An article by Bob Walters.
In my travels around the countryside providing property management consulting services to businesses, I constantly find rent rolls where rent reviews are not performed regularly and in the best interests of landlord clients.
As a general rule, I advise business owners to have all properties on the rent roll at rent levels of at least 95% of “market rent”.
Why 95%?
Because, if the rent is slightly below full market rent then the tenant is likely to remain in the property, because if they vacate, they may find themselves paying a higher rent for an equivalent property.
Why are so many Property Managers not as diligent as they could be when it comes to rent reviews?
- They could be afraid the tenant will vacate, and that then means extra work for the Property Manager in processing the tenant’s departure from the property and the subsequent reletting of the property.
- Maybe some Property Managers have close relationships with their tenants and feel guilty about increasing the rent, or if they do increase it, some do not increase it to at least 95% of market rent, in fear of having a vacancy.
- Reviewing rents is often seen as extra work that is put to the bottom of the ‘to do’ list.
We all know our fiduciary obligation to our landlord clients to ACT IN OUR CLIENT’S BEST INTEREST.
In this case, increasing a tenant’s rent (provided the market justifies it) is not only acting in the client’s best interest, but it is also acting in the best interest of the property management business in maximising fee revenue.
My key advice for business owners in relation to rent reviews is:
- You cannot always rely on your Property Managers to keep rents at market levels (for the reasons above)
- You need to have a process in place each month to check rent levels across the entire rent roll to ensure that any properties on the rent roll that are capable of being increased are in fact being increased.
Being diligent with rent reviews is a key strategy for maximising client retention and business cash flow.