When should you increase the rent?

It’s an arrangement as old as time; the landlord provides the property and the tenant pays to live in it. 

But how much should your tenants pay? And could you charge more?

The question of when to raise the rent is one that comes up often. These are the factors we look at to help our property investor clients determine the answer.

How long since the last increase?

The timeframe for increasing rent depends on the contract you have with your tenant.

According to Fair Trading in NSW, for periodic and fixed-term agreements, it’s not possible to raise the rent more than once per year and you have to give 60 days notice in writing.

It should be clear in your contract how rent rises will be handled. For example, Fair Trading shares that in “agreements with a fixed-term of less than two years, the landlord or agent can only increase the rent during the fixed term if the agreement sets out the increased amount or how the increase will be calculated.”

The takeaway from the question ‘how often do most landlords raise rent?’ is that you need a clear clause in your contract about how rental increases will be handled… and even with a clear clause, you can only increase the rent once a year.

Your property manager can let you know the best plan of action in terms of timing, especially as we make our way out of the pandemic and there is more demand for property.

The condition of the property

Many landlords use the break between tenants to review the condition of their investment property and see how they can improve it.

It could be worth installing a new air conditioning unit so you can charge more. A new set of kitchen cabinets or fresh carpet/paint may make the home more appealing to tenants.

The better quality a home is, the more people will pay to live in it. However, you need to do your sums to ensure your investment will pay off. It’s not worth doing an upmarket kitchen renovation if you can only increase the rent by $20 per week.

Demand from tenants

Basic economics tells us people will pay more when there is demand but not availability.

Right now, rental property availability in good suburbs is low, especially in Neutral Bay and on the lower north shore. You may be able to increase the price of rent for this reason.

Again, raising the rent when you are between tenants makes sense. However, don’t lift it so high that no applications come in. You’ll end up losing more money while your place sits empty if you’re asking too much.

Market value

If you have had the same tenants for many years and prices all around them have shot up, a rent rise may be valid. Speak with your property manager about what’s reasonable based on the cost of surrounding properties.

It’s worth noting that you can’t increase the rent by a dramatic amount in an attempt to move your tenants on. Do this and you may end up at the Tribunal.

Think carefully before you raise the rent

Sometimes, a bird in the hand is worth two in the bush. If you have a reliable and responsible tenant who pays slightly under market value but never gives you a moment’s trouble, a rent increase that forces them to move out may not be a wise idea.

The best thing you can do is speak with Kylie and Gabi from HPA. We will let you know how to increase rent in accordance with the law and take the necessary steps to put everything in writing on your behalf. They can also explain what a reasonable price is and give you advice on how to upgrade your investment so it is worth more.

The Neutral Bay and Lower North Shore markets have a wide range of rental prices because there are so many different types of property. Contact us to find out more about our property management services.