Raising the rent

By Kirsten Friedli

Experienced landlords and Property Managers know that successful ownership of a residential investment property is about maximising long-term income. However, rookie landlords and inexperienced Property Managers are often focused only on the short-term, and the amount of rent being achieved ‘right now’.

A vacant property obviously means lost income. And vacancy for just a few weeks, significantly reduces the landlord’s overall investment return.

Happy tenants are obviously a crucial part of the rental income equation. Experienced landlords know that having rent set at around 90% of market value usually achieves a higher long-term income, rather than holding out for tenants who will pay the extra 10%.

Also, tenants who know they are paying top dollar are more likely to be finicky about little things, and make more demands for repairs and maintenance. Furthermore, top-paying tenants tend to look around in the rental market to see what else is available for their money, and move sooner if they find better value. This causes an interruption to landlords’ rental income stream.

Tenants paying 90% of market value know they are getting good value for money, and are more content. They demand less, look after the property better, and stay for longer. This steady tenancy with a regular and predictable income is obviously the ideal scenario for landlords.

Raising the rent
When it comes to raising the rent, rookie landlords and novice Property Managers think that the best approach for raising the rent is to make frequent small increases, thinking tenants will be less impacted this way. However, tenants see this activity as “penny pinching”, are stressed by the frequency of the increases, which leads to anger and disharmony, increased demand for repairs, and higher vacancy over the long-term.

Rent increases should occur when market indicators show that a 5% increase is warranted. Landlords should employ an experienced Property Manager that monitors the market and informs them when it’s time to raise the rent. The Property Manager then acts on the landlord’s behalf to notify the tenants and explain the reason for the rent increase. This method is more effective for tenant harmony and retention.

For more property management advice, contact Harcourts The Property People on 4628 7444.