Tuesday, May 14, 2013

New lease signed - 12.8% increase

One of my tenants has decided to vacate at the end of May. The agent was instructed to advertise the property for rent on Thursday and a new tenant signed a provisional agreement last night.

The good news is that the new rent is 12.8% higher than the old rent.

The bad news is that I am not actually any better off because:

  • there will be a five week vacancy between tenancies
  • I have to pay the agent
  • I have to pay the stamp duty
  • I have to pay for the flat to be repainted, for the airconditioning units to be cleaned and some other minor touch up work
It will take approximately 22 months of the higher rental to absorb these costs - and that is before tax or discounting the fact that the costs are up-front while the revenues are in-arrears. In one simple lesson, this explains why I try very hard to keep existing tenants in place even if it means receiving less than full market rent.

I would have been better off keeping the existing tenant at the old rental (which was not an option).

Still, it could be worse - I could have had an extended vacancy or a smaller rent increase.



2 comments:

J-D said...

It seems you have quite a few residential prop; why not diversify by eg owning some higher yielding good quality REITs eg Champion etc.

Anonymous said...

Hi J-D

Good question. The short answer is that I preferred the developers and property companies as they were trading at bigger discounts to NAV - Henderson, K-Wah, Sinolink, HKR International and Tai Cheung are all in the portfolio. The dividend yields may not be as good as the REITS, but you also have to remember that the REITs are paying out at least 90% of their income while the property companies are paying out much smaller percentages and retaining more for future expansion.

Cheers
traineeinvestor