment strategy. I impress upon all investment property owners to follow two ‘rules of thumb’ when it comes to managing your rental properly income.
A tenant paying $10 less per week is not necessarily a better tenant – they are just a good tenant paying you over $500 less per year than another good tenant would happily pay. Every year your investment property is getting older. Keeping these two things in mind, what sense is there in earning less rental return while watching your property age? Also, the gap between the rent your current tenant pays and the rent you could be receiving is widening.
An experienced property manager has a number of avenues at their fingertips to assist you. So, let’s look at an alternative option. Instead of losing, say, $10 per week in rent, or offering a week’s free rent, why not regularly offer your tenant some ‘extras’ as a thank you for their loyalty and for taking good care of your property?
Using a $500 annual budget as a guide, here are some ideas:
- A new dishwasher
- Install two new ceiling fans
- A free carpet steam clean (less than $150)
- A free house clean (around $400)
- Two or three blinds for the bedroom windows
- New tapware for the bathroom or kitchen, or both.
- New toilet seats (around $30 each)
- A free external pressure wash (around $250)
- Some ‘touch-up’ professional painting to the value of $500
Or, combine two or three of these ideas and spread them over an 18-month period. Result? Your tenant sees that their landlord is helping them to live more comfortably. Under such circumstances, a tenant will rarely object to their rent rising by 2% to 3% per year, in line with CPI increases.
And even if the worst happens – they object and decide to move on – your ‘aging investment’ has been well cared for and every dollar spent should assist you in finding a new, happy tenant sooner.
Instead of losing more than $500 per year in investment income, your ‘tax deductible’ $500 annual upkeep expense is returned to you by way of receiving additional rent every week. Tenants being treated this way actually do stay longer. Why not open a dialogue with your property manager and put in place a regular maintenance budget and upkeep plan?
Terence Pethybridge, Smart Property Investment March 2014