Phasing in rent increase

CiboC

I have recently taken over management of my father's rental property, he is getting on a bit and it was getting too much hassle for him at his age.

I would be pretty familiar with the rules covering residential rentals, mostly from the perspective of being a tenant.

He has one 3-bed townhouse that has been let out to the same tenants for a good few years, but they are way overdue a rent review, they are paying about 50% of the going rate for the area.

I don't want to be completely unreasonable and put the rent up to market level in one fell swoop, but on the other hand there is no way of increasing it more gradually now that there is a 2 year review limit.

I was thinking along the lines of giving them notice of an increase to market level and coming to a separate arrangement with them to agree not to collect the 'full' amount for a period of months to allow them to adjust accordingly, but I also don't want to dig a hole for myself either!

Other than being too soft, am I creating trouble for further down the road by considering this route?

Lux23

Are you going to raise the rent 50%?

minikin

Looks like a 100% increase on the cards for the tenants!
If they're good tenants - place a value on that.
Bird in the hand and all that.

CiboC

I was thinking along the lines of telling them that the market rent for the property is now X, and they have been paying Y.

Give them the formal notice required that the rent would be increasing to X from whatever date, but tell them that in fact we would only expect to collect Y + say 50% for the first 6 or 7 months and then it would be X from thereafter.

Officially the rent would be set at X for the 2 year period to avoid any suggestion that it is more than one review in a 24 month period.

ted1

For long term undemanding tenants it would be usual to give them a discount say x-15%
If you changed tenants say every 18 months you'd lose 1 months rent in agents fees, you'd spend money on prtb registration, you'd expect a few days -month between tennacies which you won't get rent for, you may get a bad tenant who wrecks the place or doesn't pay rent.
You may also need to spend mkbry making improvements, getting place cleaned etc.

Graham

Personally I wouldn't go down this road.

In spite of any written/verbal agreement you may have with a tenant, it would be very easy for the RTB to conclude that you are in fact imposing a series of rent increases on the tenant contrary to the 2 year rule.

That's not a legal opinion btw.

MrMorooka

Personally I would absolutely avoid any kind of 'unofficial' arrangement like this, it could only cause trouble in future. Keep it business, follow the rules exactly and just do a straight increase to an amount you feel is appropriate and defensible.

cruizer101

Why not just charge the average of what you are proposing i.e.
[6 x (current + 50% increase) + 18 x (current + 100% increase)] / 24

There is also the possibility of discount given they are good tenants but far less messier than any phasing and you get the same money longterm.

Claw Hammer

Convoluted arrangements like that often backfire. The way one landlord I know does it is that he tells the tenants that the rent will be going up and he will be back in two weeks to tell them what the new rent will be. That causes the tenants to investigate the market rent themselves. When he gives them the figure for the new rent they are relieved that their worst fears have not been realised and agree the new rent without much fuss.

SB_Part2

If they've been tenants for a good few years and you've had no trouble with them I'd be hesitant to increase to market rent. They might leave and you could end up with market rent or above but have terrible tenants.

Cuddlesworth

SB_Part2 wrote: »

If they've been tenants for a good few years and you've had no trouble with them I'd be hesitant to increase to market rent. They might leave and you could end up with market rent or above but have terrible tenants.

If its a 3 bed in Dublin, then you are arguing that keeping the current tenants is worth the loss of at least 12k income per year to his father.

CiboC

SB_Part2 wrote: »

If they've been tenants for a good few years and you've had no trouble with them I'd be hesitant to increase to market rent. They might leave and you could end up with market rent or above but have terrible tenants.

I'd agree entirely if it was only a few hundred euro, but it is a large 3 bed townhouse in Dublin in a fairly modern development, and the current tenants have been paying 950 euro for the last few years, so even doubling the rent would still be fairly competitive!

L'prof

An increase so big would surely drive the tenants out? If that's what you want to do, then fair enough

If they are paying 50% of market value right now, letting them know what the market value is and telling them that you'll be looking for a 25% every couple of years until you hit 85-90% of market value where you will cap it off because they've been good tenants? Just an idea. They may still decide to jump ship but might be a better approach?

Before: 50% mv
Now: 62.5% mv
2 years: 78% mv
4 years: 85-90% mv

Fian

OP, only sensible thing to do in light of recent legislation is to increase in one go to market rent. The "nicer" approach is fraught with risk and you could easily find yourself stuck for another two years on a way below market rent, whatever you first step up to. Especially bearing in mind rents are predicted to continue to appreciate significantly over the coming years.

