Increasing rent is a common part of owning an investment property, but it can be hard to know if and when you should implement an increase. We take you through how to decide if you should raise the rent, what your legal obligations are and how to avoid losing your tenant.
Rent increases are important, but how do you know if or when you should increase the rent your tenants are paying? Read on for how to evaluate your property’s rent, when you should consider raising the rent and how to keep your tenant after a rent increase.
Why Raise The Rent On Your Rental Property?
Your investment property exists to generate income, so it’s important to ensure it’s a profitable asset and asking a reasonable market price. The rent that a property can command is based on demand for rentals in the local market, especially those that are similar or “comparable” in size, condition, assets and location. If your property is in an area that has a high demand for rental properties but a relatively low supply, it’s fair to expect rent to be increased.
For example, realestate.com.au data suggests Centennial Park experiences a high demand for units at a median price of $550 per week, whereas houses in Randwick, Coogee and Double Bay are also in high demand with $1000, $1160 and $1745 weekly rents respectively. If you own investments in these areas, you could reasonably consider raising the rent so it is in line with what similar properties are asking for in the market.
You also need to ensure you’re covering your costs, so increased strata levies, council rates, mortgage rates or even CPI might all lead you to consider an increased rent, provided that increase is within market rates.
Reviewing The Market For A Rent Increase
To be able to determine the appropriate amount of rent for your investment, you should be regularly reviewing the market so you know what a fair asking price is for your property and suburb. Every six months is a good amount of time to review the market, though you shouldn’t necessarily increase the rent that often.
Speaking with your property manager is a great place to start when undertaking your review, as they will know the market well and be able to advise you on the right time and amount for increasing your rent.
Part of your review will also include whether there are certain aspects of your property that can command rents above market price. Some features that might attract tenants who are happy to pay more might include:
- Air-conditioning or heating
- Security access to the building
- On-site pool or gym
- Accepting pets in the property
When And How Often To Increase Rent
There’s no one-size-fits-all approach to how often you should increase rent as the decision relies on a number of factors specific to your property. However, it’s often recommended to increase the rent by manageable amounts on a more regular basis, instead of surprising your tenants with large increases later on just to catch up to the market. Once a year is generally seen as reasonable.
From a legal perspective, you can’t increase the rent during a fixed-term agreement of less than two years, unless there is a term in the agreement that says you can. If the fixed-term agreement is two years or more, the rent can be increased at any time, but cannot be increased more than once in a 12-month period.
You must give tenants at least 60 days’ written notice of a rent increase, plus four working days to allow for delivery if the notice is being sent by post. You can read more on the NSW Fair Work website.
How To Raise The Rent And Keep Your Tenant
Losing tenants after a rent increase is a concern for some landlords, but having existing good relationships with them makes the transition much smoother. If you’ve promptly addressed any issues that have come up throughout the tenancy and performed any required maintenance, tenants are much more likely to accept the rent increase. This proactivity and clear communication in property management is where Taylors excels.
To discuss the rent on your investment property, contact our team of specialists today.