Q. My tenants have been in my property for two years without a rent increase. I want to raise the price but I'm worried they might move out if I do. Should I increase the rent or leave it the same so they stay?
I get asked lots of questions surrounding rent increases and the one thing I've noticed, is that although the questions can vary, most landlords fear that increasing the rent may damage relationships with the tenants, lead to confrontation or result in a good tenant deciding to vacate the property.
There are many reasons why a landlord may choose to increase the rent and most tenants understand that there comes a time when the rent will go up. Interest rate rises, cost of living, maintenance requirements and property improvements all play a part in the decision.
When it comes time to review the rent on your investment property, charging way above market rental prices is not going to gain or keep tenants. In fact, it’s going to increase the chances of long-term vacancies and there’s little worse in the property investing game.
To keep a grounded outlook on the market and make sure you don’t lose good quality tenants, keep these tips in mind.
Review Rent Regularly
One of the best ways to keep your rental increases sustainable is to have an understanding of how your rent compares to the rest of the market. Review your rents on a regular basis and make sure they’re inline with the rest of the properties in the area. A smaller, more regular review is a lot better than hardly ever reviewing your rent and then making high increases that shock tenants and send them running.
If you’re a new landlord it might feel daunting to up the rent, worrying that your good tenants will move out. But the reality is that as long as you keep your increases reasonable, there won’t be problems with the tenants.
You can keep an ear to the ground by attending open house inspections and seeing how other properties fair up to yours. Or if you don’t want to leave the house, set up alerts on Realestate.com.au or Domain.com.au and get notified when similar properties in the area hit the market.
Let Tenants Know in Advance of Rental Increases
Keep in mind that tenants are always going to consider their rent over-priced. But landlords still want to maximise their investment returns. The result? A kind of tug-of-war between landlord and tenant.
So who would normally win? To please both parties, the law aims to be fair to both sides. Landlords may increase rent to a level they see fit, so long as it’s done under the legislation’s strict provisions. So that means you can’t just increase the rent whenever you feel like it. If you have a straight forward lease, rent can only be increased at the end of the fixed term unless the agreement says something else. You’re also not allowed to increase rent more than once every six months if your tenant is on a periodic tenancy (month by month).
You or your property agent also have to give the tenant a minimum of 60 day’s notice of proposed increases. So it’s a good idea to ensure the rent increase can lock in from the very first day the lease expires. That means landlords need to give notice well before the expiry date of the lease. This way you also have enough time to check out market rents and seek advice from estate agents regarding current market prices.
Another way to up the rent whilst ensuring your great tenants remain, is to include a rent-rise clause in your lease if the lease is going to be in place for more than a year. This is especially important if the property is lying in a market where rents tend to increase quickly.
Good tenants are better than high rents
Another factor to consider when increasing your rent is what the repair and maintenance impact will be for having wonderful tenants versus unsavoury tenants. If you already have a bad tenant that pays a larger rent but doesn’t look after the property, it might make better sense to have a good tenant who pays slightly less.
Bad tenants may necessitate the house being painted more regularly or may accelerate wear and tear. But a good tenant might only need the house painted every 10 years, saving you more in the long term.
So factor in reduced maintenance when costing out the property and rent. It might work out that $10 extra a week in rent saves you money in the long run by having a good tenant in place. What’s more, retaining a good tenant offers the benefit of keeping the property tenanted and rental income coming in. Vacancies can play havoc on your profit and often drastic rental increases will result in properties being vacant longer.
If your tenant complains of a leaking tap, for example, address the issue quickly – they will appreciate it. Keep a good relationship with your tenants but don’t get too close. Forming a direct relationship with your tenants, while sometimes rewarding, can make is difficult to make necessary business decisions when the time comes. Being too personally involved makes it a lot harder to increase rent. Also, the tenant may be more likely to pay late if they know you and think you won’t mind much.