UK Landlord Forum / Life

The annoying thing here is it's my fault - I've mis-managed my investment. The positive? I know.

I bought the property 12 years ago when it started off at £500pcm. It's fully managed by an agent and in the North West of England although I've since learnt that fully managed does not mean doing rent increases aside from between tenants and even then, increases are kept to a bare minimum. 8 years later it earnt £575 pcm. At this point I started to realise something didn't seem right. So, rent wise:

2021: £575
2022: £625
2023: £725
2024: £??

The question mark is what to take it too in 2024?

Market rates for this property in it's current condition (very good) is c. £925/£950 pcm. The 2023 rent increase was intended to catch up by 50%, however, rent increases over the last 12 months have negated that and we're still £200 pcm below market rates. The tenants pay on time and in general are not bad tenants - they're not great either. This sort of property rents extremely easily. I'm not fussed if they stay or go.

What would people suggest I do to get the property up to market rates, or nearly so?

For decent long term tenants I was always happy below market rent. I'd probably be aiming for £825 this year.

And, although you don't care if they stay or go, you're going to have some void and a month of missing rent is more than half the annual increase, so if they do go, you could end up being down on income for the year.

I completely agree. I've been aiming to bring rents up to £75/ £50 below the market for existing tenants.

Looking at this another way though, let's say the tenant left. I could then raise it to say £925, bringing in £2,400 extra pa. Even allowing for a 6 week void I'd be quids in. As always there would be redecoration etc... mind you.

Very true.

Small increments always work, so it depends whether your plan - that involves the same Tenant(s) - can be a multi-year one, or not?

If so, if you were going for £50, £50, £50, then go for £55, £55, £55 - not much difference to the Tenant, but 10% for you, and it grows. Most sound Landlords who have mortgages should be on some kind of fixed rate - so that's not a variable cost, so you win out in the end, big style. There are other variable costs, obviously.

The sad truth of the matter is that the largest increases (up to market rate, whatever that really means) come when you change the Tenant, do up the property, market it and have interest. That's when you can take a flyer - and even go for the £950 and see what happens. The interest levels could surprise you - they did me when I recently did a re-let. People compete out of panic.

I do not recommend this but only 'cos it's not the way I operate - I am not very ruthless and I prefer to have tenancies running as close to passively as possible - this means the same Tenant(s), just quietly paying their rent and I communicate once per year to inform them of a single-digit %age rise in the rent. Keeps me ticking-over, even though I am sliding against whatever this market rate is.

For you, at £725, I'd be aiming for £750 and I'd sugar-coat it - cost of living, Inflation, less than last time, blah-blah. But I see that, beyond you saying it's under-renting and easy to rent, I really have nothing to go on. It was the previous 8 years where the mismanagement was, not the latest 4 - those rises are quite aggressive and almost headline-making (I can see them on the BBC News website as being part of a Tenant sob-story and being one of the cited reasons why reform is needed in the PRS). I don't think you'll do this as you have convinced yourself you're playing catch-up and you've confessed you aren't especially interested in the Human element... that's not something I subscribe to myself. The Tenant "leaving" in this situation means the Tenant almost being "forced out" (just not via expected means for no reasons other than those you'd want).

If a Tenant is not "bad" and pays their rent in full and on time - they are effectively "great". Could be a lot worse.

I am currently doing this with 2 studios. The third changed tenants a year ago,  and the rent is £625. The other two are £525 and £485.  The latter has been occupied by the same person for around 12 years, with only a couple of tiny increases. I have just increased both, by £15.

I would be most uncomfortable adding a large sum in one jump. The cheapest flat needs work after so long, the tenant is very reliable, a bit odd but then so am I. The place is clean, but she has it like a storage unit, packed with stuff. No way could I get it up to scratch without evicting her, and I don't want to do that.

There is also the issue of income lost through voids. If work is needed requiring tradesmen it is impossible to get anyone reliable round here who is not fully booked up. That' s how I ended up being suckered by a rogue builder who was available at the ideal time.

I know I am losing potential money,but getting rent on the dot and not being rung at midnight about a dripping tap suits me fine.     

