Thursday, June 15, 2006

Rent increase less than expected

The lease on one of my properties expires at the end of June.

The tenant has reliably paid the rent on time every time and, apart from replacing one of the airconditioning units shortly after the lease commenced, has not troubled me with any maintenance - zero. The tenant likes the property. His wife likes the property. So I want him to stay and he wants to stay. The sticking point has been agreeing the new rent.

The previous rent was set two years ago at the commencement of the current lease. At the time the Hong Kong property market was just begining its recovery and the SARS epidemic was still fresh in peoples' minds. Since then the property market has moved up strongly. After looking at a number of comparable recent lettings and speaking to an agent, I was expecting to get a 10-12% increase on the open market. However, I have decided to accept the tenant's offer of an 8% increase for an extension of six months (with the usual right of early termination) for the following reasons:

1.he is a reliable, no hassle tenant;
2.I will not have to pay agent's commission (half a month's rent);
3.I will not have a vacancy on expiry of the current lease;
4.I will not have my cash flow disrupted - this is actually quite important to me as I will be settling the next purchase on 23rd June and expect it to take 4-8 weeks before I complete the redecoration and have a tenant paying rent on the new property.

While this is not an optimal result, it is one that I am satisfied with.


Bryan C. Fleming said...

I was renting out a house once.

I had the opportunit to sit down with a guy who rented over 100 residental units. He was waiting for a heart transplant and pre-wired the hospital $1,000,000. He gave me some advice:

"If you want to be nice be a priest. If you want to be a good landlord you're going to have to be firm."

That always stuck with me, but I hear ya. It isn't easy, espically when you have a goood tennant.

- Bryan

traineeinvestor said...

Hi Bryan

Thanks for the comment.

Well, I am a long long way short of 100 residential units. Maybe I am being too soft with the current tenant but I decided that getting what may be a slightly sub-optimal rent for 6 months was preferrable to the certainty of having two properties vacant at the same time.