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Rent increases will keep us in the game: King

Many landlords are facing the dilemma of whether or not to increase rents. An industry expert says now is the time to raise them.

Thursday, October 21st 2010, 12:00AM 5 Comments

by Carolyn Brooke

Put rents up or risk hitting us all in the pocket. That is the message from property guru Andrew King gave to landlords at the recent Auckland Property Investors Association (APIA) meeting.

He says while some landlords may fear losing good tenants, not increasing rents will keep prices down for everyone.

"This is our income - people put their fees up all the time," King says. "Tenants often expect it."

King says landlords can't absorb increased maintenance, insurance and rate costs. No longer being able to claim building depreciation from April 1will hit hard too. He says this alone will increase costs for landlords by an average of $14-$17 each week.

A mediocre outlook for house prices in the short term also heightens the need to focus on rents.

"Capital gains are great but rents and cash flow are really what keep us going," King says. "The good news is rents are increasing faster than house prices."

King says landlords need to be up to date with market rents especially in areas with higher costs of home ownership. The annual cost of owning in Auckland is approximately $9,000 more than renting and higher than the $6,000 national average.

"In Auckland there is even more reason to increase," King says.

Of course there is always a risk of a tenant moving out when rent goes up but he says it can often be mitigated. Making the property more valuable to the tenant like adding a small fence or minor redecoration can make a difference.

When setting rent, he encourages landlords to look at what else is on offer. "Every other business knows what the opposition is charging - we should be no different."

*Recent rent increases reported by APIA landlords

  • A four bedroom property in South Auckland increased from $390 including water to $405 excluding water per week.
  • A three bedroom property in Mt Eden (central) increased from $485 to $500 per week
  • A three bedroom property in Glen Eden (west) increased from $365 to $380 per week
  • A two bedroom property in Henderson (west) was recently tenanted for $320 per week plus water
  • A three bedroom home in Whangaparoa (north) increased from $350 to $400 per week.

 

« Momentum building in house market, according to ANZImmigration increase good for house prices »

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Comments from our readers

On 21 October 2010 at 11:03 am baz said:
Too right. I now put my rents up every chance I get. I'm in the business of landlording for one reason only and that is to make as much out of it as I can. I leave the social welfare to WINZ and Housing Corp. Tenants will up and leave as soon as it suits them regardless of how cheap you make their rent. With the council rates soaring, as well as R&M (don't get me started on plumbers), you need to get rents up as much as possible. I put a 4 br in Grey Lynn up from $550 to $575 to try and keep the tenants happy (a momentary lapse of reason) and they moved out, so I increased it to $695 and rented it within 24 hours. And I then put up all my other rentals by at least 10% - only one tenant has moved out so I put the rent of that property up a further $20 and it went within a week. It is a business people, and you can wave goodbye to capital gains for quite a few years. Your houses are worth significantly less in REAL TERMS (which is what really counts) than they were five years ago! Thanks goodness I bought all mine back in the 90's at a cashflow positive yield.
On 22 October 2010 at 3:45 am John Smith said:
It is not a matter of choice, but a matter of force, to put the rent up, otherwise we will loss everything: the house with depreciate (rot..etc) without being able to claim that back, the rent will not cover the interest payment, rates and insurance..etc, and our personal accounts will get eroded. So I put the rent up by 11% and feeling I should've increased it by more.
On 24 October 2010 at 1:34 pm Jacko said:
Put your rent up all you you like! I haven't got any more money to spend on it, and I'll just move. Stick together if you can (yeah, right! No tenant, I'll just drop it a tad to get one. Better than no income at all), but I can only pay what I have...that's if I keep my job.
On 24 October 2010 at 1:56 pm Jack said:
From the UK's "Telegraph",today.. "the G20 nations announced a major reconfiguration of the IMF, conceding significant powers to the emerging giants of the East. This deal goes way beyond ceremony, marking the coming of a more competitive age, where Western hegemonies don't exist and our relative – and even absolute – living standards look set to fall. ( That's less rent money available and lower house prices, chaps!)

As this new era dawns, it is old-world countries with high current debts and huge future liabilities that will suffer the most. ( That's New Zealand, amogst them...)
On 26 October 2010 at 3:30 pm Rickster said:
I think the issue is rents must continue to grow even with house affordability improving there is now a low level of net new building going on and immigration is on the increase...it is question of supply and demand and demand will increase short to medium term. I am seeing 10% increases being taken easily by existing tenants and more increases from lease change overs in my portfolio which is all wellington based. I believe we will see a peaking in 2-4 years of rentals based on lack of stock as the lag of new building to soakup demand will take its affect on the market. It is currently uneconomical to develop and build new therefore the stock we have today will become more constrained medium to longer term. When the economics of development start to make sense again and the banks support it once more it will take two years for net new builds to impact the market rents downward or slow their increase. Providing there is constrained stock rental prices will remain under pressure to rise and that is what I am seeing in the Wellington market.
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ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
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Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
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HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

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