How Can I Increase The Rent On My Investment Property?

A fundamental aspect of owning an investment property is knowing when and how to appropriately increase the rent. There are many things to consider before deciding to raise the rent, including understanding your legal obligations and how to minimise the likelihood of losing the current tenant.

Why increase the rent on your investment property?

​One of the primary reasons for owning an investment property is to generate income. For this reason, it's imperative that your property is as profitable for you as is reasonable in the current market. 

The amount of rental return a property can generate is influenced strongly by demand for rental properties in the local market which are of comparable size, condition, inclusions, and so on. Many of these influencing factors are dynamic e.g. homes may be being renovated in the local market, commanding higher rents than those left in their original condition. 

Indeed, the location itself may be changing. New cafes, restaurants, expanded schools or parkland facilities may reinvigorate interest in a previously stable area. As demand increases in an area (often more quickly than supply), it is fair to expect rental return will increase. 

Aside from the market appeal of a property, investors must of course also ensure their own costs in owning the property are covered as best as possible. As council rates, mortgage rates, strata levies, and CPI increase, it is reasonable to consider a rental increase. 

When should a rent review be conducted?

​If your property is managed by a professional and experienced property manager, you should be presented with recommendations around rent increases on a regular basis. For example, when a fixed term lease period is approaching its end date, you should be being advised of the state of the market and a recommendation presented to you around the suitability of a rental increase (or reasoning to leave rent stable or in some special conditions, decrease). 

Such recommendations should also be being made by the property manager when there is a change in tenancy. For example, if a tenant has given notice to vacate the property, this should be seen as a trigger to conduct a rental review of the property in the current market, with the opportunity to advertise the property at a higher rent than previously achieved. 

It is certainly reasonable to consider factoring in an increase in rent when there have been changes made to the property or circumstances of the lease also. For example, if:

• Air conditioning has been added
• Appliances have been improved e.g. dishwasher added, new gas oven installed
• Maintenance such as lawn mowing service has been included
• Pets are now accepted at the property
• etc.

When can rent be increased?

​While there is no blanket rule which can be applied to determine exactly when and by how much rent should be increased, it is generally advisable to increase rent by small and manageable amounts on a regular basis (e.g. once a year) rather than by a significant amount to play "catch up" with the market after keeping rent unchanged for some time. 

Legally, rent can be increased:

• If the fixed term lease period has ended and the tenant is on a continuing (periodic or rolling) arrangement
• During a fixed term lease of less than two years, but only if a term was included in the original agreement. The agreement must state the amount of the increase (as a dollar value or percentage), and cannot be unclear such as "in line with the market".
• During a fixed term agreement of two years or more, but cannot be increased more than once in any 12 month period. 

Importantly, notice must be provided to the tenant first (see below)

What notice is required in order to increase the rent?

​Before any rent increase can take effect, the tenant must be given at least 60 days notice in writing (plus an extra four working days if the notification is being posted). 

The notice must:

• Specify the proposed new amount of rent (not the amount of the increase)
• Specify the date from which the increased rent is payable
• Be signed, dated and properly addressed to the tenant

Further information around the legalities of rental increases can be found on the NSW Fair Trading website.

How to minimise the chance of a tenant leaving due to a rent increase

​Some landlords are concerned about raising the rent for fear that a tenant may vacate. A property manager who maintains great relationships with their tenants is invaluable in ensuring the transition to higher rent is clearly understood and smoothly managed. 

During a tenancy, the prompt resolution of any tenant queries such as maintenance requests or repair issues, and the willingness to negotiate on requests (such as allowing a pet or installing an air conditioner) will help towards a tenant accepting a reasonable rent increase. 

This level of care for the needs of both investors and tenants is where we excel. If you would like to discuss the rent and management or your investment property in Newcastle or Lake Macquarie, contact us today. 

Let's discuss your rental return