Landlords need to be wary of increasing the rent on their property by too big a margin because they may risk losing a good ‘paying’ tenant.
Landlords who insist on a 10 percent rental increase could risk losing a good tenant.
Talking recently at the inauguration of Rawson Rentals, a new Rawson Properties franchise division set up to grow and support rental franchises countrywide, Tony Clarke, MD of the Rawson Group, warned landlords that the current “dire” economic situation has created a scenario in which landlords who insist on the usual 10% annual increases could find themselves losing tenants fast.
“If ever the advice ‘do not be too greedy’ was especially applicable, it is right now,” said Clarke.
Landlords who do insist on 10% increases, said Clarke, will in all probability find themselves losing tenants because attractive lower rentals will be available elsewhere.
He said the large number of distressed properties that have come onto the market have also affected the rentals now obtainable.
Clarke said that rent increases of 5 to 7% should be the most that landlords demand right now. He stressed that wise landlords will hang onto good, regular paying tenants by being reasonable on increases rather than risk losing them and quite possibly having an empty unit for one or two months.
“Let us assume your tenant is paying R5 000 per month. If you ask for a 10% rise you will get an extra R500 monthly. If you reduce it to 7% you will only be losing R150 per month. It is not worthwhile haggling over such amounts – take the long term view.
“If your property is left vacant for only one month, due to the tenant leaving, you stand to lose R5 000 while you desperately look for a replacement – and all too often one cannot be found in just one month. It is not worth taking this risk for the sake of a slightly higher rental.”
Ideally, said Clarke, new tenants should now be signed on for 24 months with a minimal increase after the first year.
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Alternatively, ignore percentages. Generally, you can get a good idea of relative prices in your area by scanning personals and internet sites. If you are on par, add your extra costs (if you have a good tenant) and move on. If you are under, add extra costs and a little for luck. If you are over, consider leaving the rental stagnant for 6 months with only a direct cost increase for the 6 months thereafter. You must also not forget about the relationship with your tenant(s). When I used to rent, I felt more loyal (and gave longer notice) to landlords who was open to discussion and explained their increases to me. - Johan
I fully agree with this article. My partner has been renting a place for over 5 years now. It started out as R3500 and now he's paying R3980. The increase over 5 years may not be too bad but as the article stated, better looking (and more modern) places for LESS are attracting our attention. The sad part is that apartments with extra bedrooms and bathrooms are going for cheaper. He has been a great tenant and pays on time, but I have bad news for the owners, they're not checking the market and comparing sized apartments to be fair to the tenant. - Jeanette