Handling good tenants in a falling market?

Handling good tenants in a falling market?

8:56 AM, 29th January 2021, About 3 years ago 15

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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


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Comments

David

11:35 AM, 31st January 2021, About 3 years ago

I've just had another look at the online rental market in Wembley and Greenford, where I have my properties and prices don't seem to have fallen much. Less than 5% in the last year. Its possible that landlords are having to accept lower offers but I re-let two flats a couple of months ago and advertised them at £1200 instead of £1250 and £1100 instead of £1150. Both rents achieved with no problem.

Mark W

15:28 PM, 31st January 2021, About 3 years ago

My approach has been to reduce the rent and reduce their deposit over time, little by little. Then I renewed the AST with zero deposit, with a nil increase in rent, despite that rents in Oxford are still rising. Income secure for me and happy tenants, just with a little creativity.

Otto

16:41 PM, 31st January 2021, About 3 years ago

So if a tenant can't be evicted because of Covid then why should they be allowed to move out? LOL!

Steve Hards

16:51 PM, 1st February 2021, About 3 years ago

Reply to the comment left by Kevin B at 30/01/2021 - 09:01
If you are prepared to lose a month's rent (or even a part of it), why not give them a rebate of a quarter over four months? Or a fifth over five? That gives them an incentive to stay and by that time the market may have improved. I wouldn't change the rent (so they continue to pay the contracted rate as normal) but I'd make a refund after it has been paid. Psychologically it will be easier for the tenants to feel that a rebate is ending than the rent is going back up.

HardworkingLandlord

13:59 PM, 7th February 2021, About 3 years ago

Its a problem as rents fall in London but rents have been stagnant in recent years anyway anyway so I have not put up the rent so much or only by tiny amounts. I think the suggestion to make sure that it is a great place to stay is a one number principle e.g. I've fixed stuff quickly, implemeted new regs quickly so tenants feel comfortable and safe. Dealt with annoying neighbours.
and been flexible with requests without compromising. No one has asked for a rent reduction but my first response would be well, I've kept the rent low and it is not easy to find much cheaper. I would certainly not volunteer a reduction.

I expect rents/demand to rise again and interest in London or city centres to return. While business can have their existing, experienced staff at home in cheaper locations, this is not sustainable as new business needs to be developed face to face and new staff come along that need to learn on the job and pressure to be seen in the office and thus demand for the cities will return. Good time to invest if you can find a bargain!

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