@Hippogriff - in general I agree with everything you say. How I would love to just be increasing by "£25 / £50 a year"! I have one property in a different area where that is exactly what happens. It ticks over, I hear very little and the rent always arrives. 4 others are with a different agent in the North West, & that's where I've screwed up.

£25 increases won't be sufficient and indeed would result in me falling even further behind - I'd argue that I'd be back to mis-management if that was all I increased it by. And yes, there is a human element, but for me that differs depending on the tenant. It's give and take if you will - if someone's all take, then the human element certainly drops off as it has with this particular property / tenant.

Thanks for your view on how you'd move forward to bring rates a bit closer to acceptable (for me at least) - much appreciated.


@heavykarma - thanks for sharing your figures. Very interesting. Percentage wise you're about as low v's 'market rate' as I am. My preference would be to get to around 10% below. Far enough below to make it seem a very good price compared to what's around basically. And what with the not insignificant cost of moving (for the tenant), an overall package that means they'll stay.

I also find workmen tricky and have also been burnt in the past. Since I have found a contractor who thankfully can do a lot of things and in short, I use him for everything I can. I had a new bathroom installed in one property last year and the tenants were amazing! One was away during the worst of it and the other stayed at her sisters round the corner for a few nights. It saved me quite some money as I didn't have to re-house them and they got the bathroom they wanted. They earnt a lot of brownie points & goodwill from my side for that.

It's going to be quite a personal thing, it looks like myself and HK just answered the call as to how we'd approach things. We will certainly not be offended if you go your own way, it's fully expected.

Quote from: RKF66 on July 26, 2024, 09:53:36 AMHow I would love to just be increasing by "£25 / £50 a year"

When I mentioned figures like £25, I was implying per month, not per year. So, £300 per year. But I always base my increases on a small-sounding percentage... "only 2%" or "only 3.2%" comes across so much better when people know Inflation has been running at 10% and above. Tenants are grateful to not think of themselves as some kind of victim of profiteering Landlords.

If I continually raise rents by, the aforementioned, 2% or 3% then aren't I also losing money hand over fist if Inflation is truly running at 10%+?

Well, mathematically, I suppose so. But it's not how I look at it - any mortgage I have will be a repayment type on a 5 year fixed term minimum and it's likely the case that I started with a 40% deposit anyway, so the main outlay is fixed... the variables (Insurance, GSCs, repairs etc. I swallow)... but I'm happy because one day all the mortgages will be gone and then it's pure income. I am a great advocate of "boiling the frog". Tenants see you going out of your way to keep increases to a minimum and they're grateful. They hear horror stories of Landlords using figures from the macro economy to bump up their rent by £100 / £200 each month - and rather than hatred, they develop a kind of love for you. Not sexy love, a kind of dependency love. Of course, you're a Landlord, so the overriding emotion remains one of hate coupled with jealousy.

Another worrying angle and perspective might be - get your large rent increases in now, before the Government actually does something heavy-handed, like introducing some limits or controls... you never know.

Blimey, it sounds just like being married.

Thanks to all three of you (heavykarma, Hippogriff & jpkeates) for your imput. Much appreciated!

Would anyone else care to say how they'd look to move this property closer to market rates? The more views the better.
Many thanks,

So you admit it is your fault and you want the Tenant who has paid their rent properly to pay for it.

"The tenants pay on time and in general are not bad tenants - they're not great either."

Please explain what they would have to do to be GREAT tenants?

Not ask for needed repairs?

Look it is quite simple, you have had good advice, you said this sort of property rents extremely easily and you are not fussed if they stay or go (famous last words).

You have apparently decided the market rent, you say it is £925/£950 and you want to set the level at £75/ £50 below the market for existing tenants.

So you want to set rent between £850 and £900.

You say you are getting £725 having increased the rent from £575 and £625, so you have had increases of £50, 100 and now want an increase by between £125 and £175.

I would expect the Tenant to not sign any new tenancy, I would expect them to not leave when it expires and so an SPT is created, you would then issue a S13, they would not pay the proposed rent and refer it to the First Tier Property Tribunal (FTT).

What is the LHA Rate for this property (search online or on .GOV)?

