How regularly to increase the rent

Discussion in 'Property Management' started by ChrisA1, 11th Aug, 2014.

  1. ChrisA1

    ChrisA1 Member

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    Hi everyone

    One of my IPs has been rented for just over 18 months and due to the lower rental entry level, I increased the rental by $10 each 6 months. Reviewing RE.com.au there weren't a lot of comparisons to gauge the rental rates on however the PM advised as part of their inspection reports that an increase was warranted (I felt the last increase was possibly a little cheeky). The tenants moved out just prior to the third rental increase coming into effect - not sure of the reason, although I wouldn't be surprised if the regular rent increases contributed to their decision.

    I am interested in comments for this situation - how regularly would you review the rent, particularly if there aren't a lot of comparisons for the area and the tenants are good tenants and payers.

    Cheers,
     
  2. Sez

    Sez Member

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    It's a personal decision really.

    In the current market here (In VIC, Chelsea area), a lot of landlords are being advised against increasing the rents 12 months on from when they were rented because the demand isn't there.

    If a property is advertised and marketed properly you shouldn't need to increase the rent more than $10 every 12 - 24 months (varies slightly from area to area).

    Good tenants, depends on the area. If I had a LL with amazing tenants in Frankston North I would fight the good fight against an increase because a bad tenants costs you a lot more money than what you would miss out on for your $10 per week increase ;), good tenants in an area more like Chelsea where I am now, I recommend that we keep increases low for them, $5 instead of $10, the reason for this is that there are far, far more good tenants around here than there are in Frankston North!

    I would only recommend $10 increases every 6 months if the landlord and I both wanted the tenants out of the property :). Even if a property is terribly under rented, I recommend 12 monthly increases of $10 - $15 at a time to get it closer to the current market. More likely to keep good long term tenants that way :).
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    We do an annual rent review, as mentioned ever 6 months is likely to annoy the tenants and make them move out.

    We generally keep the renewed rent slightly under what the market would bear. It's generally more cost effective to miss out on $10/wk then to have a vacant period, plus letting fees, plus an unknown tenant.

    We also try to time leases and rent increases to the peak time of the year, which for most of my properties is February. At this time of the year, $10 under market value is $20 more than what we'd get in the middle of winter.
     
  4. travelbug

    travelbug Member

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    I agree with Sez as to annual increases as opposed to 6 monthly. It just comes around to quickly in the eyes of the tenant. You need to give 60 days notice so 4 months after the rent increase coming in to effect you are telling them about the next one. I'd guess that that's why they moved out. They figure in a years time they are paying $20 more that the already $30 you have put it up.

    Better to have one $20 increase (this of course depends on the base figure) than 2 X $10 ones. I keep an eye on RE.com to see what the rents in my areas are. If there are quite a few at or under mine I leave it. If there is nothing at my level for similar properties I'll put it up.

    Like property prices, rents don't go up in an even flow. In 2012 rents jumped up in Western Sydney. I could not believe the rents had jumped so much so rang my property manager who then sent out rent increases to tenants. But rents have slumped a bit since then so I didn't increase them in 2013.

    It's good to be pro-active but you need to stay on the money to avoid losing tenants.
     
  5. ChrisA1

    ChrisA1 Member

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    Thanks for the replies and they confirmed what I suspected - 6 months is too regular and since they were good tenants, I should have calmed my thinking a little.

    Time to freshen the place up and tread a little more slowly.

    Cheers everyone
     
  6. Morbius

    Morbius Member

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    Definitely agree with other posters that increasing every 6 months is likely to make tenants look elsewhere.

    In general, I try to get the highest rent I can get decent-looking tenants with at move-in, but after that, if the tenants are holding up their side of the bargain I back off to about $10 below market in order to retain. Of course, this means you have to expend some effort to actually know what the market rate really is. A good PM who is on-board with your strategy is a great help here.

    Note that this is not the same as increasing by a fixed amount every 12 months. Sometimes you might increase by $20, sometimes you might not increase at all or even offer a slight rent decrease if things are really soft. To date I have never felt I had to offer a decrease, but I have kept rent the same and upgraded something.
     
    Last edited: 16th Aug, 2014
  7. Jamie M

    Jamie M Mortgage Broker - Oz Wide

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    I look at it once a year - it usually coincides with renewing the lease.

    Cheers

    Jamie
     
  8. Spades

    Spades Banned

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    Focus on increase and you potentially lose a tenant...A good tenant that looks after your place is gold.
     
  9. ChrisA1

    ChrisA1 Member

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    Thanks for the comments,

    My hastiness brought me unstuck here. I monitor the area rents fairly frequently although there weren't a lot to compare.

    Certainly agree with the value of good tenants!

    Cheers,
     
  10. Bandita

    Bandita Member

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    I wouldn't increase every six months, unless I really really wanted to get the tenants out, haha.

    We review every year, and even then if we have really good tenants at near market rate, I won't increase it until maybe 18mths-2yrs. The risk of losing them, possibly having vacancies and getting potential duds isn't worth it in our circumstances, as we've had some bad tenants and it's just soooo difficult! We also used to be tenants ourselves, and I know that 6 month rent increases would definitely make us leave.
     
  11. MichaelGilbert

    MichaelGilbert L.R.E.A

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    Different for all areas I know but I prefer to increase once a year (no shorter) at around 3% but also taking into consideration what other similar properties are on for.
    If it's better value to move elsewhere they probably will or you'll just **** a good tenant off.
     
  12. jameso

    jameso Member

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    I wouldn't risk losing good tenants for 10 per week. You'll loose alot more with a vacant house for two weeks plus re letting fee etc and the risk of a bad tennant. Annual reviews are a good thing but if you've got great tenants I try my hardest to keep them.
     
  13. nhg

    nhg Member

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    Every 6 months.

    But depends on what's happening in the market.

    12 months to mitigate vacancies in high vacancy periods, and lately there has been a slump in rental inflation so I have left them as is for almost 18 months now.
     
  14. morg

    morg Member

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    Yep. Every 6 months here.
    I've found it near impossible to maintain rents at near market rate for long term tenancies, so increases are a little and as often as I'm permitted.
    The only way to increase rents back up to true market rates, are with new tenancies, as large increases tend to upset people.
     
  15. zimby

    zimby Member

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    Solid Advice, peak times make a big difference.