Raising rents for good return

May 11, 2015

Want to raise the rent on your investment property but are worried about the repercussions? To earn a healthy cashflow you need to strike the right balance between charging a good level of rent and being able to attract and keep tenants.

Rebekah Doyle, Operations and Accounts Manager at Laing + Simmons Woollahra, says the first step is to ensure you’re not raising the rent too high and to consider other implications for your own hip pocket.

“Tenants will always compare properties similar to theirs to see if the increase is fair. They may also start requesting more repairs on things they might have been happy to live with before,” said Rebekah.

“If they move out, you might have the property vacant for two or three weeks and then a letting fee on top of this.”

Market-driven rent increases

Generally speaking, your ability to raise the rent is driven by market dynamics. If rent in the area is increasing, particularly if supply is limited, you should be able to raise yours. If the market isn’t moving you might need to consider keeping the rent at the same amount.

Your property manager should be aware of how the market is moving and advise you when to increase the rent and by how much.

Chris Gray – property expert and founder of investment consulting firm Empire – says there should be a slight increase with every re-signing, depending on the market.

“Tenants should re-sign or move out at the end of the lease. If you have bought the right property, in the right place, in the right condition, then you can expect low vacancy rates and high rental yields.”

Rebekah Doyle notes that common courtesy helps ensure a smooth process, “We always call the tenant before we send the notice. You can go over the reasoning behind the increase and the tenant will not get such a shock when they receive it.”

It’s not something many landlords consider but there are some circumstances when you might even need to lower the rent in order to keep a tenant. For example, when major repairs or renovations cause disruption or when a tenant can’t use a room or major appliance.

The value of renovations

Renovations and improvements can also make good sense for investors who are looking to increase rental return. You don’t want to over capitalise but there are many things you can do to help such as:

  • Installing a dishwasher
  • Installing an air-conditioner
  • Improving property security
  • ‘Wiring’ the property such as adding Foxtel
  • Installing solar panels to save tenants money on power bills.

To make sure you don’t over capitalise, it can be a good idea to chat to your property manager about what will add value.

Doing it by the book

The rules and regulations around rent increases differ from state to state and you want to make sure you follow the correct procedure to avoid delays or disputes.

Here are a few things to think about:

  • You must give a minimum of 60-days written notice (30 days in the Northern Territory
  • Your written notice to the tenant must include the increased rent amount and the day from which the increased rent applies
  • For fixed term agreements, rent increases must be stipulated in the tenancy agreement and the rent can only increase once every six months.