Is there any limit for rent increase...?

[Superstitionist]

Hi All,

Just bought a house with existing tenant with rent is around $70 below market value, the lease is going to expire soon, so definitely there will be a rent increase, but I doubt that I can increase the rent by more than 30% per week.

Is there any legislation that specified the max % that we can increase per week...?

Super.

 

[Sez]

Hi Super,

In this circumstance I think the best thing to do is issue a rent increase of say $20 - $30per week initially but don't sign your tenants up to a new lease.
Under the residential tenancies act (VIC) a tenant can make a complaint to consumer affairs for any rent increase that they believe to be excessive. This is supposed to apply if it is excessive for the current market rental but I have seen people come undone by issuing large increases to their tenants.
If you issue the $20 - $30 now and don't put them on a fixed term lease then as a landlord you are entitled to review and increase the rent every 6 months. Then increase by $10 every 6 months until you meet market value again.

This may sound time consuming but it will save you from the possibility of consumer affairs getting involved or the tenant making an application to VCAT for an excessive rent increase. It can also save you from having good tenants vacate the property!

Once you get the properties rent back up to market value then offer your tenants a new fixed term lease. They will then know there is an end to the increases and be happy again!

Of course if your tenants vacate due to the rent increase then you can advertise the property at the higher rent right away but you do have the trouble of a vacant property.

Best of Luck!

 

[Ocean Architect]

Yes there is, call your real estate institute or whatever it is and there are guidelines for rent increases in set periods of time (I'm fairly sure it's different state to state). From memory it was a % increase over a set period of time and not a $ amount. There are ways around it though ie when the lease ends and a new lease is established then you can do whatever you like

 

[Sez]

In Victoria there is no limit to how much (% or $) the landlord can increase the rent by, however, as I said earlier the tenant reserves the right to complain to consumer affairs if they consider the increase to be excessive so do use caution! The Act only dictates how often the rent can be increased, how much notice must be given and that it can't be increased during a fixed term lease unless written into the lease and the increase has to take place after the first 6 months.

 

[travelbug]

I don't know that there is any legislation but I generally look at what the market rate is and go a little below that (if it's a big increase).
One place I bought was $50 below market. Agent said put it up $120 every 6 months.
New agent said make it $300- $305 (it was $250). I made it $295. Tenant stayed. No arguments. All they had to do was look at Real Estate.com to see it was cheaper to stay.

I think as long as you are at or just below market you are safe. Although $70 would be pushing it I think. But I wouldn't be happy renting it for $50 under market by only having an increase of $20.

 

[Goofy]

i agree with travel bug... it is silly to only increase it by $20 per week if it is $70pw under market.

If you have the evidence that illustrates the current market value of the property then you can say to your tenants.. we value your tenancy and as a result instead of increasing it by $70 per week we are keeping it to $50pw.

that way you will most likely retain your tenants and still get your increase to bring the property closer in line with market value. The $20pw you 'lose' could be lost anyway if you hike it up too much and you have to pay leasing fees, advertising and potential period of time with vacancy and no rent coming in.

In Victoria as long as the increase does not take effect before the end of a fixed term period then you are safe. Even if they do complain to Consumer Affairs, as long as you have evidence that the property is worth the increase then the agent who performs the rental val for CA will also say the same thing and CA will uphold the increase. You will only have problems with CA if the rent increase brings the property above market value, it is not dependant on the monetary value of the increase. As above you may also only serve one increase every six months (providing there is no fixed term lease agreement in place)

if you were to serve a $20 increase then $10 increases every 6 months after that it would take you years to bring it up to market (not even taking into consideration that the market will also increase during that time)

 

[Goofy]

p.s i would also try and get the tenants to sign a new lease agreement. That way they can feel comfortable with the new rent and that it wont go up again for 12 months. or you could use it as a bargaining tool... i.e the property is worth $70 more than what you are paying, happy to increase it by only $50pw if you sign a 12 month lease. That way you get your increase and the security of a lease

 

[Belbo]

Backing OA here, can you end the tenancy, do a quick cheap reno (paint, carpet, maybe lighting if the budnet can stretch that far, etc) and re-let at a new market level? If the rental demand is there, perhaps you could get $100 more a week?

 

[Lil Skater]

If you're in Victoria, there is no % or $ amount that stipulates how much is too much.

If the tenant is decent, why not do $30 increase and offer a 6 month lease (fixed term that way they don't go anywhere and you can still increase the rent in 6 months time, plus you can use this 6 month lease as a testing ground for the tenants to see if you want them there or not as the new owner), at the end of that period do another $30 and offer a 12 month lease (if you want of course), then you're only $10 under market - in some areas the market is slowing do you may find $30 is too much or right on par in 6 months.

Again, a tenant can fight this, but $30 isn't unreasonable and the tenants are less likely to fight it, but it's still a good increase for you. You can try for a $50 increase if you are confident that the price is still at market or you're prepared for a possible small vacancy.

If you're happy with a vacancy, I'd even suggest what someone else did - get rid of the tenant do a small renovation and increase it even more.

 

[Superstitionist]

Thanks All,

After some consideration and put myself in tenant's shoes, I must say $70 per week increase is a big jump, so I have given the tenant a couple of options, he can choose to have:
(a) 12 month lease, $50 increase; or
(b) 12 month lease, $35 increase, after 6 month, another $35 increase

But if he chooses to move on, I don't mind either, then I can advertise with the full market value.

Super.

 

[buzzlightyear]

As we head into winter, rental market slows as people move less. Bear that in mind for any possible vacancy.

