What you need to know when increasing your rent

Laws differ from state to state around rental increases, however the reasons for rent increases are similar across every state and Territory throughout Australia. Rent reviews and increases should be revised at least annually, if not at every 6 month interval. The common times to do so are January or February, when most landlords are looking at the performance of their investment property.

As a landlord, you should be aware of what market rental is for your individual property or properties within your portfolio, rather than solely relying on your chosen property manager, should you have one (if not why not?). I am a licensed estate agent in Victoria, a professional buyer’s agent and investor, however, even I do not manage my own properties. I left that to a professional, competent and pro-active property manager to take care of.

Once the decision has been made to review or increase the rent, the implementation of that decision is not an instant one, given the tenant in most cases has to be notified and the process can take up to 60 days or more to be enacted. On top of that, if the tenant feels as if the increase is above market rent for similar properties in a similar location, there is a dispute mechanism in place under consumer law rights for them to apply for what is deemed as market rent increase only.

This is all the more reason to have the review done every six months.

If you are thinking about increasing your rent, you should always seek advice and be guided by the managing agent. They are the conduit between you and your tenant, but you should never feel like you are being backed into a corner without options. If the tenant threatens to leave or vacate because of a potential rent increase, ask the advice of your agent. If they do leave, be aware of your rights in regards to the number of days to vacate, costs associated with doing so e.g. advertising, re letting fees, etc. and weigh up all the factors prior to making the decision.

However, not all property managers are the same in the way that not all real estate agents are the same. This is not a criticism, although a pro-active property manager should be in contact with you prior to the 6 monthly interval to advise you what the best option is at that point in time. If you have not heard anything from your managing agent for the past 12 months or rarely hear from them at all, chances are they may be a little lazy and just sitting back while collecting the management fees. If so, this may well be the time to change managing agents.

The relationship with your agent should be a positive one and always remember who employs who. A good agent is worth the fee.

The relationship you have with your tenant also plays a role when you are thinking about increasing your rent. Personally, I like the thought of being a good, fair and reasonable landlord if the tenant asks for something from a maintenance perspective or has a particular request. With record low interest rates and increasing rental yields, a lot of landlords find themselves getting into a cash flow neutral or sometimes positive territory. This can be a bonus, but bear in mind that this tide will turn at some stage. In the short term, this may not be at the forefront of our mind but when the tide turns the opposite way and interest rates begin to rise, remember the relationship you have with your tenant and how they think of the way they were treated when they asked for you to install that air conditioner during summer on the 40 degree day and you refused that request. It’s all about the perception because most landlords were once tenants; it’s an important fact to remember.

Running your property investment portfolio is similar to running any small business and should be looked upon in the same way. In most cases, tenants are not aware of all the costs associated with running a rental property. If you make them aware of what is involved, like council rates for instance, they can be a little more sympathetic of a slight increase. Likewise if your costs are not increasing for an amount of time, inform them that because they have been great tenants and the relationship is a good one, you may just look to hold off on an increase for a period of time. This will certainly win their loyalty to stay longer.

Lastly, remember that education is the key for you and your tenant. Make sure you are always up to date with the market movements and the condition of your investment properties. This will not only make you a better landlord and investor, it will also help the tenant with future moves.