Certainly the FTT would look at the LHA rate, they they would look at your history of increases as a percentage of previous rents. So let's so the same

2021   £575   
2022   £625    8.0%
2023   £725   13.8%
2024   £850   14.7%
2024   £900   19.4%

They do not care that you failed to increase rent in previous years, they would look at the percentages, they might accept that the 13.8% increase was justified by the inflation rate of 12% for 2022. However, an increase of another 14.7% or even 19.4%, when inflation has fallen back to around 2%, I don't think so. Remember the way civil servants and judiciary lean is set by the way the new Gov leans.

I think if you are lucky that they might determine:

2024   £750   3.3%

If you increase by 14% to 20% odd you are shooting yourself in the foot.

That is inflationary, what happens when there is inflation?

Interest rates are increased, so it costs you more and you make less money.

Now you might say your little property won't make a difference, but it will because it shifts the averages, increases the LHA rate and that pushes all rents up and so inflation rises.

A friend of mine is renting a 3 bed flat to a couple, both are Doctors but even she is taking a £100 loss a month. Why?  Because her goal is just to to get the property value to increase so that they pay off the mortgage and leave them with enough to whack into their pension.

Another friend of mine is very wealthy, he said to me that this biggest problem he has is the £85k max payout and with millions to invest there are not enough banks.  So he puts his money into hotels, he does not look to make a huge profit on the operations, but in tie agreements and selling the hotel in the future.  His is not tied to one brand in cases there is some brand damage, he just wants a safe place to put his money.

So what are the risks to you:

1. The FTT set a lower rent or no increase at all (yes lower rents can happen)

2. Your tenant leaves and is replaced by a nightmare tenant that costs you £10,000+

3. Inflation rises and your mortgage along with it

4. Landlords increasing rents causes new Gov to introduce rent controls and increases taxes on Landlords

5. Property prices crash due to inflation impact on economy

Just as the last Gov was urging employers to exercise pay restraint because it creates a cycle of inflation, the same thing happens with rents.

Consider your Tenant leaves, realises that rents are higher and is forced to pay more, they in turn demand more from their employer, that adds to inflation if they pay it or maybe they let your tenant go.  They then can't afford the rent and you end up with huge arrears, it takes you 8 months to a year to get rid of the tenant (plus thousands in legal fees) and because they are pissed off with you they cause damage to your boiler, create a leak from loo, damage appliances or encourage mould which they blame you for and you are fined by local authority.

You asked for more views, well that is my position,  Personally I would leave it where it is, you survived for 8 years on £575 with no increases, the price of the property has increased to make a more than healthy profit. 

Do what you want, if feels like you are seeking approval, well not from me, sorry.  Karma is a bitch, so when shit happens in your life ask yourself if you deserved it.

Quote from: RKF66 on July 25, 2024, 11:40:15 AMI completely agree. I've been aiming to bring rents up to £75/ £50 below the market for existing tenants.

Looking at this another way though, let's say the tenant left. I could then raise it to say £925, bringing in £2,400 extra pa. Even allowing for a 6 week void I'd be quids in. As always there would be redecoration etc... mind you.

Quote from: RKF66 on July 25, 2024, 10:43:56 AMThe annoying thing here is it's my fault - I've mis-managed my investment. The positive? I know.

I bought the property 12 years ago when it started off at £500pcm. It's fully managed by an agent and in the North West of England although I've since learnt that fully managed does not mean doing rent increases aside from between tenants and even then, increases are kept to a bare minimum. 8 years later it earnt £575 pcm. At this point I started to realise something didn't seem right. So, rent wise:

2021: £575
2022: £625
2023: £725
2024: £??

The question mark is what to take it too in 2024?

Market rates for this property in it's current condition (very good) is c. £925/£950 pcm. The 2023 rent increase was intended to catch up by 50%, however, rent increases over the last 12 months have negated that and we're still £200 pcm below market rates. The tenants pay on time and in general are not bad tenants - they're not great either. This sort of property rents extremely easily. I'm not fussed if they stay or go.

What would people suggest I do to get the property up to market rates, or nearly so?

