The PROPERTY DOCTORS, Sydney Australia Novak Properties
NOVAK PROPERTIES CREW and PROPERTY LEGENDS in the industry share their experiences and knowledge. Hacks and tips to make you a smarter property GURU :) Learn with exclusive content, advice, insider info and HOT real estate industry PRO SECRETS. For sale, for lease, residential, commercial, buying off the plan, finance, mortgages, interest rates, first home buyer, investments - all topics covered. The untold real estate info you've been waiting for.
The PROPERTY DOCTORS, Sydney Australia Novak Properties
EP. 1406 Forever tenants: cozy cashflow or Hidden Headache?
To rent increase or not to rent increase? That's the question plaguing property investors with long-term tenants. This candid conversation dives deep into the emotional and financial complexities when loyal tenants face market-rate rent adjustments after years of below-market rates.
We explore what happens when the honeymoon period ends—that moment when landlords discover they could be earning $100+ more weekly and decide to bring rents closer to market value. Property managers find themselves in the crossfire, negotiating between landlords seeking fair returns and tenants who've grown accustomed to their rental bargain.
The discussion reveals fascinating tenant psychology: how minor maintenance issues suddenly become urgent complaints post-rent increase, and the curious "short-term memory" phenomenon where years of below-market rent are quickly forgotten. We examine how COVID changed the landscape, with many landlords showing exceptional empathy during difficult times, only to face resistance when eventually adjusting rents years later.
Most revealing is our breakdown of landlord types: established property owners (often baby boomers) who prioritize tenant relationships versus first-time investors who "can't afford to be empathetic" with mortgages breathing down their necks. This distinction creates fundamentally different approaches to property management and tenant relations.
Whether you're a landlord trying to decide between "cozy cash flow" or maximum returns, or a tenant wondering what goes on behind the scenes in rent negotiations, this conversation offers valuable perspective on navigating rental relationships in today's challenging market. For property investors, the takeaway is clear: maintain high standards, communicate thoughtfully, and find the balance that works for your investment strategy.
The great debate. You've got tenants long term. Do they stay, do they go? We're going to talk about property management, long-term tenants. Stay tuned, I'm the ring leader. A daily dilemma for a property manager Tell us more, tell us more, tell us more.
Speaker 2:Well, I guess the first thing is determine what is a long-term tenant. I think any tenancy that runs over a period of, say, five years you have a long-term tenant that is comfortable in the property. They've immersed themselves in the community, the neighbourhood, the building and I feel, with landlords, agents and tenants, when it is a long-term relationship, there are ups and there are downsides to that. Um, recently, what brought this discussion on is negotiating a rent increase with a landlord where the tenancy has been in place for in excess of eight years. There is a lot of emotion there and the current rent is not reflective based on emotion over the years with the tenant and the landlord so what's the short answer?
Speaker 1:like how do you, when you get a tell, when you get a landlord going, uh, uh? Do most landlords get to that point cleo, where, where they go? Actually, I've probably been too low on my rents and too loyal or generous to my tenants.
Speaker 2:Yes, and it is usual that it happens after a few years where the landlords kept the rent quite low. Then, like what we're experiencing now with this current market, the media portrays all the issues with housing, the rental prices going up. Landlords then become curious. We then send them a report of what their property's worth and they're shocked, Whereas the conversation that we had last year or the year before our recommendation wasn't taken up and the landlord said you know what? They've been great tenants. We hear this all the time. There've been great tenants. We hear this all the time. There've been great tenants. They look after the property, just do $20 or just do $15.
Speaker 2:And now that $10 or $20 is really low in comparison to other properties that have been listed in this current marketplace and they're getting $100 a week more for their property. So it does make it tough for a property manager to then negotiate that with the tenant. Maintenance is another thing. With long-term tenants they put up with quirks within a property in appreciation for the landlord keeping the rent at a minimum, no increases, say, for a year or two, so they don't complain about the blind cord that's broken or a loose tile that they've, you know, just learned to step over, for example, Whereas if they do get that $50 rent increase, they're not going to complain. That's when it all comes out. Well, you know, we've been here.
Speaker 1:I want to be someone that I want to be someone that. So, and something that that also I I find um is that it's uh, it's a very short-term memory, because if you don't put the rent up with your tenants and you stay loyal to them for three years and they're saving a hundred dollars a week, uh, for three years, and they're saving $100 a week for three years, $150 a week in whatever when that rent does go up $200 or $100 or whatever it is and the landlord turns around and says, yeah, but you've had really good rent for a couple of years, it doesn't matter.