Ill be flamed for this, but this thread is proving to me why we need rent control in Dublin. Uneducated, unprofessional landlords causing ridiculous rising rents, policed only by market rate. Aka each other.

Ashbx

Hmmm, do you want the money because it is needed to pay off the mortgage or you sense an opportunity to bleed a bit more cash from your tenants?

Ive been in my house for 6 years and my landlord has (thankfully) rarely increased it. If he increased it by 50%....I would be gone. Simple as that. So its definitely something to consider. If they are genuinely good tenants, appreciate that and increase a small amount fine but 50%, in my opinion, would just drive them away and you will be out of pocket even more then.

Cordell

Claw Hammer wrote: »

Convoluted arrangements like that often backfire. The way one landlord I know does it is that he tells the tenants that the rent will be going up and he will be back in two weeks to tell them what the new rent will be. That causes the tenants to investigate the market rent themselves. When he gives them the figure for the new rent they are relieved that their worst fears have not been realised and agree the new rent without much fuss.

Pretty much https://en.wikipedia.org/wiki/Door-in-the-face_technique

Graham

Deleted User wrote: »

Aka each other.

Market rate isn't set or controlled by landlords. It's set by what every other tenant in an area is prepared to pay.

Graham

Ashbx wrote: »

Hmmm, do you want the money because it is needed to pay off the mortgage or you sense an opportunity to bleed a bit more cash from your tenants?

Does that work the other way too?

If the market rent isn't enough to cover the mortgage would you be ok with paying more than the market rate or would you "sense an opportunity to bleed a bit more cash from your tenants landlord?"

Ashbx wrote: »

but 50%, in my opinion, would just drive them away and you will be out of pocket even more then

How would an additional €12,000/year equate to being out of pocket?

Stheno

CiboC wrote: »

I'd agree entirely if it was only a few hundred euro, but it is a large 3 bed townhouse in Dublin in a fairly modern development, and the current tenants have been paying 950 euro for the last few years, so even doubling the rent would still be fairly competitive!

Where in Dublin is the house? I.e. general area? Somewhere like Dundrum?

Graham

Stheno wrote: »

Where in Dublin is the house? I.e. general area? Somewhere like Dundrum?

Would that change anything?

Stheno

Graham wrote: »

Would that change anything?

Yeah OP is claiming that a rent of 1900 for a 3 bed is still below average.

Just looking on daft there are plenty of three beds in Dublin below that

Graham

Stheno wrote: »

Yeah OP is claiming that a rent of 1900 for a 3 bed is still below average.

Just looking on daft there are plenty of three beds in Dublin below that

Mustn't be in the same area if €1,900 is below average. I see plenty of 3 beds above €1,900.

Graham

Graham wrote: »

Market rate isn't set or controlled by landlords. It's set by what every other tenant in an area is prepared to pay.

What are you on about?

Of course market rate is set by landlords.

Tenants aren't going around saying, "Hmmm... I see this apartment is 1,200 a month. I'll give you 1,500."


The whole thing has gone crazy.

950 up to 1,800. Can you imagine a lone parent trying to pay that?

Crazy.

runawaybishop

[Deleted User] wrote: »

Tenants aren't going around saying, "Hmmm... I see this apartment is 1,200 a month. I'll give you 1,500.

That is exactly what is happening.

ted1

Ashbx wrote: »

Hmmm, do you want the money because it is needed to pay off the mortgage or you sense an opportunity to bleed a bit more cash from your tenants?

Ive been in my house for 6 years and my landlord has (thankfully) rarely increased it. If he increased it by 50%....I would be gone. Simple as that. So its definitely something to consider. If they are genuinely good tenants, appreciate that and increase a small amount fine but 50%, in my opinion, would just drive them away and you will be out of pocket even more then.

A landlord is running a private business with the intent of maximum return. He can raise it to what the market can bear.

Private landlords should t be providing social housing, that's the job of the state.

Either buy your own house or you'll have to pay what the market rate is.

ted1

[Deleted User] wrote: »

What are you on about?

Of course market rate is set by landlords.

Tenants aren't going around saying, "Hmmm... I see this apartment is 1,200 a month. I'll give you 1,500."


