Is it time to increase my tenants rent?

I was introduced to Property Management when I was around 5 years old.

My Dad, rest his soul, would pick me up after school, and every Thursday, we would go to our ‘investment property’ (which used to be our family home) and collect the rent from the tenants that lived there.

I remember it so clearly. Some days, it was easy. The tenants would have the rent ready (cash of course) in a sandwich bag, Dad would count it, poke his head in the door to make sure everything looked okay, and then we would leave.

Some days, it wasn’t so easy.

My Dad who was a hardworking, passionate, fiery, easily agitated Cypriot immigrant, lost everything in the 1974 war. He worked 10 times harder to get ahead. He didn’t like people taking advantage of him but was also one of the softest, kindest men I knew. Dad would see the tenants’ kids playing in our yard or sitting in the lounge room where my sister and I would watch tv as babies and he would soften into giving them another week to get the rent together.

Dad’s decision to become an investor and a landlord was unintentional. There was no research methodology applied. His goal was simple, his dream was to move us out of the commission home he bought for $9,000 back in 1978 and build his own house in the new housing estate. He achieved this when he was 36 years old and assumed the role of landlord.

If I’m honest, Dad hated being a landlord. ‘Big Headache’ he would say to his friends who were envious of him having two houses in such a short time after migrating to Australia. He stuck it out for as long as he could. Managing good and bad tenants over the years until a family friend ran into some financial trouble and Dad let him live in the property rent-free if he agreed to paint it. So, he did.

In those days, the Property Management world didn’t exist. Sure, there were Real Estate Agents that listed and sold a property, but there wasn’t anyone to manage rentals. Especially not in the early 80s and definitely not in country town Morwell.

I often wonder what my Dad could have achieved if he had the support of a good Property Manager. For him, investing in property was too hard. Not only was it difficult to manage the tenants on his own but there wasn’t anyone that could help and guide him.

Nowadays, almost every Real Estate business has a Property Management department. Some Real Estate Businesses are even exclusively Property Management businesses. Why? because there is a massive demand and done well, it’s a great money maker. It’s important to remember that Property Managers only earn income from charging fees. Management fees, letting fees, marketing fees, etc. Charging landlord fees is the only way a Property Management business can function.

So, when Melbourne went in and out of its 6 lockdowns and borders were closed and vacancy rates peaked at 16% and 17% in some suburbs, profitable Property Management businesses were losing 50-65% of their earnings. Why? Because rents were being reduced and properties were sitting vacant for weeks and weeks which lead to no income at all!

Things have well and truly turned around now, and in the past few weeks, we have seen numerous media reports about this ‘Rental Crisis’ and the constant commentary around property shortages and rental price hikes.

To paint a clear picture of what’s happening, the latest vacancy rates are listed below.

Melbourne – 1.9%

Sydney – 1.6%

Brisbane – 0.7%

Adelaide – 0.4%

Hobart – 0.4%

Perth – 0.7%

Darwin – 0.6%

Nationally – 1.1%

According to John Bekiaris our Research Analyst, the latest results are the lowest in the last 10-11 years. That is mind-blowing!

We well and truly have a rental crisis on our hands, and this is only going to further apply pressure on asking rents. The increased construction costs and undersupply of property will inevitably propel rents to all-time highs. Our transition to ‘COVID normal’ and the return of international students and workers will also contribute to increased asking rents.

So, if this is the case, should I increase my tenant’s rent when their lease is up and why am I only being told by my Property Manager to increase my rent by only $5 or $10 per week? Without intentionally insulting my friends in the industry, some are either oblivious to what’s currently happening in the market or extremely apprehensive because of the last two years. Either way, they are leaving money on the table for you, and short-changing themselves!

For me, your Property Manager is the person that needs to swiftly identify the peaks in demand and jump at every opportunity there is to maximise your financial position. If your property manager is not calling you at the end of a lease, or if they are recommending increases of a conservative $5, $10, or even $15 per week, call me!

My job is to work with the Property Managers we recommend or the ones that have been appointed by the developer for this very reason. Property management is a tough gig and COVID has defeated even the best in the business. These guys must deal with a lot of crap day in and day out and some property management businesses are taking cautious steps to ensure they have an income stream to keep their employees employed. They don’t want vacancies for you or them and the impacts of the last few years have unfortunately made even the best property managers second guess the rental push.

Now, a couple of things to note. If your Property Manager has suggested a conservative rent increase of $10, email me. I’m not saying that all Property Managers should be suggesting $50 rent increases, but the reality is that in almost every case nationally, rents should be going up substantially. Property Managers need to take a closer look at what’s happening in the suburb your property is in on a micro-level. What’s the suburbs’ vacancy rate? What’s the common demographic and has the tenant pool returned to that area? Are tenants on the verge of returning?

If we have learned anything from COVID, it’s that we are all that little bit more empathetic. Landlords and tenants have been mentally and financially impacted and like my Dad, it’s okay to make an empathetic decision. Choosing not to increase the rent to alleviate a little bit of pressure for your tenants is fine if you can, but make sure your tenants know this. And for those of you that can’t and need the rents to get back to where they were, please reach out to me, and let’s have a conversation on how we do this.

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