Speaker 2:No, it's a big chunk for the tenant to then have to come up with for sure yeah, and when the rent's being kept at a, at a you know low or reasonable. It doesn't mean the tenant's then saving that money saying, well, I could be paying this, I'll put that aside, just in case they're not. The lifestyle is um easier for the tenant. They might put that money elsewhere. And then it seems somewhat unfair from a tenant when a landlord then decides to change the circumstance and increase it up to market value.
Speaker 1:There's no thank you for the landlord, though.
Speaker 2:There's no thank you for the landlord.
Speaker 1:It's generally like oh my God, the rents have just been whacked Like what the hell.
Speaker 2:It's true, it is that short-term memory. We did have a lot of tenants during covid where the owners were very empathetic. They gave them grace periods of rent. They, you know, um didn't increase, you couldn't increase rents. But even the year after we didn't get a lot of rent increases.
Speaker 2:I think there was a period of two to three years with some of our properties we managed where landlords were empathetic, tenants were getting back on their feet with employment. You know some working from home, you know a lot of the landlords um were empathetic. And then, yes, it is true and unfortunate that tenants do forget that there was that time. Not all, some are. Some are very appreciative and they say you know what? I knew, this was coming, you know that's fine, I'm happy to stay on because they do remember that grace period. So it is all case by case. It's also interesting.
Speaker 2:The landlords that have owned property for a long time. They are the ones that are more emotional with their tenants. I feel like the baby boomer generation and the people that have a little bit of cushion, do you know, reward tenants in a different way. But it is different for the first time. Investors, when that bank is on your door, you can't afford to be empathetic. So, unfortunately for them, that churn of tenants, it's transactional, it's not an emotional thing so who do you want to be cozy cash flow or hit the headache tenants?
Speaker 1:which ones do you want? As if you're a landlord?
Speaker 2:you can't be, you can't be switzel on the same between to be fair, though, if I had a really old house where you know houses in particular, where there's a lot of maintenance things, I'll have the cozy tenant without the headache. I don't want to be replacing roofs and gutterings and piping and plumbing and all the quirky things that come with living in an older house. So in that retrospect I would go the cozy tenant, the long-term tenant, happy to you know, have that tenant. But yeah, no, if I was an investor in this current market you know a unit block and things like that I would definitely go the headache and churn through those tenants.
Speaker 1:Don't hate me, tenants oh, it's a hard, it's a hard science. Look, I guess I love the word market value because that's that's the diplomatic approach for the tenants, for the landlords. It is what it is, it's got to be at market value and it's the diplomatic approach for the tenants, for the landlords. It is what it is, it's got to be at market value and it just is what it is. So I'm probably more so the headache, you know, like pushing those rents and creating headaches for myself with tenants out there but supply a good standard of property. You saw me just unnecessarily put air conditioning in one of my properties. I think you know you just it's just good to keep the standard above average beg your pardon above average oh yeah, do you know?
Speaker 1:what I mean like, rather than you know, when you can see it fall before below average, you're like, nah, better paint it, better carpet it. So message out there to landlords I guess would be guys, keep your standards high, we look after your properties, maintain your properties and and um, and bring those rent to rents to market value. And I guess the message to landlords is um, if you want, um, if you, if you want to, uh, if you don't, if you don't want to poke the bear, keep the rents. Keep the rents below market. Yeah, and for all our long-term tenants, I just want to. If you don't want to poke the bear, keep the rents below market.
Speaker 2:Yeah, and for all our long-term tenants, I just want to say we always have tenants, especially at Novak, where we've been in the business such a long time. We put long-term tenants in other properties all the time. They might be five years in one property. We know them, we love them, and then we find another property if the landlord's circumstances change. So there is a benefit for that as well. Um, we do um have a relationship and we do find, um you know, tenants to move on into other properties that we, that we manage, where the tenant that you've only had for one year and you don't know so well, I mean you will extend yourself, but it'll be normal application process, whereas some of my tenants I've had for one year and you don't know so well, I mean you will extend yourself, but it'll be normal application process, whereas some of my tenants I've had for five or six years. If, if the landlord's selling or whatever I will call other agents, I will help them find their next dream home. So yeah, it's case by case as well.
Speaker 1:Expert property manager. News reporter Cleo Wish here. Thank you so much thank you everyone.
Speaker 2:Have a great day.
Speaker 1:I hope that helps some landlords and tenants out there today. Take care.