The whole thing has gone crazy.

950 up to 1,800. Can you imagine a lone parent trying to pay that?

Crazy.

It's set the market, if the landlord says I want 3,000 he won't get it, he'll lower it till the market buys the product, that's the market price

ted1

CiboC wrote: »

I'd agree entirely if it was only a few hundred euro, but it is a large 3 bed townhouse in Dublin in a fairly modern development, and the current tenants have been paying 950 euro for the last few years, so even doubling the rent would still be fairly competitive!

Tenants shouldn't be paying less than a mortgage would cost.

ct5amr2ig1nfhp

I wouldn't bother with a phased increased - you're just asking for trouble.

If they are really good/excellent tenants, undemanding etc - I would increase to 75% of market average and leave it at that. Make sure they know they're getting the 25% discount for being good tenants. Let them know you'll be reviewing / re-evaluate in two years.

No hassle for you to go looking for new tenants, or the possibility of having the property not rented for a few weeks/months.

I would see that as win-win for both of you.

If the tenants aren't happy getting a 25% discount, just up it to full market rate. Let them move on to somewhere else... for the same price. :P

Mrs OBumble

I've been the tenant in this scenario. I was expecting the phone call for months before it came, and I had even budgeted for the rent increase already. So my advice - talk to them.

Rather than phasing in collection (legal risks), just choose when to apply it from. Giving them an extra month or two at the old rent would be the same as not collecting the whole new amount for many months.



PS board is dual posting again ... I only posted this once.

I would go to 80% of market but give them good notice. They've got a great deal in recent years and will be getting a discount on anywhere else. You will get more rent and have good prospects of keeping good tenants. If they move out, advertise at 110% and see what you get.

spacetweek

To even contemplate a 50% increase in a single rent review is all the evidence you need that we must introduce rent controls in this country, or at least in areas where rent is already high.

Stheno

spacetweek wrote: »

To even contemplate a 50% increase in a single rent review is all the evidence you need that we must introduce rent controls in this country, or at least in areas where rent is already high.

It's a 100% increase from 950 to 1900

ted1

spacetweek wrote: »

To even contemplate a 50% increase in a single rent review is all the evidence you need that we must introduce rent controls in this country, or at least in areas where rent is already high.

They have been below the market price fir a long time and recent legislation introduced to protect the tenant is working against them as phased increments are not allowed

rubadub

L'prof wrote: »

An increase so big would surely drive the tenants out?

Ashbx wrote: »

If he increased it by 50%....I would be gone. Simple as that.

its 100% as said a few times. Are you both suggesting they will leave to go to a smaller place? cheaper area? or that they would leave out of spite and pay the same 100% increased rate in a similar place, which would cause them major disruption to themselves. Or have you simply not thought it through.

If anything rather than leaving out of spite they more logically would stay loyal to the landlord who has been giving them such an easy ride for years, rather than leave and move into an identical place next door paying the new landlord the very same price that is being asked now. But I suppose many would not be rational about it, and could have this knee jerk reaction.

CiboC

OP here, well that didn't take long...!

Deleted User wrote: »

Uneducated, unprofessional landlords causing ridiculous rising rents, policed only by market rate. Aka each other.

Thanks for jumping to a load of assumptions about me based on nothing whatsoever. For what it's worth, I would consider myself an educated professional.

Do you not think a 'professional' landlord would have been raising the rent each year to the maximum of what they could instead of leaving it for years without adjusting it?

In case you didn't pick up on the subtext of my original post, let me be a bit more explicit so you don't have to infer anything, as you seem to be having difficulty with that.

I don't want to raise the rent by an excessive amount as I feel it would be unfair, on the other hand under current rules whatever it is raised to is locked for the next 24 months so raising it in steps is not possible.

Being a tenant myself, I have a pretty good idea of what would qualify as a 'decent' landlord and treating tenants well.

Ashbx wrote: »

Hmmm, do you want the money because it is needed to pay off the mortgage or you sense an opportunity to bleed a bit more cash from your tenants?

There is still a loan outstanding and although the rent hasn't increased the same cannot be said for property taxes and service charges. My father is entitled to a fair return on his investment, no?

Stheno wrote: »

Yeah OP is claiming that a rent of 1900 for a 3 bed is still below average.

Just looking on daft there are plenty of three beds in Dublin below that

I have checked and this would still leave it as the cheapest 3 bed townhouse in the area.

