During a tenancy

When Should I do a Rent Increase?

If you ask your tenants when it would be a good time to increase the rent, they are likely to tell you there is not a good time. That is understandable. What would you tell the guy at the corner petrol station if he asked when would be a good time to raise the price of filling your tank?

There is no magic time of year to increase the rent that your tenants will be happy with. So you might ask “When should i do a rent increase?” No matter when you send the notice, there is always a possibility they could look at moving out. However the trick is minimise that possibility as much as you can, and I’ll tell you how..

Getting in the Rhythm

While no tenant wants to see a rent increase, most of them are realistic enough to expect it. The price of everything else goes up, after all. Generally speaking, it is a good idea to keep your increases relatively small but consistent on a yearly basis at about 3% of the rent your tenants are currently paying.

Tenants are more accepting if they can plan and easily budget for an increase in rent. Most tenants initially go on a six to twelve month lease when they first move in. It’s a good idea to get into a rhythm by increasing the rent at the end of the year by around 3%. Without having to say anything else this prepares your tenants for another small increase the year after.

What does the Market Say?

A one size fits all approach of simply increasing the rent each year by 3% is not always wise. You need to account for the value your property provides from a tenant's point of view. Let’s say you increase the rent by 3% (from $500 to $515), but similar properties in your area are currently available for lease at $500 per week. This would give your tenants motivation to look elsewhere for better value. Causing you to find tenants again and possibly lose $1000 in lost rent as your property sits vacant, not to mention the trouble of finding and screening new tenants. In this case, it may not be a good idea to increase the rent.

Long Term Tenants Vs Rent Increase

If you had trouble finding tenants last time, you may decide not to increase the rent as a means of keeping your tenants. Or if your tenants don’t want a rent increase perhaps they’ll agree to a one or two year lease instead? For example, I had a house in a not so great location, the house sat vacant for 4 weeks while trying to find a tenant. Finally, I came across some good ones, they stayed for 6 months but were then tossing up the idea of moving out, so I provided them an unsigned 2 year lease with no rent increase as a means of keeping them in the house. They signed and I kept the tenants for another 2 years!

Is there a Bad Time of Year to Increase the Rent?

People generally do not want to move over the Christmas period, so it has been said that this would be a great time to increase the rent as moving out would be the last thing on their mind.

However I’d prefer the opposite approach, if I am going to increase the rent, spring or autumn seems like the time to do it. This is generally when people are happy to move, so on the off chance that my rent increase causes a tenant to leave, there are usually plenty of prospective tenants to move into my house straight away.

It is still better to keep good tenants happy and in place, so in an upcoming post we will discuss how you can still keep your tenants even when they tell you they want to leave due to a rent increase.

Rising Rent Reflects Rising Value

Increasing the rent not only provides you with extra income. It also helps to increase the value of your property. Most property valuers ask how much rent the tenants are paying, why is that? Because it affects the value of your property!

By using your property’s increased value you now have the potential to leverage that equity to borrow more from the bank to increase your property portfolio.

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