Tips to Think Logically and Make the Right Rent Review Decision

A decision that causes many buy-to-let landlords to have sleepless nights is whether they should raise the rent of a good tenant. After all, good tenants can be hard to find. Exceptional tenants are like gold dust. When you are blessed with a tenant who pays their rent on time, looks after your property, and doesn’t make a string of unnecessary complaints, the last thing you want to do is drive them away. Is raising rent worth the risk of losing a good tenant?

Okay, time to take the emotion out of the decision and look at things logically.

Buy-To-Let Is a Business, Not a Charity

Look, the reason you own buy-to-let property is to make your life easier. The rental income you receive should help you do so. If not today, then in the future.

Your buy-to-let property is a box to make you money. When you invested, you left your emotions at home. You looked at the property fundamentals and considered whether the box would make you money and if its potential would be sustainable.

Now, you might have a great landlord/tenant relationship, but your tenant is neither family nor friend. Yes, it is possible to be friendly without being friends! A good tenant doesn’t only treat your property well and pay their rent on time. They also understand that you are in business and it is you taking most of the risk.

Are You Charging Market Value?

Now, here’s the thing. Your tenant is renting your property because they want to. You’re a good landlord. You’ve always attended to repairs and maintenance in good time. They look after your property because you do. They know the game – a fair home for a fair rent.

So, what is fair? Fair is market value. If you charge market value rental prices, it is very unlikely that a good tenant will leave. Where are they going to go? They will pay the same amount of rent for a property that is no bigger or better.

If you are worried that raising rent on good tenants is likely to push them to move on, then you aren’t confident in your landlord/tenant relationship. Or you know the new rental amount is way above the going market price. Most good tenants hate moving, especially if they have a good relationship with their landlord and they love the home they live in – you may even be able to charge a small premium over fair market rent.

Can You Afford to Keep the Rent Unchanged?

If you are still unsure whether to raise the rent, then you should consider your current and future profitability. Just because you made money last year, doesn’t mean you will make money this year. You should consider:

  • Is your property likely to suffer maintenance costs? For example, how old are the appliances, and might they need replacing? When was the last time you redecorated? Is there any maintenance or servicing costs due?

 

  • Make a list of all likely costs in the coming year, and subtract them from your rental income. How much are you left with? What about your mortgage payments and taxes? How will these affect your profitability?

If, after doing these calculations you are making a profit that you are happy with, you might decide to leave the rent unchanged. If you are not sure, then you should probably raise the rent.

Raising Rent without Losing a Good Tenant

Raising the rent on a good tenant probably isn’t as daunting as you believe it will be. They understand that prices rise. Their salary is likely to have been raised. Their shopping bill has probably increased. Utility bills, fuel, train tickets, cinema entrance prices and the cost of a pint are all likely to have increased. I don’t know of a local authority that doesn’t increase its council tax each year.

Even if your property is making a healthy profit, it will be worth less to you because of general inflation. You deserve to earn more from your buy-to-let property. You may need to, just to maintain your current standard of living. So how do you raise rent to a good tenant without losing them? Here are a few tips:

  • Give the tenant plenty of notice (include a rent review clause in the tenancy agreement).
  • Make sure that the raise in rent is justifiable (e.g. your mortgage has increased, maintenance costs are rising, etc.).
  • Be honest and open. Provide a summary of the local market and a comparison to local market rents using actual examples.

So, Should You Raise the Rent of a Good Tenant?

Raising rent is part of the business of being a landlord. Some tenants – good and bad – will consider that a rental increase is you profiteering. Others will expect you to increase the rent.

However, you own buy-to-let property as a business, not a charity. If your costs have increased, you should raise the rent. Providing you do in an honest fashion, and back up your decision with facts and data, and charge around fair market value, it is unlikely you will lose a good tenant.

And if you decide not to raise the rent? Let your tenant know in writing. Explain that you value them as a tenant, and, while your costs have increased, you have decided to keep the rent unchanged for now. And then, when you decide to raise the rent next year, remind them of your good nature this year.

If you hate having the rent review conversation or are never sure what the right rent to charge is, then you should contact Ezytrac today at +44 0 1522 503 717. We keep our finger on the pulse so that our landlord clients always charge the right rent and increase their rents appropriately. Then we conduct the rental negotiations on their behalf. It’s part of what we call effortless property management. You should try it.

Live with passion

Brett Alegre-Wood