I’d charge a good tenant below market rent but is this a stupid idea?
Property Clinic: Your questions answered
I am a part-time landlord with two apartments. I’ve tended to have good tenants and have always considered it reasonable to keep the rents lower than market levels. Because of the ongoing legislation to protect tenants I am now being penalised for adopting this approach.
I recently bought a new apartment and want to let it. Again, I am happy to let it to the right tenant at a lower than market rent. However, once bitten twice shy, I don’t want to be penalised for doing this. What happens if I strike a market rent with the new tenant but agree to discount it if the property is maintained in good order? If I want to let the property again or want to sell it, does the original market rent apply?
It is easy to see how a landlord could be concerned that charging under the market rent will result in him or her being penalised. I would like to address your assertion that you always preferred to charge a reasonable rent lower than market value. The question is – what is market value?
When doing a rent review, three comparisons of similar advertised properties must be provided, the date of which falls within the period of four weeks immediately preceding the date in which the notice is served. Therefore, from a legislative point of view, it appears the rent advertised rather than the rents currently being achieved in the market place are considered the market rent. This is a concern as the advertised rents are primarily dictated by a lack of supply and therefore are in many cases artificially high.
As this property is new to the rental market, it is not constrained by the rent pressure zone rule, allowing you to seek a fair rent, somewhat below Celtic Tiger levels. Any rent 10-15 per cent below advertised rates would appear to me to be a reasonable rent. You are cushioned by the option of the 4 per cent increase per annum. I feel this is a good position to be in.
The affordability issue is paramount. The rental market cannot grow indefinitely for the simple reason that the growth we are witnessing is being driven by a shortage of rental properties and not parallel economic growth.
Returning to your main question, I cannot see the logic in trying to achieve a net rent below my recommended levels. If you wish to take a net rent some 25 per cent below the market rent, then one method of doing so would be to offer them a rebate after 12 months. Nonetheless I feel you are simply complicating an already complicated situation.
From your experience, you will be aware what a fair rent is and it would be prudent to follow that instinct. Rents that are struck at an affordable level will entice the tenant to remain long-term, this avoids costly refurbishments, rental voids and rent arrears.
Kersten Mehl is a chartered residential agency surveyor and member of the Society of Chartered Surveyors Ireland, scsi.ie.