Handling good tenants in a falling market?

by Readers Question

8:56 AM, 29th January 2021
About a month ago

Handling good tenants in a falling market?

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Handling good tenants in a falling market?

Does anyone have an established playbook for rapidly-falling rents? I run a 6-bed HMO for young working professionals in inner London (Zone Two). I’m on good terms with all tenants. The house grosses about £57k per year and nets about £30k after tax. I self-manage it, and unfortunately, I live two hours drive from it!

None of the tenants has asked me for a rent reduction, but room rents in London are down circa 12% and doubtless, they’re all keeping an eye on Spareroom.co.uk. Most are on one-months notice.

Should I pre-emptively offer a rent reduction to prevent them from looking elsewhere? If not, what other incentives might make sense?

Obviously, some tenants will want to avoid the faff of moving and taking a gamble on new housemates – but that’s true of finding new tenants too.

I’ve thought about:

1) Doing nothing until someone asks. Whatever I offer one tenant, I’ll have to offer to the others.

2) Voluntarily refunding an amount similar to their deposits, via a one-time rent holiday.

3) Voluntarily offer circa 7 % reduction in rent in return for a new six-month contract, on the understanding that if they break the agreement within six months they definitely will lose their deposit.

4) Temporary rent reduction for a six-month period, then raising them back to the usual level in summer, by which time the market might be more stable.

I realise that ultimately it’s down to whatever I’m willing to pay to avoid the hassle of re-marketing, but I’d be interested to know if anyone on here has an established playbook for rapidly-falling rents.

If you do, I imagine it’ll be a popular read in London right now!

Rigsby

Comments

david porter

10:08 AM, 29th January 2021
About a month ago

I had a hmo in the edge of zone 2 in the 1980s
I converted into a large single dwelling and sold it for a very substantial gain. The conversion costs were large and to get the money I had to sell another house but it was very well worth it.
Is it worth considering now?
Turn your disadvantage into an advantage?

Steven

10:09 AM, 29th January 2021
About a month ago

Hi Rigsby, I've done 1) and then when they raised the issue I did 4), although I did a 12% reduction for 12 months, which will go back up to what it would have been absent Covid. A reduction of 12% was market driven and what happens at the end of 12 months will also be market driven, so no certainty. 3) is a good idea; I might go 10% for a new 12 month term to (hopefully) really get you past Covid, and if they want to leave earlier than 12 months they must find a replacement at the same rent (failing which they remain liable for the rent) - saves you admin and avoids messing with deposits which risks getting third parties involved. It's just a personal view of mine but deposits are emotive because tenants see them as "theirs" and so I only deduct for actual non payment of rent - money for money. When one goes money for any other non-financial tenancy agreement breach (eg dirty carpets, etc) it gets "messy". Just a personal view. Hope this helps.

Alison King

10:16 AM, 29th January 2021
About a month ago

I would focus on making sure your property is a really great place to live. Other properties may be lower to rent but they may also be horrible. Your tenants might all be perfectly able to afford the rent if they are not affected by the lockdown, and sometimes change can be disconcerting, and a surprise reduction in the rent may have the opposite effect to what you expect. I remotely manage my HMO too, but I still think I give a much better and more personal service than any agent and my tenants know that. I think the key is to stay in regular contact with the tenants and check that everything is OK frequently. Maybe offer to spruce up the paintwork and ask if they are coping ok during the pandemic.

GraemeG

10:31 AM, 29th January 2021
About a month ago

I also run 3 x HMOs (6,7 & 8) bedrooms for working professionals in Manchester, and have excellent relationships with all the tenants. The market price percentage reductions are lower than London, however, it is causing me to review the pricing strategy and policy for existing tenants. I personally favour a proactive considered approach. Retaining "good" tenants is highly valuable to a landlord. My thinking is currently a percentage reduction on future monthly payments with two option, a higher percentage being offered for a six month contract. Also consider percentage values to one decimal place, rounding to zero decimal places may not be optimal. If the market values increase again in the future then the prices can be increased again.

GraemeG

10:38 AM, 29th January 2021
About a month ago

Reply to the comment left by Alison King at 29/01/2021 - 10:16
I agree, my strategy is the same as yours. Focus on the quality of experience for the tenants, be proactive and responsive to any needs. We have not lost any tenants to another HMO. I had to live in one of them for 5 months with tenants during the lockdown #1. A great opportunity to get feedback and insight as well as building relationships. If I were to subjectively rank criteria for a tenant:
#1 : Quality of the premises both functionally and aesthetically
#2: Landlords that care and are responsive to tenants needs
#3: The personal community of the HMO
#4: Price

Bill Maynard

11:07 AM, 29th January 2021
About a month ago

If they're good tenants I'd not want to lose them. In my view, a 12.5% reduction to reflect current market conditions would be fair and would cement good relationships.

Kevin B

9:01 AM, 30th January 2021
About a month ago

Why not offer a 1-off 1-month rent holiday as a compassionate gesture and do it on a floor-by-floor time-timetable so you don't take a massive hit in one month.

Dink Winkerson

18:12 PM, 30th January 2021
About a month ago

I have been thinking similar for sometime and your question - and one or two of the answers - encouraged me just to have the courage of my convictions and make my tenant an offer.
Less than 10% off the rent but still a reasonable sum and received with thanks by my tenant in West London.
I am an accidental Landlord and live a long way from the flat that I let out, I am aware rents in the area have been sliding for sometime, my tenant is excellent and the hassle/time/expense in finding a new one would be considerable. Of course, I still may have to - will report back in due course - but at the moment I am feeling weirdly satisfied having proactively talked myself out of some money.
Strange days, indeed.

david porter

21:33 PM, 30th January 2021
About a month ago

In the middle of National Emergency who in their right mind wants to move home?
It is hassle in the first place but taking sofas up stairs wearing a mask?
Having your G.p. send your inoculation info to your old address?

Dink Winkerson

10:13 AM, 31st January 2021
About a month ago

Reply to the comment left by david porter at 30/01/2021 - 21:33
Yes .... v good points, David .. that makes me feel like I may have made a mistake as they were likely to stick around regardless .... ah well, done now ...

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