Regularly reviewing the rent you’re charging for your investment property allows you to work out if it’s time for a rent increase, or whether it would be wiser to leave it as is.
The good news is that both strategies may help to increase your rental yield.
What is a rent review?
The ideal rent to charge for your rental property is market rent. Keeping the rent in line with the local market is key to attracting and retaining tenants. The trick is that market rent changes and fluctuates, and that’s why it’s important to conduct regular rent reviews.
A good property manager with insight into the local rental market can advise on the best rent strategy for your investment property. They’ll look at comparable properties in the same area, how many are currently available and what their asking rent is, and what similar properties have recently been leased for. The size and attributes of the property come into play, such as the number of bedrooms and bathrooms, and whether the property has desirable features such as air conditioning, storage, and dishwashers and other appliances. The property’s condition is an important consideration too.
When is it time to increase the rent?
If the rent hasn’t been raised in years, it may be time to increase it. When you have a good, long-term tenant it can be easy to let rent reviews slide, but leaving the rent unchanged for many years might eat into your rental yield. Another good time to consider a rent increase is when local vacancy rates are low. The market will expect rents to increase in line with demand.
Beware large, sudden rental increases – they may drive your tenant to consider moving or even applying to the NSW Civil and Administrative Tribunal for a review. Smaller, regular increases are often easier for tenants to anticipate and tolerate.
Is decreasing the rent ever a good idea?
If the rent you’re asking for is higher than the market rate, you might want to consider decreasing it. The idea is to avoid having your property sitting vacant for prolonged periods. Prospective tenants may well dismiss your property out of hand and existing tenants might choose to move if the rent is disproportionately high. This is especially the case when vacancy rates are high, and renters have a lot of properties to choose from.
Decreasing the rent might actually increase your rental yield, however counterintuitive that might sound. Having a paying tenant in your property, even if you’re charging them slightly less rent, is preferable to extended vacant periods when no rent is being collected at all. For example, if you charge $10 less a week that’s $520 over a year while having a property with a weekly rent of $500 sit empty for just two weeks will cost you $1,000 in lost rent.
When should you do a rent review?
Regularity is the key.
Conducting a rent review every year, for example at the same time as a routine inspection, is a good idea. Assessing the rent every twelve months gives you a good opportunity to stay aligned with the local market. Tying it to a routine inspection makes it part of the property management schedule, so it isn’t forgotten or overlooked.
What are the rules for landlords around increasing the rent?
It depends on the type of tenancy agreement.
Here in NSW, the rent can only be increased during a fixed-term lease of less than 2 years if the agreement sets out the increase amount or how the increase will be calculated (that is, a specific dollar amount or percentage). Following a change to tenancy laws that came into effect in March 2020, the landlord no longer needs to give the tenant written notice of the increase in these circumstances.
For fixed-term leases of 2 years or more, the rent can only be increased once every twelve months. In this situation, the landlord does need to give the tenant at least 60 days written notice.
The 2020 tenancy law changes impact periodic or continuing leases too. For these types of leases, the rent can now only be raised once a year. Again, the landlord must supply the tenant with written notice at least 60 days before the increase is due to take effect.
For specialist advice about the Lake Macquarie, Newcastle and Maitland rental markets, contact our expert property management team today.