The start of a new calendar year and the end of the financial year are the two most common times when landlords question whether or not to increase the rent. Some will simply request an increase, often without doing any research to back up the change, while others (especially those who have a good relationship with their property manager) will ask them for advice. The market fluctuates for a range of reasons and commonly performs in tandem with the residential property sales market. A good property manager will always be on the ball in terms of how their local marketplace is performing. So how do you determine when it’s the right time to up the rent? And what if a tenant requests a rent reduction in a falling rental market?
As property managers, you all know that regular rent payments are the lifeblood of any property investor. The last thing a landlord needs is for a good tenant to vacate the property because of an above-market rent increase. Remember, tenants do their research too. They are likely to be just as aware of the going rate for a certain property type in their area as you are. This information is readily available to them by navigating the various internet sites available.
Some property managers recommend maintaining rent levels at or slightly below market levels in order to keep pace with increasing costs and keep a good tenant happy, avoiding (or at least minimising) vacancy periods. This can be a good argument for the landlord who is insisting on an unwarranted increase. Landlords who insist on increasing the rent to above market levels typically have higher vacancy rates and lost income making it false economy to do so.
So how do you determine when it’s the right time to increase the rent?
Ask yourself, “If the property became vacant today what rent would it achieve?”
This will be determined by two main factors:
- The nature in which the tenancy is being conducted (is it a long or short term lease?), and
- How the property compares with others currently on the market.
Sometimes the result of this process is a recommendation to leave the rent unchanged. You could write the following to your landlord (or tell them over the phone or in person) to justify the recommendation:
“My role as your property manager is to maximise the income you earn from your investment property. This is achieved by finding the right balance between knowing when to increase the rent in line with the market and ensuring you have a steady income stream through lower vacancy rates. Maintaining the rent at this level right now is the best way to maximise your ongoing income stream.”
What if rents are falling in your area? It is a known fact that supply is outweighing demand in some parts of the country right now. This can pose an opportunity for a tenant to request a rent reduction if their lease is due for renewal. If the tenant has been maintaining the property well and has a flawless payment record, there would be little point in refusing a reasonable request, especially if you know there is a glut of similar properties on the market for less rent. Click here for the latest national rental market snapshot.