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Rent: A classic landlord dilemma

Thursday, January 18, 2018

A troubling report inferring bidding wars for rentals has prompted us to consider one of the moral dilemmas of being a landlord - How much is too much to charge tenants?  While the Ministry of Business, Innovation, and Employment has clarified there is nothing in the Residential Tenancies Act which 'precludes the tenant from indicating what they would be willing to pay for a rental property', to overtly solicit what is effectively a tender to rent is at the very least crass, if not morally decrepit.  

The moral of a landlord is not always straightforward. We have as much a social responsibility to our tenants as we do a fiscal responsibility to ourselves, our families, and our lenders. The fact that the former features more prominently in the public discourse shouldn't invalidate the latter which is more private and, understandably, less newsworthy. The trouble is fulfilling one obligation can sometimes come at the price of the other. Take rent arrears as an example, while many landlords would be more than happy to work with valued tenants to manage existing arrears, banks are unlikely to give out a free-pass just because your tenant is late on rent. Bringing it all back to how much rent to charge, how do we make a decision that we can be comfortable with? Most landlords would have, at one time or another, been a tenant. While we can empathise with the day-to-day struggles of renting and understand the tenants' desires to secure homes for as little rent as possible, we do have to charge a level of rent that reflects our accountability to our future and our lender(s). Ultimately the decision will rest somewhere in between these considerations and where you draw the line is entirely up to you, the landlord (within reason, of course, otherwise the Tribunal intervenes).  

In the case of the tender-seeking-Wellington-landlord, and without knowing anymore beyond what has been reported, we would venture to describe the act as shortsighted. Property investment is a long-term endeavour. Many successful case studies involve long-term tenancies with minimum disruptions (read: minimal cost). How long do you imagine the tenancy would last if prospective tenants are placed under financial duress from day one? If the first impression you give is that you value cash return above all else, how can a tenant be confident that you will continue to invest in the property through regular maintenance and prompt repairs? Why then should that tenant rent from you? What someone says they are prepared to pay you is not always what they will actually end up paying you. Why cut off your nose to spite the face? 

Don't mistake us. This isn't a piece that decries premium rent. Premium rent does not offend our sensitivities one bit if, and only if, it is justified by the quality of the property and the accommodation service that comes with it. A tenant can rightly, and should, ask what you are bringing to the table to warrant the rent you charge. What we are uncomfortable with is when run-of-the-mill rentals squeeze tenants far beyond the natural forces of supply and demand and causing duress. On top of giving landlords a bad name and we remain unconvinced of the long-term financial viability of such a strategy. 

This isn't the first time a property industry actor has pushed the envelope too far and, in doing so, exposes the inherent discomfort in most of us when dealing with someone else's perceived wealth.  Often we cannot tell if these acts are motivated by an over-zealousness to succeed, desperation to stay afloat, or quite simply, cold hard greed. While we cannot control how others perceive our behaviours, we can control the intention that drives our actions. It is no one's business what your intention is but life tends to be a lot easier if you believe you are doing the right thing for the right reason. Asking yourself the below questions can help you come to a decision you are happy with and a rental figure that is fair for the property: 

  • What is your long-term plan for the property and how is the rent fulfilling that plan? 
  • If you are constantly cash-strapped and feel forced to increase rent then is it time to revisit your financial strategy?
  • Are you prepared to concede a small amount of rent each week in exchange for a stable, long-term tenancy that comes with minimal fuss? 
  • Assessing tenant applications is one of the most important steps to being a landlord. Can you afford the distraction of a tenant's perceived cash-flow when you should be assessing everyone on their merit? 
  • What are you prepared to reinvest back into the property over time and where is that money going to come from? 
How do you decide what the charge tenants? Share your process by commenting below. Sign up for our upcoming webinar on How to set your rent for help and tips on the mechanics of setting rent. 





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