To Increase Or Not To Increase…<< Back to Blog
When reviewing rents and tenancy agreements the question often arises “Should the rent be increased and if so, by how much?” As your managing agent, when the tenancy agreement is under review, the first thing we assess is whether the tenant is looking after the property and paying the rent. If the answer to this question is no then renewing the tenancy would be detrimental to protecting and maximising your income. If the answer is ‘yes’ then we would proceed in completing a comparative market analysis of your property to assess the price the property may rent for on the current market.
This is the price that could comfortably be achieved if your tenant decided to vacate the property at the end of their tenancy. Only a few years ago, it was common practice for many agents to just increase the rent by $5 or $10 (regardless of the market review), however, as tenants are becoming more astute and, through Internet resources, are now armed with up-to-date information about the rental market, it is becoming increasingly important to be accurate in accessing the market value of the property.
Many investors are reluctant to increase rents at properties where they have retained a good, loyal tenant for a long period of time, and although this is sometimes a good practice where vacancy rates are high and the rent has only marginally risen, it is important to refrain from consistently choosing this approach. As the market continues to increase without the property being adjusted accordingly the tenant becomes shielded from market conditions, and when they eventually have to move they are unprepared for the increase in living costs.
It is also important to move with the market as conditions do not always reflect increases in costs. When these costs occur, as income is not being maximised, the costs can have a negative effect on the affordability of the investment. If an investor is put in a position where they need to sell their property, having the rent at less than market value will have a negative impact on securing a sale at a reasonable price.