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Increasing the rent

Discussion in 'Property Management' started by jprops, 5th Jul, 2016.

  1. jprops

    jprops Well-Known Member

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    When increasing rent, what do investors consider to justify the amount. I read that for NSW the tribunal will consider the following:

    • rents for similar premises in the same or a similar area (‘general market level of rents’)
    • the landlord’s outgoings under the tenancy agreement
    • any fittings, appliances or other goods, services or facilities provided with the premises
    • the state of repair of the premises
    • the accommodation and amenities provided in the premises
    • when the last increase was
    • any work you have done to the premises
    • any other matter it considers relevant.

    For me the main point is market rent. But if your outgoings have increased so much that you feel you would like to increase it beyond the current market, do you think this is a wise move? Is it worth potentially losing a good tenant?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Outgoings is not a valid reason.

    However, obviously the landlords (or PM's on their behalf) job is to achieve the best possible return they can. Generally small increments the tenants will bear anyway, its easier (for them) to pay the extra than find another place. Its worth having a look at current market conditions in your area to see the current rent levels if you haven't already.

    Not a good thing having rents too high either as this can lead to break lease situations. Long term tenants are the best way to go for stability and cash flow.

    The end of the day its all about negotiating and establishing relationships.
     
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  3. Leo2413

    Leo2413 Well-Known Member Premium Member

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    For me it's all about market rent. As long as I am getting at least market rent or very close then rental yield wise it ticks my box. I only buy for CG anyways with a supporting rental yield that is acceptable to me with a good tenant. I rather have it slightly under market with a good tenant then over market with a nightmare tenant.
     
  4. jprops

    jprops Well-Known Member

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    Thanks for your pro tips @Leo2413 @D.T. - I'm a rentvestor myself. So I get to be on both ends of this.

    Recently, I increased the rent on my investment property and went with what I deemed to be market rent.

    To the contrary, my landlord is now increasing my rent and going 10 - 15 dollars above market - with the justification of "increased outgoings and market comparables".

    I called bull on the comparables and asked for their analysis, which they flatly refused to provide, but oddly the response I got was "Sorry I have had a look and you are inline if not slightly below market rent".

    I asked that the owner consider a reduction that would bring the increase in line with the market, and I received a prompt reply. "The owner will stick with the current increase" for now.

    As an investor - I see this as not worth the risk. As a renter - I see this as an opportunity to upgrade.
     
    Last edited: 5th Jul, 2016
  5. S0805

    S0805 Well-Known Member

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    I think one more thing you missed your 1st post...if the property in NSW...rent increase notice needs to be sent some months in advanced and signed before it can come into effect (i think 3 months) . last time my PM forgot to take this into consideration, eventually all parties agreed on rent increase but increase couldn't be apply for some months....

    is anyone find this a weird rule.If all parties agree than why wait...
     
  6. jprops

    jprops Well-Known Member

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    I could be wrong, but I don't believe the tenant is required to sign it. The notice period is 60 days and must be served in written form (not email).

    I don't think it's weird to wait. This is a general fairness rule, allowing tenants time to adjust their budget. Also, the tenant might not agree to the rent taking affect immediately, but be happy to have the 60 days notice period.
     
  7. S0805

    S0805 Well-Known Member

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    I don't dispute your opinion however just raising a point that if all parties (including tenant) agree that rent should be increased then waiting seems unnecessary especially when current contract is finished.
    I agree tenants should get appropriate notice for them to be planned and i do blame my PM more than anyone for not starting the discussion earlier.

    can anyone confirm that is that 2 months...this time I'll put reminder for me to follow 3 months before :)
     
  8. Xenia

    Xenia Adelaide Property Manager Business Member

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    We just produce a CMA with a rent increase. Comparative market analysis of properties renting at the suggested increase. The criteria is detailed but weight is given to equivalent building area, age of property and condition of property.

    Before they are sent out with a suggested rent increase - or not, we run them past the maintenance manager. This is an important last consideration because sending an increase to disgruntled tenants where maintenance issues are ignored or delayed is never a good idea - it's s tribunal order of action against the landlord waiting to happen.
     
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  9. jprops

    jprops Well-Known Member

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    For your reference:
    Rent_increases
     
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  10. MyPropertyPro

    MyPropertyPro SE Qld Property Management & Investor Services Business Member

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    Some good points raised here. The main thing is that the rental increase is in line with market rent - a tenant is not going to go through the stress and cost of moving just to move into a comparable property for the same rent. Once you get greedy, the tenant will work it out very quickly.

    For me, the key is establishing good communication and expectations with a tenant. Provided the increases are relatively benign yet consistent, the tenant expects them and can plan for them. I'm a tenant myself and expect that also.

    Having said that, you also need to be prepared to lower rents in a falling market (those with apartments in and around the Brisbane CBD will know exactly what I'm talking about here) as nothing kills your cash flow more than vacancy.

    Meet the market and you'll always give yourself the best chance of retaining/securing a good tenant.