When is a Good Time to Increase Rent?

If you’ve been looking at your property portfolio and asking if now is the right time to put up the rent, then now is the right time to investigate it further. Many landlords stumble on the question, and many won’t act for the fear that they’ll lose good tenants.

In most property markets, the value of an area will increase as new services are built, and roads are improved. Rents in the area will naturally increase due to improved living conditions. If you don’t pay the rent, your tenants are technically getting your money for free! You can if you wish to keep your rent at the same price for years on end, but as property values increase, so will your rates and other expenses. 

For example, if the location of your investment property is more affluent than others, you’ll find that maintenance workers (electricians, plumbers, etc.) will charge more. The only way to recoup these extra costs is through rental rate increases.

Will my tenants move if I increase the rent?

Many landlords fear that if they increase rents, their tenants will move. However, it is often due to other factors that cause a tenant to move out. They may have a new job and want to move closer to work, or perhaps their family is growing, and they need a bigger space. In most cases, rent prices increase uniformly across a specific location, so moving because of a rent increase is less ideal for your tenants.

Consider the following: If your tenant’s rent increases by 2-3%, would your tenant decide to go through the hassle of finding a new place to rent in the same area to save $15-20? If you have a property in a good location and suitable for their lifestyle, they’re more likely to accept that rent increases are a part of renting a property and staying on.

Naturally, you don’t want to increase the rent too often or too much. Rent increases should reflect the property you’re offering. If you put up the rent just because you want to and there are no benefits to your tenant, they may decide to move on. Completing an examination of the area, including current vacancy rates and the rental market’s price, will indicate undercharging for rent.

If you’ve priced your rental property correctly and your tenants choose to move on, it will be easy to find new tenants. There are usually many people looking to move in a solid rental market. While it is unlikely your tenants will move because of a price increase, it can be a deciding factor, but plenty of people are often willing to move into the recently vacated space.

Talking to your real estate agent can be the first step the getting a clear picture of the state of the rental market.

Think of increasing rent as a business decision

It can be easy to let your emotions take over when considering increasing your tenant’s rent. However, it is best to leave your emotions behind and focus on the decision purely from a business perspective. When you have an investment property, you need to make the most of it and secure your future.

The best method for determining if a rent increase is warranted on your property is to discuss it with your property manager. Meetings with your property manager should occur at least once per year, and a part of these discussions will be regarding the current rental value. If the rental value of your property increases, then you can choose to increase your rental income. If the property value has not increased, you can discuss what you need to improve the property and make it more appealing or valuable as a rental asset.

When you have a meeting with your property manager, some of the topics discussed may include:

How many vacant properties are in the same area as yours?

How much rent are similar properties charging?

What is the state of the rental market?

Are there any local issues that make your property less appealing to renters?

What improvements to the location are on the horizon, and how will this affect your property?

How are the tenants treating the property?

Does your current tenant have the capacity to pay more for rent?

Are there any factors that may see your tenant move if faced with a rent increase?

Check out our free podcast on rental vacancy rates in Melbourne.  

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How much should I increase the rent?

Regular small increases are more palatable than significant increases for tenants. For example, if the rent is assessed each year and only increases when necessary, your tenants will likely accept it and not be upset. However, if you haven’t been keeping an eye on the rental market and it’s been several years since it was examined, and try to increase the rent by more than $40-50 per week, it is likely to cause issues.

Most people are accommodating, and if something seems fair, they won’t have an issue. A renter paying $450-500 each week will not be overly upset about a modest increase of $5-10. However, if you haven’t adjusted the rent in a while and try to put it up by more than $40 per week, they’ll understandably be objectionable. For this reason, we recommend that your property be evaluated at least once every 6-12 months.

If a renter has been paying under the current rental value for some time, it’s unlikely they’ll be happy with more than a 10% increase. To satisfy your tenants, it’s best to steer close to a 2-3% increase.

Does property location affect rental increases?

In some parts of Australia, the location of your rental property can affect how much rent you charge. If there is a high demand for housing and your property has access to quality amenities, that can dictate how much rent you should charge.

Keeping a close watch on vacancy rates is essential as it can indicate if there are lots of properties vacant and waiting for tenants. Most tenants will not move under a reasonable rental rate increase. However, if they can find another place to rent (or purchase), then it is possible they’d instead move. If your tenants are subjected to rental increases too often, they may decide to move on, even if it means going to a less suitable property.

Many tenants prefer to stay on for the long-term, but if they suspect they’ll be facing regular rent increases without any improvements to the property, they may feel it is not worth staying. Data should back any rent increases. In some cases, the location of your property can affect the rental value.

While it is not required to explain why a rent increase is happening, your tenants should feel that it is a reasonable request. Most people that live in an area are aware of any local improvements. For example, if a new train station makes catching a train safer and easier compared to other areas.

It is your investment property, and you can decide to increase the rent or leave it at the current rate. If you think you are undercharging, then talking to an industry expert, such as the team at Property Managers Melbourne, can help you determine the best course of action.