Singing Pig

Being quite new to the BTL business, I wanted to know how SP landlords decide by how much to raise the rent when an AST comes up for renewal.

I have heard it mentioned that the Retail Price Index is used by some. If you use this, how do you do so?

Does anyone have any other methods that they use to calculate this?

Thanks.

Speak to some leasing agents and ask them what similar properties are renting for and you can base it on that.

I figured that might be one option. However, I thought it would be nice if I could explain to a renewing tenant how I came to the new rent figure.

Just print off the comparables from the leasing agents and or take cut outs from the newspaper.

spot on lee ... i ALWAYS do this, when i raise the rent that is.  make sure that the tenant understands that they are paying the market rate (actrually i never use that term ... its the "going rate").

the more direct the comparison the better. 

i've had a few who threatened to quit ... i never stand in their way.  a couple were calling my bluff, but if i believe my new rent to be a fair market rent, then i stick to my guns.  if they leave, fine.  next tenant pays market rent.  if they stay, all good. 

just be careful not to get too greedy.  sounds obvious, but will pay long-term dividends. 

sound advice pod

I always try for 5% pa...that way youre rents would in theory double every 14 years.

Presently with inflation being over 3% and rising its a plausible approach. For me, I explain it at the begining..'rents rise by just 5% pa...meaning you wont have any nasty surprises once you know that' (positive slant)

Ok..what if they baulk when the rise comes?

Its happened to me..but ive never lost a tenant through it

 I remind them they we discussed this at the outset didn't we? 5% seems nothing at that stage...but when they go from 500 to 525 it does! Not my fault..i disclosed everything.

I sometimes show them examples of market rent that supports my approach. Generally though, because they realise that I take my landlording duties serioulsy and look after them and the house at all times - i think they simply make the call of 'we cant be bothered moving..he's a good landlord etc'

Finally dont be afrraid of raising rents. Market rents only become so by landlords collectively 'not being soft'. I hear of many landlords who dont raise the rents for years, then realise theyve been stupid and try for a £100 raise all at once..with predicatable results.

Be disciplined in order ot be kind to them and you...regular reasoanble rises....get them in the habit of realisng that every year rents rise like clockwork. You will find they swallow it easily iof your a good landlord..if you arent it could be the catalyst for them to leave you -thats why many bad landlords dont raise rents..they realise themselves they are bad..and are lucky to have tenants - so dont rock the boat!

I will drop to 3% in extreme circumstances - but generally no less..very very rare!

The potential in rasiing the rents is something that is not realised by many new landlords (obsessed with NMD and cash backs etc) but it is a massive compound wealth opportunity over time

• 5% pa doubled in 14.4 year
• 4% pa doubled in 18 years
• 3% pa doubled in 24 years
  
• you can see the power in being able to increase by 5% rather than just 3% !
  

Its also essential if your strategy is to withdraw increased equity years down the line.
 

Rialto's advice is very sound - he obviuosly knows his market and tenants VERY well and perhaps can offset voids against other properties.

But for most people keeping existing (good) tenants is critical to making any money in this game. Therefore, I'd suggest that unless similar properties are being rented out within a few weeks for considerably more rent than yours, or you are sure you have a far superior product, then keep the rent the same - but do send the tenants a letter "because you've been such good tenants, I do not intend to raise the rent at this renewal", let them know it was an option but you are being  a great landlord.

Example - house rents at £700pcm, you can increase it by 5% to £737.50 - increased profit over 12 month tenancy £450. But if this increase in rent leads to the tenants moving out and you have one void month and agents letting fees of half a month, then some wear and tear repairs, say total £1250 - you'll be £800 down for the year.   

I see your point and it is very much a case by case basis. However, landlords collectivelly need to be responsible and try to raise rents (especially at a time when house sales are low - and renting becomes more attractive!)

With my leaseback tenants, i explain right at the start how it works. Its simply a case of selling them on the concept. too many landlords are weak, soft or 'couldnt care less' and let rents remain the same for a few years. I used to work in a commodity industry in construction materials. we were market leaders and all of our smaller competitiors looked to us to raise prices each year. If we succeeded - then so could they - and did. we may have had a target price increase of say 4%, we announced it would be 7%, and this allowed for bigger customers of ours maybe getting a 3% rise. It was always a tedious job each year - but had to be done!

Overall, we got our 4% increase across the board - then so did our competitors. It was as though it was our duty to the industry to do this. One thing was for certain - if we didn't go for price rises each year then the commodity would be the same price today as 20 years ago (in theory - in reality - there would be no industry!)!

Natural economic forces will usually win the day, but this doesn't meant that landlords don't have any control or power (on the contrary - especially if they have a good reputation and good properties!), its just that many either don't know how to raise prices, or are afraid - or too apathetic. The residential property market in the UK is populated by many amateur landlords who don't have the acumen to do this duty regularly - they are fearful of voids to the extent of never raising rents.