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How often and by how much should you increase the rent?

How much and how often can I increase the rent of my investment property?

It’s a question every landlord asks themselves at some point:

How often, and by how much, can I increase the rent on my investment property or properties?

There are actually two parts to the answer 

    ... how often you can increase the rent, and how often you should.

On the one hand, there are legal limits you’ll need to be aware of, while on the other hand, you need to use your market knowledge and common sense to ensure planned increases are in step with local medians and supply.

Ideally, as a property investor, you want to do all of this while avoiding lengthy periods of vacancy, or losing your terrific, reliable tenants.

It sure is a minefield, and there is no “one size fits all” answer – but the insights below should help you make your decision about raising the rent.

How much can rent be increased?

There isn’t much legislation in place to regulate how much rent can be increased, so any price hike is generally determined by what is ‘reasonable’.

Note: Unfortunately, there also isn’t a nationwide definition of a “reasonable” rent increase, so prices are generally influenced by local supply and demand.

Rental properties exist within the context of their local market, which will have a median rent amount for comparable properties.

When there is more demand than supply, such as in the current rental market, landlords have more power when it comes to rent negotiations.

And when there is more supply and less demand the opposite rings true, with renters holding more power when it comes to rent negotiations.

The availability – or not – of an exact comparison also has a big influence - if there aren’t many equivalent properties, again the landlord has more negotiation power.

If tenants find the proposed rental increase unreasonable they can challenge it and have a state government inspector assess its fairness.

It's important that landlords consider whether a higher rent will be more beneficial than having tenants stay in their property for longer.

Changing tenancies is time-consuming and has additional costs attached such as loss of rent during the vacancy, reletting fees, and marketing charges – the total of which could be more than the proposed extra rent would bring over 6 months or a year.

With this in mind, landlords should consider whether an extra $5 or $10 per week will make a big enough difference to their bottom line.

This is especially important during times when rental supply exceeds demand so tenants have much more choice and may decide to simply move somewhere cheaper.

In these cases, it may be prudent for landlords to wait another 6 or 12 months before increasing the rent.

Extended periods of vacancies are not what any landlord wants for their investment property so always keep in mind that long-term tenants who pay their rent on time and look after your property well are really the type of people that you want.

How often can a landlord increase rent?

How often a landlord can increase rent depends on what type of tenancy agreement you are on - fixed or periodic - and also what state you’re in.

Generally speaking, it can’t be done during a fixed tenancy, unless an increase is already written into your tenancy agreement.

• In NSW, rent can only be increased every 12 months in periodic tenancies and the landlords need to provide 60 days' notice. Fixed-term tenancy agreements of less than 2yrs will need to have any increases stated upfront and for agreements lasting more than two years, the landlord will need to provide a 60-day notice of the increase, which can only occur once every 12 months.
• In Victoria, rent for periodic tenancies dated after 19 July 2019 can only be increased every 12 months with 60 days' notice, or if before 19 July 2019 this can be increased every 6 months. Fixed-term tenancies less than 5 years will need to have any increases stated upfront and then can only occur every 6 months and if the tenancy has lasted more than 5 years the rent can only increase every 12 months with a 60-day notice.
• In Queensland, rent for periodic tenancies can be increased every 6 months as long as the landlord gives a 60-day notice. But rent can’t be increased in a fixed-term tenancy unless it’s written into the agreement.

• In Western Australia, rent for periodic tenancies can be increased every 6 months as long as the landlord gives a 60-day notice. But similarly to Queensland, rent in Western Australia can’t be increased in a fixed-term tenancy unless it’s written into the agreement.
• This is the same again In South Australia - rent for periodic tenancies can be increased every 6 months as long as the landlord gives a 60-day notice and cannot be increased within a fixed-term agreement.
• It’s slightly different in the ACT where rents can only go up, when allowable, by a 'prescribed amount', which is 10% of Canberra's Consumer Price Index, every 12 months for periodic tenancies (with 60-days notice) or at the end of a fixed-term.
• In Tasmania, rents can only increase if it is written into the lease agreement and the landlord gives a 60-day warning - this means that in most cases rents cannot be raised during a tenancy agreement.
• And in the Northern Territory, rent can only be increased if it has been agreed upon and written into the lease agreement. Rents can be increased a maximum of every 6 months as long as the landlord gives a 30-day notice.