Thanks for all the replies, some of which were even helpful...

Graham

spacetweek wrote: »

To even contemplate a 50% increase in a single rent review is all the evidence you need that we must introduce rent controls in this country, or at least in areas where rent is already high.

So because a landlord has been charging half the going rate for a number of years he should be financially punished now?

McGrath5

OP, take the emotion out of this situation.

You need to be fair to your family investment, do you want to run a charity or a business?

Raise the rent to the correct market rate, these tenants have been availing of a rather generous discount on their rent for long enough, there is absolutely no obligation on you or your father as a LL to continue to offer such a discount for any longer.

893bet

ted1 wrote: »

Tenants shouldn't be paying less than a mortgage would cost.

Why not? A landlord may not like it but why not?

Graham

893bet wrote: »

Why not? A landlord may not like it but why not?

For one, a financially unviable investment does not make a secure home for any tenant.

quadrifoglio verde

spacetweek wrote: »

To even contemplate a 50% increase in a single rent review is all the evidence you need that we must introduce rent controls in this country, or at least in areas where rent is already high.

Rent control doesn't work.
For as long as mankind has been buying and selling goods and services to each other, the law of supply and demand has ruled firm in determining price.

Rewind the clock, 7 years ago. Its 2009 and theres plentiful supply of properties to rent. A Landlord can't let out his property at 1000 for a 2 bed, so reduces it to a level that tenants are willing to pay.
The market set the rent. The reason the price was low and unsustainable was due to excess supply in the market at the tail end of the celtic tiger.
Now we've gone full circle and we don't have enough supply. As a result rental prices have gone up. Again, the market, being the tenants set the rate.
The only way to reduce rental prices is to increase supply.
Rent control has been shown to have the opposite effect on supply. It reduces it further.
Instead of investing in properties, landlords will decide to invest their money elsewhere.

Tell me, please, why, when rents are at their highest level ever, are landlords exiting the buy to let market in their droves?
Generally when the return is increasing, you don't exit the market.
Also tell me, if we have rent control what happens when the demand for rental housing increases further over the next few years? Where are the people who want to live in Dublin going to live? Will they pay key money to current tenants to reassign their lease?

I can't stress it enough, the only way to reduce rental prices is to increase supply. Rent controls will ease the problem in the short term, but it has catastrophic consequences in the medium to long term.
Thankfully other countries have already made this mistake, so we don't need to.



OP, if its currently 50% of market rate, I'd increase to 90% of market rate. a 10% discount for being good tenants and not to mention, numerous years of paying rent at significant levels below the market rate as well.

ted1

893bet wrote: »

Why not? A landlord may not like it but why not?

Because that's not How markets work ,if the cost of providing a service falls below the cost of obtaining the service, then the market collapses.

foggy_lad

Double the rent and you will basically put them in an impossible situation and multiply the chances of the tenants not paying rent at all, over-holding for at least a year and costing you thousands to get them out.

Senecio

Your fathers lack of management of his property has put you in this situation but increasing it to market rate in one go is not the answer. You cannot undo his wrongs in one go.

The fair thing to do would be to increase it to 75-80% of market rate now and up to market rate in 2 years.

quadrifoglio verde

quadrifoglio verde wrote: »

I can't stress it enough, the only way to reduce rental prices is to increase supply.

But also celtic tiger era gold plated building regs, bureaucracy and planning rules have all conspired to prolong the process, reduce supply and raise prices when something eventually gets built.

Increase it to market rate asap (or at the very least 95% of market rate). I don't really get why posters in here appear to think LL should act as a charity giving a massive discount in rent over what the market has set as the rate. The point of being a LL is to make money and to do this you maximise your return by getting as much rent as you can.

When rents were falling tenants were not saying "oh he was a good LL we should keep paying him the full rent and not ask for a lower rent like all the houses around"

The people saying they will move, where will they move to? they aren't going to want to move to a dump somewhere far away from where they are now and even a dump in Dublin would be getting more than 950 a month. So what if they leave anyway, new tenants you can ask 10% above market rate to se if you get it, at that value you are unlikely to get dodgy tenants and in the current climate there isn't going to be any vacant period. Some LLs would even rather get in fresh tenants every few years than have the same people there long term who start thinking it's their house etc.

