Raising the rent can be an emotionally fraught process at the best of times, let alone during a cost of living crisis. But there are steps you can take that’ll make the end outcome easier for both tenants and landlords, according to Spruce Real Estate founder, Alana Spruce and the leader of Best Nest Property Management, Alison Hatch.
While the current rental crisis has been a shock to the system for many tenants, good property managers would have been preparing their tenants for the possibility that rents were going to rise long ago, Ms Hatch said.
“I think that in this market right now, handling rent increases is really tough because we’ve got an affordable housing crisis,” she said.
But one way to make the process easier is to start educating tenants about the nature of rent increases from the start of their tenancy.
“We’re a very reactive industry, and I think it’s really important to think of this as something we should have been proactive about,” she explained.
“Some of the proactive things you can do is build those relationships very heavily from the start with the tenant client and with the landlord clients to manage these expectations when they occur.
“And they are going to occur because markets differ: markets go up, markets go down; rents increase and decrease.”
In her office, this preparation started from the moment a tenant signed a lease, Ms Hatch said.
“When we sign up tenants, we let them know that in a general market, there is always going to be a rent assessment annually done in NSW,” she said.
“We’re having the conversation about what would be deemed a standard rent adjustment for that area, and then we do let them know that upon market conditions changing that could go up a little higher or it could stay the same.”
It also involved educating prospective tenants about what constituted an affordable rental amount, namely that rent equal 30 per cent or less of their income.
“What we’re finding when we’re processing applications, is that a lot of tenants can’t afford the properties that they’re going for,” she explains.
“I think that there needs a lot of education on what the affordable housing ratios are, so that they know what they can afford and they can budget that up.”
Rent one of many factors
Ms Spruce said that part of the discussions she had with her landlord clients in the current market included weighing up the other factors that make a good tenant.
Those factors included “the length of tenancy, whether the tenant is generally a good tenant to deal with and what’s happening in the market,” she said.
Another factor to consider was how much work would need to be done to make the property stand out in the listing market.
Ms Spruce said that while her clients would ultimately do “what makes sense” to them and their current financial situation, her discussions about rent increases involved weighing up the cost of re-leasing, including the potential for a property to sit vacant for a period of time.
“You want to keep a good tenant in place and it’s (often) actually more of a feasible transaction for the owner as well (to do that),” she said.
“Because if you keep leasing that property every 12 months, sure, you might get more rent but then you’ve also got to work out what the downtime is… How long have you got in between tenants?”
Compromise is key
While both Ms Hatch and Ms Spruce said that their landlord clients’ interests were paramount, they both agreed that there was potential to reach a compromise agreement between landlords and tenants.
“There’s always two sides to every story and I will always take all the facts into consideration,” Ms Spruce said.
“Obviously, I’m working for the rental provider, but I never take the renter relationship for granted and I think some sometimes property managers do.”
She said that you need to work through the individual circumstances of each tenant.
“You’ve got to tactfully work through, you know what’s on the page, so to speak,” she said.
“That tenant relationship is so important and I’ve had a lot of clients during the last couple of years who have come back and said, ‘Thank you for being so understanding and how you dealt with things.’
“You don’t want to lose a good tenant to another agent just because you didn’t listen or you weren’t attentive or you didn’t try and think of something outside the square.”
Ms Hatch said her conversations with tenants at rent review time were designed to facilitate the two-way exchange of information.
Achieving this meant choosing an approachable communication style, she explained.
“I think that when you address a rent increase with the tenant, it’s a conversation to have rather than a letter,” she said.
“I think when you get something in writing, it’s sometimes confrontational for people and it’s also an emotional thing to go through.
“They’re going through that alone without your support and you’re there as a facilitator of that lease, you’re there as a people person for that person, a support person and an advisor.
“So really, you should be picking up the phone and having a conversation when a rent review is due, you should be calling the tenant and you should be having a conversation about the current market, the current trends.”
Ms Hatch said she made it clear to tenant clients that it was an opportunity for them to present the facts on their financial situation.
“I let them know during that conversation that they can have a contribution to that conversation, because I’d like to assess their financial position,” she said.
“I would like to know how things have changed for them, where they’re sitting financially, so that I can know what 30 per cent of their wage is now, because that’s really important for me to give the landlord the correct information for them to make the decision.
“It’s that information that allows the landlord to create the best decisions for their property, and then the tenant feels that they’ve had the input and that their side has been taken into account.”
Landlords are reasonable people
Both agents said that, far from the stereotypes currently perpetuated in the mainstream media, most landlord clients were reasonable people who wanted to take their tenants’ needs into account.
“We’ve got very reasonable, astute investor clients,” Ms Spruce said.
“Sure, it’s an investment and sure, it needs to make money for them.
“But, there’s also an element of we’re dealing with residential property, which is people’s homes, we’re not dealing with a commercial transaction.
“There’s a human element that also comes into that.”
Sell your services, not how much rent you can get
Ms Hatch warned against PMs prospecting for new landlord clients on the promise they can get top dollar for their rental.
“We are not there to get to get every last dollar out of every last person and promise things that we can’t deliver,” she said.
“That is not what we should be there for.”
What PMs should be doing is properly explaining the value of all of their services to landlords.
“What we should be doing is selling the value of our service, our unique points of difference, what we do, so that we can bring on the clients that align with our values and our service model,” she said.
“That’s what you should be marketing to people and that’s what you should be telling people.”