How often should you look for a rental increase on your property investment?
As a landlord you are providing someone with a home, but you should also be profiting from your investment property asset. Your goal is to make money from your property, so giving a tenant a discount may be doing them a huge favour, it does no favours to you and may obstruct you achieving your longer term financial goals.
If you have a tenant on a preferred 12 month lease there is generally not much you can do about rental increase but even on a six month rental period, you should review your property’s rental rate before renewing any rental agreement. “Reviewing” does not necessarily mean you should increase it.
As stated elsewhere on this site, a good property manager should be very aware of their local market and by and large, we would suggest you do not go against your property manager’s recommendations. However, all too often, particularly with a good long-term tenant, your manager may just inform you that your lease with your tenant is coming to an end and seek your permission to renew. I NEVER accept this request from any of my rental managers. The first thing I do on receiving this (usually generic) letter is respond by asking on what basis do they suggest we renew the lease. Should I be decreasing the rent, increasing the rent or keeping it the same? …. And I want JUSTIFICATION from the managers as to why they are making their particular recommendation.
Remember, as real estate prices change and sales markets evolve from month to month, so do rental markets. It is very important for you to keep a close eye on your property investment local area market and be able to question your manager on whatever recommendation they give you.
Reviewing your investment property rental market
A ‘balanced’ rental market is between 3% and 4$ vacancy rate. When vacancy rates are tight (under 3%), the market is more competitive and landlords can push for ‘better’ tenants and rental increases.. When vacancies are really tight (at say under 2% ), this will usually allow landlords to increase their profits by pushing up the rent.
When vacancy rates are ‘balanced” around the 3-4% mark, it is unusual to be expecting any rental increase and as you would expect, with vacancy rates in your investment area over 4%. You may find you are getting recommendations to discounting your rent or even offer enticements like one or two weeks’ free rent to encourage someone to sign a lease.
It is very important to review the rental market in your property investment area every few months, so you know what is happening in the area and avoid being caught by surprise as a landlord. A good property manager will give advice on current market conditions, but you should be checking out competitive listings in your investment property area every few months to ensure your property is well-priced within current market conditions.
Raising the rent
Under normal circumstances, rental review should take place at lease renewal time. However, if you identify an opportunity to increase the rent on your investment property during a lease period you’ll need to give your tenant appropriate legal notice. This differs between contracts and between states, but is often around 60 to 90 days notice for a rental increase to take effect. In most cases, your tenant will be on a fixed-term lease, rent increases are generally only allowed if they have been stipulated in the tenancy agreement.
The legislation in the state or territory in which your property investment is located will often state how often you can increase your property’s rent. In Queensland rent can only be increased every six months, while the bond can only be increased if it’s been at least 11 months since the last bond increase. Victoria, also only allows six month increases.
