Join Australia's most dynamic and respected property investment community

Rate Rise = Rent Rise?

Discussion in 'Property Management' started by Till Kingdom Come, 29th Jul, 2015.

  1. Till Kingdom Come

    Till Kingdom Come Well-Known Member

    Joined:
    23rd Jul, 2015
    Posts:
    129
    Location:
    Aussie Aussie Aussie Oi Oi Oi
    Would you?
    Could you?
    I'm planning to. Although I'm not affected by rate rises.
     
  2. rhinsor

    rhinsor Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    439
    Location:
    Perth
    Nope, my leases are locked in until next year.
     
  3. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    1,660
    Location:
    Sydney
    No, rents are very much driven by supply and demand.

    You generally can't arbitrarily increase them unless the rest of the market has already moved due to supply restrictions (ie people can't rent similar or better properties nearby for the same or less money).
     
  4. Redwing

    Redwing Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    839
    Location:
    WA
    What Sim said, unless you've been dropping rents as rates drop :D
     
  5. Tekoz

    Tekoz Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    1,244
    Location:
    Sydney
    How about increasing the rent about $40 per week, is that illegal or make sense if the existing rent is well below the market median price ?
     
  6. HUGH72

    HUGH72 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,124
    Location:
    FNQ
    Generally in a balanced market no, but there probably is a little room to move up slightly IMO.
    Often when a lease is due for renewal the PM will quote a estimated range for market rent eg We believe that your property could achieve between 420-440 in the current market etc etc... Many landlords will be looking for a small increase, that being said rates are currently so low that the recent rises in IO loan rates are pretty insignificant
     
    Tekoz likes this.
  7. Till Kingdom Come

    Till Kingdom Come Well-Known Member

    Joined:
    23rd Jul, 2015
    Posts:
    129
    Location:
    Aussie Aussie Aussie Oi Oi Oi
    If you can justify it in reference to CPI inflation or similar...
     
  8. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    1,660
    Location:
    Sydney
    It depends on how much you're already charging and where the rest of the market is - and also on where your property is located (different states approach these things differently).

    Generally, if you are increasing rents to meet the market, you shouldn't have a problem, but otherwise, increases of more than 10% above what the tenant is currently paying is likely to be looked at pretty carefully by the tribunal if they complain.

    I had a property where (due to very bad PM practices and poor oversight by myself), I had a two properties which were rented massively below market.

    One of the properties I had the tenant move out when we indicated we would be putting rents up at the end of their lease and so I was able to immediately advertise it at market rent.

    The other property we had long term excellent tenants (this was our ex-PPOR and they were our first tenants after we moved out and stayed until we sold the property 15 years later), so we had to increase rents gradually over a period of years to try and meet the market since we didn't want to lose our tenants. They did realise they were getting bargain rents, so didn't complain about the increases ... I think we were generally putting them up by around 10% per year over a 3-4 year period.

    We rent a house in Sydney (houses in this street are selling for over $2m now) ... our rent went up last year by $100pw and will go up again this year by a further $100pw, but will still probably be more than $100pw below market rent :D (this year is our 10th year of living here). If you work out yields based on expected sale price versus current rental return they are very very low :eek:
     
    Perp, sumterrence and Tekoz like this.
  9. Tekoz

    Tekoz Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    1,244
    Location:
    Sydney
  10. Till Kingdom Come

    Till Kingdom Come Well-Known Member

    Joined:
    23rd Jul, 2015
    Posts:
    129
    Location:
    Aussie Aussie Aussie Oi Oi Oi
    Inflation rate is less than 2%. You may face that hurdle.
     
    Tekoz likes this.
  11. citystar

    citystar Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    167
    Location:
    QLD
    Only if the rental market my IP's are located in will support it.
     
  12. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    2,976
    Location:
    Brisbane
    Rent rises are not linked to what the interest rates are doing (generally)... but I think you know that...;)

    We increase the rent when rents generally in the local area are heading upwards. If we find ourselves with lower than market rent, we creep it up rather than hit the sitting tenant with a big jump and risk them looking at what else they can get.