That's complete nonsense.
A tribunal considering a rent appeal against a s13 notice is not allowed to take any account of the amount of the increase, just the reasonableness of the proposed rent. They also won't consider the LHA rate - which is understood to be connected to an historic level of (theoretically) actual rents.

Your doctor friend making a loss is using the rent to pay a repayment mortgage, which makes perfect sense if you can afford the loss. Your other friend avoiding the risk of a bank crash investing in hotels is interesting (and probably ill advised in my view) but academic.

Not putting the rent to market levels has no effect on inflation (which is based on market levels of rent, not actual rent paid), so increasing the rent will also have no effect on inflation.

Inflation doesn't increase interest rates. Interest rates can be increased to keep inflation in check, but the relationship isn't causal.

Actually it seems you are the one spouting nonsense.

The approach of highlighting history FTT works.

My friend has doctors as tenants, my point is they could afford an increase but they consider the value of professional tenants.

The chap with a chain of hotels has been operating for 40 years, he owns numerous hotels that are under all brands, over the years he has had offers from developers and supermarkets, one that had a gym and a several acres of land was offered £18m, he paid £1m for the defunk business. He owns property is UAE, Dubai, USA, UK and Canada, but I will tell him you don't advise it.

If you can't see the relationship to rent and inflation then more fool you, it is absurd to suggest that these are not connected.  Rent is the biggest outgoing for people who do not own their own home, if the prices go up by 63.9% as in this case from £575 to £900 then that has to be paid for with income which usually means salary.  The salary demands lead to products costing more, which leads to inflation.

For you to suggest that inflation doesn't increase interest rates is ridiculous, where have you been the last few years, base rate increased from 0.25% (0.1% in pandemic) to 5.25%, they were sub 1% from 2009 to 2022, and what was it that made them increase?  err i n f l a t i o n



Keep living in your bunker, you will be fine.

Quote from: jpkeates on July 30, 2024, 10:52:53 AMThat's complete nonsense.
A tribunal considering a rent appeal against a s13 notice is not allowed to take any account of the amount of the increase, just the reasonableness of the proposed rent. They also won't consider the LHA rate - which is understood to be connected to an historic level of (theoretically) actual rents.

Your doctor friend making a loss is using the rent to pay a repayment mortgage, which makes perfect sense if you can afford the loss. Your other friend avoiding the risk of a bank crash investing in hotels is interesting (and probably ill advised in my view) but academic.

Not putting the rent to market levels has no effect on inflation (which is based on market levels of rent, not actual rent paid), so increasing the rent will also have no effect on inflation.

Inflation doesn't increase interest rates. Interest rates can be increased to keep inflation in check, but the relationship isn't causal.

Quote from: jpkeates on July 30, 2024, 10:52:53 AMThat's complete nonsense.
A tribunal considering a rent appeal against a s13 notice is not allowed to take any account of the amount of the increase, just the reasonableness of the proposed rent. They also won't consider the LHA rate - which is understood to be connected to an historic level of (theoretically) actual rents.

Your doctor friend making a loss is using the rent to pay a repayment mortgage, which makes perfect sense if you can afford the loss. Your other friend avoiding the risk of a bank crash investing in hotels is interesting (and probably ill advised in my view) but academic.

Not putting the rent to market levels has no effect on inflation (which is based on market levels of rent, not actual rent paid), so increasing the rent will also have no effect on inflation.

Inflation doesn't increase interest rates. Interest rates can be increased to keep inflation in check, but the relationship isn't causal.

Quote from: Marie on July 30, 2024, 10:20:21 AMSo you admit it is your fault and you want the Tenant who has paid their rent properly to pay for it.

"The tenants pay on time and in general are not bad tenants - they're not great either."

Please explain what they would have to do to be GREAT tenants?

Not ask for needed repairs?

Look it is quite simple, you have had good advice, you said this sort of property rents extremely easily and you are not fussed if they stay or go (famous last words).

You have apparently decided the market rent, you say it is £925/£950 and you want to set the level at £75/ £50 below the market for existing tenants.

So you want to set rent between £850 and £900.

You say you are getting £725 having increased the rent from £575 and £625, so you have had increases of £50, 100 and now want an increase by between £125 and £175.

