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Monday, September 13, 2010

Increasing the Rent

One of the lessons that I learnt from Renesial Leong's book is to increase the rental every year upon renewal of the tenancy. According to her (ahem!), do not be afraid to increase rental for fear of losing your tenant as long as the increase is fair to you and the tenant, and reflects the market rate. There is no need find an excuse to increase rental because majority of tenants know it will increase with time, especially upon renewal. She also said to make it a point to increase rental even though it is only a token sum upon renewal to set the trend. After that, there wont be an issue of whether there is an increase or not, but rather how much increase it would be!

As a background to my story, my husband and I actually bought a house in Kepong last year with the intention of moving in. Then along the way, I got pregnant with Baby Xin, and the kids' school was a big problem for transfer, so we decided to just cool down and not move. We rented out the house (at negative cashflow, because houses cannot fetch the kind of good rental like apartments) for a year.

This year, the tenant told me he wanted to extend the tenancy for 1 more year. So armed with the knowledge from my property Guru, I wanted to increase the rental. But what is the quantum to increase? The tenant has been a very good payer. Everything is on time and he is also not fussy. As for the market rate, that is almost impossible to find as there are very few houses being rented out, mostly people buy for own stay. Even my friend, Sara, the property negotiator, could not find transacted records, only asking prices, which seems higher. (Mind you, asking prices are not actual rent rates, my rental is not that far behind).

I was feeling very uncomfortable trying to apply the lesson that I have learnt. I know that the tenant is stuck there for at least 1 more year, because he has not found a house to buy (which was his intention when he rented the house from me). I wanted to increase only a token 5%, but Sara pushed me to ask for more - 10%. Sara has become very gung-ho after attending the Wealth Summit with me. She says I am not even getting market rate. Renesial's lesson, about the increase being fair to both me and the tenant, is very difficult to apply in real life. But I thought, it's ok, just discuss with the tenant first and see if he has any objections. If he accepts it, good. If he bargains, then settle for a small increase, or no increase - (Anie also said that your tenant is one of your best friends mah).

So I called the tenant, citing a reason for increasing the rent. Next year the housing area wants to set up a guardpost, and will collect guard maintenance fees from each house. So I told him because of this, I need to increase the rental, 10%. And I also cited that actually the rental rate around the area is also higher than what he is paying. And you know what he said? He said OK, as long as I am paying the guard maintenance. Wah, wah, wah! Such a good thing that I asked, thanks to Sara for pushing me.
And year end, must buy new year's hamper already....