Notice of increase in rent

If you intend to give notice of an increase in rent but still want the current tenant to stay on, you must advise them in writing at least 60 days prior to the increase coming into effect, usually at the commencement of the new lease term.

Unless you include an additional clause in the tenancy agreement that states a rent review may occur sooner, you can only seek a rent increase at the end of the lease.

In cases where the lease is less than 6 months or periodic, you cannot seek a rental increase any more frequently than every 6 months.

In some states, there is an official form that you must complete in order to provide the tenant with the required a 60-day notice of a rent increase, and tenants have the right to seek a rental assessment from the relevant governing authority, such as the Director of Consumer Affairs Victoria if they feel the increase is unfair or excessive.

They must do so in writing within 30 days of receiving the notice for a rent increase and it will then be up to the Tribunal as to whether or not the landlord has the right to put up the rent.

If you are renting out a property on a periodic basis, there is no need to give a lease renewal notice to the tenant.

If you are renting your investment property out under a fixed-term agreement and want to move to another fixed-term lease with a rent increase then you’ll need to organise and send the tenant a letter of notice to increase the rent and renew the lease at least two months before the lease is due to end.

Within the letter, the landlord can also notify the tenant of any proposed changes to the terms of the lease. For example, if the landlord is proposing to increase the rent, or to change some other terms of the lease, these changes can be summarised within this letter.

It’s worth noting that the new agreement can include different terms and conditions from the first agreement.

The lease renewal letter must;

• Be in writing
• State the address of the rented premises
• State the date the existing lease will end and when the new lease will start
• Give the length and type of agreement
• Details, including contact details, for you and your agent, if they have one
• Whether the rental price stays the same or will be increased
• Whether any other terms remain the same or are changed
• Deadline date for responding

Wonder Legal Australia has a great and easily editable example of a simple lease renewal letter.

A notice or document can be given by handing it to the tenant or landlord in person, personally putting it in the tenant's or landlord's letterbox or at the address they have specified for receiving notices (e.g. care of an agent), or by emailing it to the tenant.

Where there are two or more tenants or landlords, the notice or document may be given to either one - it does not need to be given to both.

Then it’s important that the landlord or agent also keep a copy for their records.

You can increase the rent … but should you?

You’ve already determined that you’re within your legal rights to raise the rent, but that doesn’t mean it’s necessarily a great idea.

It’s now time to review the market, to determine whether the environment is ripe for an increase.

Review other comparable local listings, with the same features as your property.

How much are they being advertised for?

What’s the median rent in the suburb for a dwelling like yours?

And importantly, what is the vacancy rate?

If it’s tight, that’s great news – a rent increase could be a wise move.

Your tenants are unlikely to move out, and even if they do there should be a fresh batch of new applicants queuing up to sign a lease.

But if the vacancy rate is high, proceed with caution.

The property may end up sitting empty for several weeks or months, potentially eroding any gains you stand to make from the higher rent.

In terms of how much you can increase the rent, there are no hard and fast rules.

However, you should be guided by the consumer price index and the asking rent for comparable properties in the area.

If your tenants do decide to dispute the proposed increase, these are the factors a Tribunal will look at to determine whether the increase is reasonable.

Finally, consider the calibre of your tenants when planning rent rises.

If you’ve got long-term five-star tenants who treat the place like their own, it could pay to be a little more conservative with rent rises, or at least open to negotiation.

That doesn’t mean resting on your laurels and letting the rent stagnate for years, though!

Tips: Smaller, regular increases are unlikely to drive your tenants away, and they enable you to protect the viability of your asset while still keeping it affordable.

If you’re attentive to maintenance requests, treat the tenants with respect, and have a great property manager who has built a rapport with them, an increase of $10 or $20 per week isn’t going to scare them away – and ensures that your investment property continues to move your financial position forward.

Source  :  https://propertyupdate.com.au/how-much-and-how-often-can-i-increase-the-rent-of-my-investment-property

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