I am seeing a lot of clients with 2017 tax returns and rental income has only marginally increased. Others show sharp increases. In a great number of instances properties have also swung from negative geared to positive geared. Property values may have risen sharply in many regions and it may follow that rents have also risen (or should) Many owners are now also receiving quite inflated land tax assessments which will continue to worsen. eg in NSW values are averaged over three years and year one may only so far be reflected. Next year another 1/3rd and the year after the further 1/3rd. Its obvious and important that all owners specifically discuss the current market rent expecations for each property with their PM. Imposing a jump in rent is often difficult and means a loss of a possibly perfect tenant BUT....It is an investment. So be wary of three concerns 1. Accepting lower than market rents for the sake of a good tenant 2. Chasing a high rent which may take time. 3. Agents that charge high reletting costs. I see a huge diversity in this issue with the cost ranging from $50 through to literally $1200. You dont want to churn a tenant and benefit the agent only but if a decent rent rise can be initiated now or planned for stepped increase then it should be considered. I have had this discussion with many clients and get a mixed response. Some have achieved good increases (10, 15, 20%) where others have confirmed their rents are on line but may need a CPI type review soon. A few have even reported back and changed PMs finding the PM was reluctant to pass on the need for rent changes !! Rent is one of the only issues a investment property owner can influence. Most costs are fixed or tied to rent or "imposed" on them. One feature common to all investors - None of us can influence costs. They continue to rise.
I had a client who had a rental property and the rent was about $100 pw under market value. He couldn't bring himself to increase it. I pointed out that he was subsiding her retirement plans by basically giving her $5000 per year, and that was $5000 less you would have to pay off your own PPOR loan the low rent was effecting his serviceability going forward. He understood this yet could only bring himself to increase it by $20 per year for the next 5 years (and he would still be undermarket because of the rent growth).
$5k this year and $5500 next year and so on. A major compounding issue. One day they realise the rent gap has been an average of $6K for 10 years. $60K gift to a tenant !
You hear all sorts of excuses for not increasing rent including: I'll have to pay (more) tax - duh! Good tenant and don't want to lose them Tenant maintains the place/clean/quiet etc Can't afford any more rent If the tenant leaves I have to do major works to get a new tenant Often the case of having to spend money to make more money - it's called risk.
It's prudent landlords to get in to the habit of checking the market rent every six months or so. And easy task now that you can type the parameters in to one of the real estate websites and search for similar properties in the area. Then discuss with your PM if you think it could go up a bit. Completely support the small increases (and hopefully keep the tenant) rather than the big jumps!
Must review rents every single opportunity to ensure optimal rent is being achieved - sometimes this means bumping them up and sometimes it doesn't. Need to factor in possible vacancy / re-letting into the equation too. However for our NRAS properties we manage - those ones get done by a proper valuer and most of them have in fact had downward movements in rent that we and the owners had to obey.
A review is just that - a point in time that the pm & owner review the rent, terms of the lease, condition of the property, maintenance, market comparables, vacancies, holding costs, budgets/forecasts etc. The results aren't always a rent increase but can be a do nothing, give notice or take other action. When a comprehensive review is undertaken, you come out with a better understanding of your property/assets.