    For many years we kept the rent low because it seemed tenants would move on after twelve or 24 months and we would jack it up to "market" at that time. These days we tend to raise it a little each new lease as we have long term tenants.

    We have at times kept rent less than market because we know that if a tenant leaves, we have a big renovation to do to get good rent. That is a considered decision, and we try to control the timing of such renovations to fit in with a time that suits us financially, and when we have free time to get stuck into the job (doing things ourselves, or even just project managing, purchasing, making decisions etc).

    To try to raise the rent right now, for example, would be silly. Rents around where our houses are situated are very flat and for probably only the second (maybe third?) time in over 35 years of being a landlord, I've lowered the rent to get a tenant in.
     
    Perp likes this.
  13. sumterrence

    sumterrence Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    172
    Location:
    Sydney
    Haha this is exactly what I was saying to my fiancée this morning on the train about how those otp spruikers kept saying they can simple raise their rent to keep up with the increased interest rate.

    I said that is absolutely BS and ignorant, this whole world is heavily driven by supply and demand, the only way these bs theory will occur is if the supply and demand are in equal position or more towards the demand side than yes landlords can increase their rent to keep up with increased interest rate.

    I've had friends that told me their defensive plan towards this market is to increase their rent.......which I think it's a suicide approach........people need to stop listening to those poisoned media article.............
     
    Tekoz likes this.
  14. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    1,660
    Location:
    Sydney
    At a micro-level (ie individual properties), we all follow the market, we don't set it.

    However, at a macro level, there are other factors at play when it comes to external forces such as interest rate rises.

    1. if their expenses go up, landlords WILL try and push their rents as high as they can get away with based on current market conditions. This can lead to "market" rates increasing overall, provided that there isn't a supply excess where landlords are just happy to get a tenant at whatever rent they can (thus driving down rents).

    2. in some cases, landlords find their expenses too much for the rent they are able to get, and will sell their property - which sometimes removes it from the rental pool, thus reducing supply.

    So, while you generally can't force the market higher on your own (unless you are in a very small and very tightly held market) - you certainly play a part in influencing the market.
     
  15. sumterrence

    sumterrence Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    172
    Location:
    Sydney
    But this also need to factor in average household income and expenses, if the majority of tenants just simply can't cope with the increased rent regardless if all landlords start increasing their asking rent they will either:

    - Share accommodation with a few mates (less property being rented out because people are squashing into 1 to share the rents)
    - Move back with their parents

    Now eventually the market still need to come down unless people's average income also increases along with interest rate.
     
  16. MRO

    MRO Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    163
    Location:
    Perth
    Your cost is not relevant to the tenant. They will pay market rate.
     
    Perp and sumterrence like this.
  17. Paul Luck

    Paul Luck Member

    Joined:
    2nd Jul, 2015
    Posts:
    9
    Location:
    Brisbane
    So if your rents increase when rates do it must follow you decrease them when rates drop?
    No? Didn't think so.
     
    legallyblonde likes this.
  18. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    1,660
    Location:
    Sydney
    It doesn't work like this at a macro level. This is called an increase in the cost of living - and people just have to wear it and hope that their income increases to cover the increased rent.

    If it doesn't, they will simply look for somewhere cheaper to rent - but not everyone will be in this situation, so it won't ever be "the majority of tenants".
     
    sumterrence likes this.
  19. fullylucky

    fullylucky Well-Known Member

    Joined:
    27th Jun, 2015
    Posts:
    413
    Location:
    QLD
    Interest is a cost of input. When cost of input increases the price if final product increases but generally rent prices are sticky and dont change in the short term.
     
  20. Spanna

    Spanna Well-Known Member

    Joined:
    14th Jul, 2015
    Posts:
    80
    Location:
    Port Hedland
    As IR rise though less people will buy (afordability ect) This put downward pressure on demand.