Sad Professor

I agree that landlords can’t really be expected to take moral considerations like the tenant’s ability to pay or keep a roof over their head into account when assessing rent increases. Landlords will act in accordance with the market. This is why our rental market needs to be regulated.

We need a stable rental sector. Bubble like rises and falls in the cost of rent aren’t good for anyone except vultures looking to make a killing. Rent regulation, properly implemented, will help do this. I don’t care about the impact of WWI emergency rent controls in Ireland or New York that were never lifted. Modern rent regulation measures have been used very effectively in other European countries and the sky hasn’t fallen.

We also need proper security of tenure so that the landlord’s indebtedness doesn’t impact the tenant. House gets sold, bank repossesses house, landlord decides to cash out – the tenant should not be affected. Sitting tenancies are the norm in many European countries. If the Irish constitution is a problem, and I'm not convinced that it is, it should be changed.

Housing should not be a commodity.

FAILSAFE 00

CiboC wrote: »

I have recently taken over management of my father's rental property, he is getting on a bit and it was getting too much hassle for him at his age.

I would be pretty familiar with the rules covering residential rentals, mostly from the perspective of being a tenant.

He has one 3-bed townhouse that has been let out to the same tenants for a good few years, but they are way overdue a rent review, they are paying about 50% of the going rate for the area.

I don't want to be completely unreasonable and put the rent up to market level in one fell swoop, but on the other hand there is no way of increasing it more gradually now that there is a 2 year review limit.

I was thinking along the lines of giving them notice of an increase to market level and coming to a separate arrangement with them to agree not to collect the 'full' amount for a period of months to allow them to adjust accordingly, but I also don't want to dig a hole for myself either!

Other than being too soft, am I creating trouble for further down the road by considering this route?

Bring the rent up to market value.

You never know when you might have some unforeseen property expenses, personal expenses or the market takes a downturn.

Speak to the tenants. If it is not financial viable for them to continue the lease make sure you give them the required notice (by law) and if you feel they need a bit longer add to this.

handlemaster

its always the same with these arguments the landlord is never given credit for under charging. charge the full market rent and never less, you will never be thanked for giving money to your tenant in the form of reduced rent.

RasTa

Jack it up, I'm sure they have being telling everyone what a great deal they are getting.

They professionals or a family? Imagine paying €320 a month if sharing

rubadub

893bet wrote: »

Why not? A landlord may not like it but why not?

I don't get this logic either

Graham wrote: »

For one, a financially unviable investment does not make a secure home for any tenant.

rent being less than a mortgage does not necessarily/automatically make it an unviable investment.

ted1 wrote: »

Because that's not How markets work ,if the cost of providing a service falls below the cost of obtaining the service, then the market collapses.

If the landlord was renting a property himself, and then renting it out then I would accept it is not viable. But that is not what is going on, the landlord has a house paid off at the end of it.

If I took out a loan to buy a used TV to be paid off in 1 year, and had 12 payments of 100euro, I would not consider it unviable to buy it and be renting it out for 12 months to someone willing to rent it off me for 90euro a month. I could continue renting it afterwards if I wanted to recoup the entire cost, and have a TV at the end of it.

Many years ago I remember people complaining that their rent was above what the mortgage would have been on a similar property, because of this very reason, that they have nothing to show at the end of it while the landlord would.

Senecio wrote: »

Your fathers lack of management of his property has put you in this situation but increasing it to market rate in one go is not the answer. You cannot undo his wrongs in one go.

The fair thing to do would be to increase it to 75-80% of market rate now and up to market rate in 2 years.

Many seem to think it is the answer. I don't see how its the fair thing to do, if anything the fairer thing to do would be the renters pay back even more to the landlord as they have seemingly being enjoying a huge discounted rate for years. Of course that is not going to happen, but I cannot see how you figure it should be only raised to 75%.

I have heard of numerous people over the years effectively taking advantage of elderly landlords like this. Having a good laugh about how stupid they are not to be charging the going rate.

Imagine tesco had some mispriced product for years, and then cop on and increase it. I would not expect them to cop their mistake and slowly increase the price 75% of what the dunnes next door have been charging for ages.

foggy_lad wrote: »

Double the rent and you will basically put them in an impossible situation

According to the OP it would seem others in the area are capable of doing the impossible... someone better call ripleys. They could be wealthy landlords themselves for all we know, and could be laughing behind the LL's back at the moment.