I would expect the Tenant to not sign any new tenancy, I would expect them to not leave when it expires and so an SPT is created, you would then issue a S13, they would not pay the proposed rent and refer it to the First Tier Property Tribunal (FTT).

What is the LHA Rate for this property (search online or on .GOV)?

Certainly the FTT would look at the LHA rate, they they would look at your history of increases as a percentage of previous rents. So let's so the same

2021   £575   
2022   £625    8.0%
2023   £725   13.8%
2024   £850   14.7%
2024   £900   19.4%

They do not care that you failed to increase rent in previous years, they would look at the percentages, they might accept that the 13.8% increase was justified by the inflation rate of 12% for 2022. However, an increase of another 14.7% or even 19.4%, when inflation has fallen back to around 2%, I don't think so. Remember the way civil servants and judiciary lean is set by the way the new Gov leans.

I think if you are lucky that they might determine:

2024   £750   3.3%

If you increase by 14% to 20% odd you are shooting yourself in the foot.

That is inflationary, what happens when there is inflation?

Interest rates are increased, so it costs you more and you make less money.

Now you might say your little property won't make a difference, but it will because it shifts the averages, increases the LHA rate and that pushes all rents up and so inflation rises.

A friend of mine is renting a 3 bed flat to a couple, both are Doctors but even she is taking a £100 loss a month. Why?  Because her goal is just to to get the property value to increase so that they pay off the mortgage and leave them with enough to whack into their pension.

Another friend of mine is very wealthy, he said to me that this biggest problem he has is the £85k max payout and with millions to invest there are not enough banks.  So he puts his money into hotels, he does not look to make a huge profit on the operations, but in tie agreements and selling the hotel in the future.  His is not tied to one brand in cases there is some brand damage, he just wants a safe place to put his money.

So what are the risks to you:

1. The FTT set a lower rent or no increase at all (yes lower rents can happen)

2. Your tenant leaves and is replaced by a nightmare tenant that costs you £10,000+

3. Inflation rises and your mortgage along with it

4. Landlords increasing rents causes new Gov to introduce rent controls and increases taxes on Landlords

5. Property prices crash due to inflation impact on economy

Just as the last Gov was urging employers to exercise pay restraint because it creates a cycle of inflation, the same thing happens with rents.

Consider your Tenant leaves, realises that rents are higher and is forced to pay more, they in turn demand more from their employer, that adds to inflation if they pay it or maybe they let your tenant go.  They then can't afford the rent and you end up with huge arrears, it takes you 8 months to a year to get rid of the tenant (plus thousands in legal fees) and because they are pissed off with you they cause damage to your boiler, create a leak from loo, damage appliances or encourage mould which they blame you for and you are fined by local authority.

You asked for more views, well that is my position,  Personally I would leave it where it is, you survived for 8 years on £575 with no increases, the price of the property has increased to make a more than healthy profit. 

Do what you want, if feels like you are seeking approval, well not from me, sorry.  Karma is a bitch, so when shit happens in your life ask yourself if you deserved it.

[/quote]

This is nonsense and shows a complete lack of understanding of the law governing this area.

The damage you have invented that the tenant might do says more about you than anything.

Quote from: Marie on July 30, 2024, 01:54:07 PMThe approach of highlighting history FTT works.

A FTT considering an appeal against a rent increase cannot consider the historic rent or the scale of the increase.
Here's the government guidance - https://assets.publishing.service.gov.uk/media/5b06e15fe5274a1bad0ff010/t540-eng.pdf

QuoteMy friend has doctors as tenants, my point is they could afford an increase but they consider the value of professional tenants.

Their "value" is a cost of £100 per month, which seems a lot. But it's their business what they charge. I don't think they're a great example for others to follow.

QuoteThe chap with a chain of hotels has been operating for 40 years, he owns numerous hotels that are under all brands, over the years he has had offers from developers and supermarkets, one that had a gym and a several acres of land was offered £18m, he paid £1m for the defunk business. He owns property is UAE, Dubai, USA, UK and Canada, but I will tell him you don't advise it.

Good of you. Again, I'm not sure of the relevance to putting up the rent on a residential let in England.

