Landlords that insist on unreasonable residential rentals every year risk losing those tenants… and in the current economic climate good tenants are hard to replace.
Barbara rents a property. She's a good tenant, pays her rent on time, keeps the place pristine and doesn't cause any problems with her neighbours or the body corporate. She's lived at the same address for three years, but recently gave notice because of the steep increases her landlord insists on imposing every year.
Barbara is in the process of building up her investment portfolio. She owns three properties and rents in her personal capacity in order to maximise the profits from those properties.
She fully understands the business side of things and while she can appreciate that most landlords increase the rent annually, she also believes they need to consider a number of factors before announcing an unrealistic increase.
“I realise it's the landlord’s prerogative to increase the rent as per the lease, but I have to question why anyone would chance losing a good tenant because they are being unreasonable. In my opinion, insisting a tenant pay a double digit increase in the current economic climate isn't only unreasonable, it’s committing financial suicide.
“Personally, I'll not only be paying an additional R1 000, I'll have to pay the costs for a new lease and increase my deposit. All in all, I’ll have to find an additional R4 000 in October if I want to continue living at the same address.
“We were faced with a similar scenario last year, but were able to negotiate the increase down to seven percent and thus decided to stay. However, this year the landlord insists the increase will stay in place and as such we have terminated the lease.
“Don't get me wrong, I understand landlords have to profit from their portfolios. They have to pay rates and taxes and levies, but in this instance I believe there is no way the landlord can justify this increase and her unwillingness to compromise is going to cost her a good tenant.”
Like any good investor, Barbara treats her property portfolio like a business and makes a profit from all her investments. She says that while she does hike the rent she charges her tenants annually, she doesn't necessarily increase it to the maximum allowed.
“I take various factors into consideration including the economic climate and the costs I've incurred over the year (including special levies), but most of all I consider the type of tenant. One of my tenants has rented a property from me for the past year. He pays his rent on time and although he tells me if there is a problem, more often than not he’ll fix it himself and only ask that I supply the materials. The home is immaculate and I understand I’m lucky to have a person of his calibre living in the property. We’ve just signed a new lease and because of his good standing, I have decided to keep the increase to an absolute minimum. I probably wouldn't have increased the rent at all, but the body corporate has called for a special levy to be paid.
“I've had bad experiences with tenants before and in one instance lost a great deal of money attempting to evict someone who simply stopped paying. At other times a tenant has paid on time, but caused major headaches with the body corporate, leading to fines. I’ve also rented out to people who didn't look after the property at all and I was left with a massive clean-up bill when they eventually left.”
She says that while she doesn't begrudge the increase her landlord insists she pays, she questions the motive.
“The most important thing I've learnt about renting out property is that a good tenant is worth his weight in gold and I will move heaven and earth in order to keep him happy. I not only keep increases to a minimum where I can, I will also explain why I have to charge more and if necessary provide figures to prove my point.
“Tenants, like the rest of us, are feeling the pinch of the poor economy and I think it's important for landlords to recognise the impact an unreasonable rental increase will cause. Yes, they may not fully capitalise on their investment, but they will make money and, perhaps most important of all, will be assured of a regular monthly rental income.”
4 things a landlord should consider before increasing a rental:
The current economic climate
What the rental market in the area is doing
The quality of the tenant – do they pay in full and on time?
Are they achieving an acceptable return on investment already?