How to decide when it's time for a rent increase

Nobody likes to be the bearer of bad news and a rent increase can definitely be seen as just that.

We have found that the best way to do that is to figure out exactly how much and when to raise rents and do it in a way that doesn’t make your renters want to move out. While it isn’t easy, it is possible. Here are a few things to consider.

Slow and steady
One method that many landlords use is to increase rents by a small amount every time the lease is renewed. They increase the rent by $10-$15 per week each time which will have less resistance from the tenant making them feel as though the increase is reasonable. Where this method costs you is when the market goes up by large amounts, leaving you well out of whack on what you could be charging.

Keeping rents in line with the market
While small, steady increases can be a great strategy, it can also backfire in a fluctuating market. If the market explodes and you are charging too little for rent, you are losing money. If the market contracts and you are charging too much for rent, your tenants are likely to move out, creating vacancy and a loss of income.

We prefer to keep rents in line with market rates and we always use a comparative market analysis to justify the rent to both the landlord and the tenants. We explain our process for how we review the rent upfront to both parties then everyone understands from the get go. Tenants need to understand that if they were to go and rent a similar property elsewhere it would cost the same and they would incure removal costs if they have to move.

What is a long-term lease worth to you?
If your costs are fixed or the market is trending down you may want to consider offering a long term lease of two years with no rate increase. This strategy is also relevant if you propose a rent increase to good tenants and they say they are thinking about moving.

Sometimes, two years of “guaranteed” money is worth more than raising rents and risking vacancies. This will be reliant upon your situation and your tenants’ situation. We don’t recommend it for everybody, but it is a great strategy to consider under the right circumstances.

What is the 'best time of the year' to increase rents?
We prefer timing and announcing rent increases for the busiest market times: spring and autumn. The reason for this is that if your tenants don’t want to pay more rent, the rental market will be filled with prospective renters looking for a place to stay. This will make it much easier to rent your property and avoid vacancies.

Maximise your property value
A valuer will use rental return as a strong indicator of a properties value, so if you are refinancing, it helps to have your property rented out for a higher rental price.

When you are trying to sell a property that is investor friendly, your market value will also be heavily impacted by the rental return you are fetching. Savvy buyers will use a lower rental return to discount your price.

Hire a professional
A professional property manager will set up front expectations with tenants, do the research and see that you keep them in place while raising the rents in line with market values. Don’t “go it alone.”

About Jarrad Mahon

Jarrad is the director of Investors Edge Real Estate.

Jarrad thrives on helping hundreds of investors every year formulate a clear plan to get the best returns from their Perth property. This requires a carefully thought out and innovative approach to understand your situation and help you to make the right move at the right time.

His renowned personalised "Property Success Plan" takes you step by step through how to make thousands of extra dollars and avoid the costly mistakes that Jarrad has learnt the hard way by investing all around Australia.

Over the last five years he has used his engineering background to build and refine a unique property management, sales and investing process that is sure to impress while getting you real results.

A sales and marketing expert, Jarrad combines the latest technology and cutting edge sales strategies to sell homes across the whole of Perth metro area.