Rent Increases Effective 1.4.2011

[Bluekiwi]

So when depreciation on buildings end april 1 next year.

What sort of rent increase will we all be doing next year to compensate for this new business cost.

I think 10% should about cover it.

Maybe another 5% to cover the loss in capital gain due to the tax changes.

[Keithw]

It won't just be after March next year, any turnover of tenants now will automatically have the rent increased to account for next years change.

10 % is probably right - seems like a direct loss of cashflow in the order of $1500 or $30pw
on a rent of $300pw thats 10 %
on $400 pw rent an increase of $40 - maybe a bit much for one go but staggered over 6 - 12 months very achievable

[Shane D]

Bluekiwi,

I'm all for rent increases but won't the market determine how much we can raise rents?

You may find you are sitting with an empty house if you try to raise rents 10% and markets have not raised.

Where is a tenant going to find this extra 10%?

Shane

[Bluekiwi]

Homestay
Boarder
Smaller house
House further out / less desirable
Extended family move in
Cut back spending
Get into debt
Use internal / external garage as flat / extra bedroom

Everyone needs a roof over their head.

Where are they going to go, everyone will be raising rents, before the budget there was a shortage.

RWC year will highlight the issue latter on in 2011.

[freezinhot]

I think it is just par for the coarse that rents will rise, it does not need to be all at once either, act like any normal business practice, increase the rents slowly, $5-10 every 6-12 months, before you know it you have increased by what you need to cover the loss of depreciation. Lots of businesses do it, because over time small increases seem less shocking, loook what the government has done with cigarettes, they are doing the increases incrementally, if they did that all at once we would have riots in the street and robberies every other week.

We have to adjust as landlords therefore the tenants do also.

FH

[essence]

Keep on an eye on the DBH stats for your area. I got caught out recently that my rents had dropped below the lower quartile.

They had only been in the property a year but that was how much rents had moved up.

I had to put their rents up by $20/week and advised that I would be putting it up by another $20/wk in six months times. This will still leave them slightly short of the average. If the markets keep moving they way they have been, then I'll have to be putting the rents up every six months by $20/week.

I don't think that is an excessive increase but I'm struggling to balance between the increase and the average market rent.

One has to be very careful that rents don't get too far behind, otherwise the tenants face a big increase and/or you're waiting for them to leave. If the tenants know they're paying under market rent, they don't leave.

[drelly]

Not sure about your area Essence but the DBH stats for Whangarei are pretty worthless. They have grouped completely different suburbs together. The worst with the best!

[essence]

I see what you're saying Dave.

Unfortunately, unless your (general term) is in the bigger cities, DBH does lump the stats together.

I would also suggest keeping an eye on the local newspaper for current rentals.

[Contrail]

People will need to be careful they dont't end up motivating a good tenant to leave though.

Definately will be interesting to see the trend in rent prices. I'm sure there will be many winners and losers who decide to increase to cover a good chunk of any depreciation lost.

[essence]

People will need to be careful they don't end up motivating a good tenant to leave though.

Absolutely!! Sometimes it is better to have the rent slightly lower than market rent to keep a good tenant.

But there is a fine line between slightly lower and a LL being taken advantage of.

IF a LL has a good LL/Tenant relationship, there shouldn't be a problem getting the tenant to understand (not like) a rental increase.

No tenant likes a rental increase but more often than not they can understand the reasoning behind them.

[Rosco]

Rent should go UP!

1) GST is going up. Most expenses for a rental property owner don't involve GST, but there will still be a small extra charge. It's probably only $2 per week on a property with small repairs, but why not pass it on!

2) Building depreciaton. Say in really simple terms average rental $300,000 of which the building is $200,000. Current depreciation at 3% is $6,000 and tax at 33% is $2,000 approx or $40 per week.

3) For more new properties its worse. No more 20% loading on new chattels. Just tried to calculate on the Valuit website, and chattels depreciation was around $7,000 on a new house $300k land and building. So if didn't have 20% loading would only be $5800 or $1200 less. Tax on $1200 @ 33% is $400 per year or $8 per week.

So overall rents should go up slightly from 1/10/10 as GST goes up, say by $2 per week. Then in April when other changes come in, rent should go up by another $48 per week, or $50 total.

[Viking]

Where do you buy a new house for 300K

[CJ]

Where do you buy a new house for 300K

Rosco is in the waikato so has probably just put a barn up in the back yard and called it a 'house'.

[kyotolaw]

You are all writing these posts from the point of view that you are entitled to a certain return from your business. In reality the market will dictate your return, and you can choose to stay in business or exit if you think the return is unacceptable.

There is nothing wrong with charging what the market will bear, and I encourage you all to increase as you think your tenants will be able to pay.

But you will only be able to wring a certain amount from the wet cloth.

If any commercial landlords wrote messages like this about how they were entitled to rent increases they would be laughed at, with 14% vacancy in the Auckland CBD.

[Rosco]

But if all/most residential investors increase their rent, then there is no choice.

I agree with your comments about commercial, but in other areas where there is lower or no vacancy, then the rents could go up (such as Cambridge for example).

Ross