When the rent is raised…
To raise the rent or not to raise the rent? For both property owners and rental occupiers, it’s a very big question, especially in some regions at the moment where rental vacancy rates are low.
There are also rules to consider around rent increases. So let’s look at what happens when the rent is raised.
A big decision
Although it’s natural for every rental owner to want to maximise the return on their investment, raising the rent should be carefully considered especially if you’re hoping to renew a rental agreement with existing tenants.
Although the market rental value of the property might have increased, there is a tangible value in good, long-term rental occupiers who look after your home and pay their rent on time.
In this case, you might want to consider a smaller increase (say 3 per cent or 5 per cent) rather than slugging your existing occupants with a hefty increase.
And it pays to look at it in these terms…should the rental occupier baulk at a large rental increase and opt to look elsewhere, you will potentially incur the following costs:
- Advertising costs
- Property vacancy of a least a week (more likely two)
- A re-letting fee
- Perhaps a shorter six-month lease and then an additional vacancy and re-letting fee.
So let’s consider some sums…
Do the sums
If you have a property that currently rents for $360, but market rate is $400 you could:
Raise the rent to $400 and lose the current rental occupiers. In this case, total gross annual income would be $20,800.
If the existing rental occupier accepts that rise, then great. But if they don’t, the following deductions might come into play:
1) Advertising costs – approximately $400
2) Lost income due to rental vacancy – $800
3) Re-letting fee – $400
Therefore, even if the new rental occupiers opt for a 12-month lease, your maximum income (without management fees, mortgage interest repayments and repairs and maintenance) is $19,200.
Bear in mind, there might also be additional costs. After all, every new rental occupancy comes with teething issues that might mean extra repairs and maintenance are required.
Raise the rent to $375 and maintain the current rental occupiers. In this instance, the total gross income would be $19,500 – re-letting fee, which equals $19,100.
As you can see, there’s very little difference in the gross income, and should the new rental occupiers only opt for a six-month lease, you would actually be behind.
When the rent can be raised
Rent can only be raised at the end of a rental agreement, and in some states and territories there are minimum timeframes for when this can occur.
For example, in Queensland a rental owner can increase the rent once every six months, while in Victoria, it can only occur once every 12 months.
Meanwhile sufficient written notice of any rent increase is required. This usually takes the form of a proposed new rental agreement.
Do rental occupiers have to agree?
Rental occupiers do not have to agree to a rent increase.
They can propose a different figure in writing and outline their reasons, or they can opt to reject the new rental agreement conditions and vacate the premises at the end of the current agreement.
But the bottom line is, it’s a weigh up for both the rental occupier and rental owner.
Housing security has value as does a good, reliable rental occupier, so it’s not just as simple as looking at the potential income of a property and opting to raise the rent.
In these situations, a professional property manager is the best person to walk both owners and rental occupiers through the process, offering their expert guidance on what the property is worth, along with what suits their individual circumstances.
How we can help
Our experienced property managers pride themselves on establishing great relationships with both rental occupiers and owners.
We manage every property as if it were our own and you can learn more about our property management services here.
Alternatively, if you are looking to rent a property, you can view the properties we currently have available here.