How do you decide when and by how much to increase rent

I was talking to a RE agent about rentals. He wanted to raise rent $25 on a property he owns which he thought was still a little below market rates. The tenant complained. He said think about it for a week and tell me what's fair. After they researched the current market they decided the increase was fair.

If after a $10 increase property is still a little below market rates. I know what I would do. Especially if new tenants rates are $20/$30 a week more

 

Well, it is a business after all.
It's always uncomfortable for tenants when rent goes up. They will almost always try to make you feel guilty.
But if the market goes up and other similar properties around are significantly higher (+$50 pw), then it's a case of "take it or leave it".

The other issue will be that if we're not keeping with the market, there's gonna be a bigger gap later on, and the only way to close it will be re-rent, cause the current tenant knows they can play the guilty card, keeping the rent lower.

I reckon keeping with the market is the way to go.

 

I always recommend moving with the market, but being slightly below market for good tenants.

Currently in Sydney renewals (mostly from 12 months ago) we've found approx 50% increases, 30% staying the same and 20% have negotiated slight decreases. So the market is really segregated and needs to be reviewed on a case by case basis.

 

Yes I agree. What if you have a good tenant that stays long term and just wants to be there for life? You have to keep increasing the rent when you can and now we have draconian legislation limiting it to bugger all once a year, in Victoria anyway. I have good tenants in one property close to 15 years now. Every chance I get I increase the rent and it's still under market!

We are supposed to be landlords. More like land servants!

 

Not true.
You can increase as much as you like, but the tenants can challenge the increase.
VCAT can stop the increase if it's considerably above the market. They cannot (AFAIK, reading the act), however, stop the increase just because it's "big" increase.

Good for them.
Doesn't mean rent will stay the same for their whole life.
As long as property prices go up - so does rent.

If they wanna stay for life - they'll be subject to yearly increase, probably still lower then the surrounding market tho.

 

I agree. If vacancy rates are low, there's no real fear of loss of tenant. If the tenant does move out, it was already on their minds to move. Remember it costs money to move. It would cost the tenant more money to move than it would to pay the increase. It's very inconvenient as well as time consuming.

 

I've experiences this a couple of times. Tenants don't keep abreast of the current rents a lot of the time, so they get a rent increase, and the first reaction is that it isn't fair. Give them time to look around & often they'll agree that the increase is in line with what's available.

 

When my property manager lets me know at the end of the lease or near and how much we need to raise the rents.

Just increased rents 15% for two rentals, happy days, and increased cash flow in combo with historically low rates.

 

I've got one awesome tenant that I've had for 12 years. In that time, I've increased the rent by $30 or less than 10%. I should probably increase it, but it's not very high on my list of priorities.

 

Whenever I raise a rent by generally over $20.00 pw, I will always print off all available rentals in the same suburb, or if there are too many of those, comparable available rentals from either domain or realestate.com.au and attach them to the rent increase letter and refer to the available rentals in the letter. This not only does the job of showing the tenant that the increase is in line or just below the market rate, but also is a powerful tool supporting your case if the tenant decides to challenge the increase at the Tribunal.

 

in this market that’s still affected by uncertainties of covid, when lockdowns can be announced and novel legislation introduced at any time

Obviously if OP can genuinely get $50-$100pw more, I agree with Ronen, $10pw extra is a small ask and more than reasonable. Most tenants are reasonable and pragmatic people, if the comparables are significantly higher, OP or OP’s agent should have little problem getting them to agree to this small increase. Moving costs money, time & hassle. What skater said, once OP gives them a little time to look around and digest they will come to their senses.

I wouldnt know the area as well as Ronen but have an IP not too far away (4 bedroom 2 bathrooms, renovated a few years ago) it was just leased out (not even close to $460pw - I would love to take your tenants for $360pw for the certainty of knowing they are good). Always have a whole bunch of people turning up for inspections and opens and at least a dozen applications but at end of the day slim pickings. Also very generally speaking, tenants that look good on paper don’t always translate into better / optimal tenants, they may be higher maintenance or they are doing well enough to buy they can afford to break the lease and move on (yes sometimes this works in landlord’s favour and yes there’s always the chance the new tenants turn out even better than your current tenants).

If I really want a $10pw increase and comparables are genuinely at least $50 more up to $100 according to Ronen who is familiar in the area, to maximise OP’s chance of securing it I would consider asking for a bit more and then you can negotiate & be prepared to settle for $10 after say splitting the difference. Or I would get PM to call them and say look as you may or may not be aware comps are going for significantly more in the area, provide examples including addresses as others have already suggested, owner was considering an increase of say $30pw which I’m sure you would agree is fair but as you’ve been a good tenant owner is prepared to agree to $370pw only how do you feel about that. Or if you want to be really gung-ho and put the pressure on, set out you want $10pw increase non negotiable and termination notice to follow if they don’t agree by this date. For $10 and good tenants, I would personally choose the first 2 options than the last.

 

Kirstie thought a $40 weekly rent hike was too high. She ended up paying more than twice that

 

I haven't seen those rents around this area for long long long time (I think I paid something like 320pw when I arrived to Australia for a 3/2/2 in Ferntree Gully 15 years ago).

The house I sold in Berwick (4/2/2), fully renoed, went for $441 pw, paid 6 months in advance.
My new IP, in Gembrook (3/1/?) can fetch $500pw based on comparable properties around.
Looking at other properties around my current area, they go for crazy rent. It's not uncommon to see 650 or 700.

 

Then cops it in feedback

Radio Host Dave Ramsey Insists if His Tenants Are Homeless Because He Raised Rent, It Doesn’t Make Him ‘a Bad Christian’