I would also want to structure the end of any lease in the summer months, say November to February as a guide.

I personally would just increase the rent without an offer of a lease. Gives you the opportunity to put the rent up again in 6 months or send them a NTV if you change your plans.

How do they maintain the property? Is the property a little run down? An obvious reaction to large rental increases is an increase in the level of maintenance requests.

Realise you have decided on your choice, but I would keep my powder dry for larger rental returns until later this year.

Admittedly, this advice is given in the face of too many unknowns both in terms of your financial circumstances and the tenants future plans and expectations.

Out of interest, what suburb is the property located?

 

[Superstitionist]

As we head into winter, rental market slows as people move less. Bear that in mind for any possible vacancy.

I would also want to structure the end of any lease in the summer months, say November to February as a guide.

I personally would just increase the rent without an offer of a lease. Gives you the opportunity to put the rent up again in 6 months or send them a NTV if you change your plans.

How do they maintain the property? Is the property a little run down? An obvious reaction to large rental increases is an increase in the level of maintenance requests.

Realise you have decided on your choice, but I would keep my powder dry for larger rental returns until later this year.

Admittedly, this advice is given in the face of too many unknowns both in terms of your financial circumstances and the tenants future plans and expectations.

Out of interest, what suburb is the property located?

Thanks for the advice regarding the season for end of lease. The property is in Reservoir. Based on the final inspection before settlement, the place is well maintained.

The options that I provided are to my PM, who said he will try to find out the tenant intention first, and see if he can get a better deal, ie: $70 increase with a 12 month lease, otherwise, offer the tenant with one of my options.

Super.

 

[DaveM]

If they are a good tenant with a strong rental roll, you could also consider putting them on a private lease and pass through the net cost as rent to them.

Personally i am just finishing off the cheap reno strategy. Property was bought with tenants at $305 pw and 60's floral carpet etc. Advised rent would be going to market rate ($340pw) as is. They moved out during settlement.

Painting is now done, new doors and lights internally, garden spruce up, RCD and WSD installed, floorboards under the carpet get sanded and polished this week. All up $5k. Now listed at $385pw and lots of interest/people booked in to see it at its open house next weekend.

 

[BayView]

Hi All,

Just bought a house with existing tenant with rent is around $70 below market value, the lease is going to expire soon, so definitely there will be a rent increase, but I doubt that I can increase the rent by more than 30% per week.

Is there any legislation that specified the max % that we can increase per week...?

Super.

The other thing about this - and Marg Lomas talks of it all the time - is it's better to have a good tenant paying a bit below the odds, than to have the place vacant, or maybe get in a less desirable tenant if the current one vacates.

My view is to make a reasonable increase at the end of the current lease.

Tell the agent how much you think is fair, but in conjunction with their suggested increase, as they usually know the market.

 

[travelbug]

The other thing about this - and Marg Lomas talks of it all the time - is it's better to have a good tenant paying a bit below the odds, than to have the place vacant, or maybe get in a less desirable tenant if the current one vacates.

My view is to make a reasonable increase at the end of the current lease.

Tell the agent how much you think is fair, but in conjunction with their suggested increase, as they usually know the market.

"a bit" being the operative word. I agree with say 5% lower but any more than that and you find yourself behind the eight ball because when rates do rise you find yourself way behind. Remember that you now need to give 90 days notice so by the time it goes up you are behind again.

Also a lot of agents suggest minimal ($10) increases (in my experience). I think a better question would be "what would it rent for if up for rent" (rather than how much increase). Even this can be wrong. I know some agents always rent for lower than others in the area (maybe to get people in quick). $20 a week extra rent only means $1 a week extra for them. Do your own DD.

 

[albertwt]

Hi Super,

In this circumstance I think the best thing to do is issue a rent increase of say $20 - $30per week initially but don't sign your tenants up to a new lease.
Under the residential tenancies act (VIC) a tenant can make a complaint to consumer affairs for any rent increase that they believe to be excessive. This is supposed to apply if it is excessive for the current market rental but I have seen people come undone by issuing large increases to their tenants.
If you issue the $20 - $30 now and don't put them on a fixed term lease then as a landlord you are entitled to review and increase the rent every 6 months. Then increase by $10 every 6 months until you meet market value again.

This may sound time consuming but it will save you from the possibility of consumer affairs getting involved or the tenant making an application to VCAT for an excessive rent increase. It can also save you from having good tenants vacate the property!

Once you get the properties rent back up to market value then offer your tenants a new fixed term lease. They will then know there is an end to the increases and be happy again!

Of course if your tenants vacate due to the rent increase then you can advertise the property at the higher rent right away but you do have the trouble of a vacant property.

Best of Luck!

Thank you for sharing your opinion here mate.

 

[Newbie68]

This may be a naive question, but can someone tell me if I take over an IP with existing tenants and they are on a fixed term lease then does that mean I can't increase the rent until their lease is ended?

 

[albertwt]

This may be a naive question, but can someone tell me if I take over an IP with existing tenants and they are on a fixed term lease then does that mean I can't increase the rent until their lease is ended?

Yes that seems to be the norm in contracting I guess ?

 

[Lil Skater]

Hi N68, that is correct.

The lease will still be valid when you take over the property, your PM should give you a call a few months before this lease expires and ask whether you want another fixed term lease and how much to increase the rent by.

 

[albertwt]

yes, so after the rent contract is finished, how long do you have to wait or do you ask the tenant to sign in new contract with you or just let them know about one month in advance rule before move out ?