QuoteIf you can't see the relationship to rent and inflation then more fool you, it is absurd to suggest that these are not connected.  Rent is the biggest outgoing for people who do not own their own home, if the prices go up by 63.9% as in this case from £575 to £900 then that has to be paid for with income which usually means salary.  The salary demands lead to products costing more, which leads to inflation.

Inflation figures (that include rent) in the UK are based on average market rents. So increases in real rent have no effect. The market rent for inflation purposes is somewhere between £850 and £900. That's true when the real rent charged by this landlord is £725 or £900. For inflation purposes, it wouldn't matter if they charged £2000 a month.

It's possible that increasing the rent might cause the tenant to ask for a pay rise. But, despite everything politicians tell you, increased wages doesn't cause much inflation either. The effect of wages on the cost of most goods is almost undetectable.

And, as another example, the tenant might be a teacher. How is giving them a pay rise going to cause the products to cost more?

QuoteFor you to suggest that inflation doesn't increase interest rates is ridiculous, where have you been the last few years, base rate increased from 0.25% (0.1% in pandemic) to 5.25%, they were sub 1% from 2009 to 2022, and what was it that made them increase?  err i n f l a t i o n

Er, it was the bank of england who decided to increase the cost of interest (and who kept it artificially low in the pandemic).

You'll notice that they're not really connected, because inflation has fallen from roughly 5.5% to 2% in the last 18 months and interest rates have stayed pretty much the same. Interest rates are loosely connected around the world, but are, in the main, adjusted by central banks who either follow a government policy or work to meet other guidelines.

Brazil's inflation rate was 10.4% in 2022, is 3.7% now and their base interest rate has gone up (9.2 to 10.8%). Russia's inflation rate has fallen (over the same dates) and their interest rate has doubled to 16%. Germany's inflation has halved and their interest rate has gone from 0 to 4%. The conventional thinking is to use increased central bank interest rates to slow economic activity, which can slow or even reduce inflation.

The biggest impact on UK interest rates was a catastrophic mini budget in 2022 and the Bank introduced a sharp increase in rates to show the rest of the world that the UK economy was under control and we could afford to pay our debts.

The biggest increase in inflation was triggered by the increased cost of energy and raw materials due to a war in Ukraine.

QuoteKeep living in your bunker, you will be fine.

Thanks. Have a lovely day, yourself.

@Marie - My post certainly touched a nerve with you didn't it!

The only thing that is my fault is not having increased the rent consistently / enough over recent years. That aside, every single bit of maintenance required has been done, and more.

"The tenants pay on time and in general are not bad tenants - they're not great either."

Please explain what they would have to do to be GREAT tenants?

Not ask for needed repairs?"

They would be great tenants if they respected the property more. In their time there they have removed all trees and shrubs from the garden leaving it as a grass wasteland - all without permission. They've been difficult in allowing access for maintenance work which they have requested - this in turn causes more degradation to the property than necessary. They have broken appliances (their words, not mine) and not had them fixed, or replaced. So no, they're not tenants I particularly value even though I accept they could be worse (& we've had much worse in the past).

When we come around to doing a rent increase, they'd be welcome to refer it to the Tribunal. Gov.uk states that "the rent increase must be fair and realistic, which means in line with average local rents". No issues there as we'd still be below the average.

They have benefited from this situation for at least 24 months and probably more - I suspect they're fully aware of what the average rents are for a similar property, if only as a result of previous price increases. Over the time period they've saved themselves in excess of £3000 - not a bad saving. But all good things come to an end. That said, I suspect they'll probably stay even with the rent increase (whatever that is). Why? Because it's a very good property, in a good location, with landlords who maintain the property as necessary and of course at a price still below market rate. It's their choice at the end of the day.

A few posts waffling on and developed into an argument - stay clear lol

There is a very simple method of getting rents to market rates - follow the Law and DO IT don't dither.

If you have a top quality property (especially if newly decorated between tenants) the  there is nothing wrong with LEADING the market and setting market leading rents (someone has to or we stagnate).

This Labour Government is going to introduce a lot of anti-Landlord stuff so we ALL need to be at top rents and FULLY Compliant ready for when it hits.