Finding the Right Balance – How to Handle Rent Increases
Learn how to handle rental increases and find the right balance that works for both you and your tenant.
11 Things You Should Know Before You Increase The Rent and How Much is Too Much?
As a self-managed property owner, you may be faced with the challenge of increasing rent. It’s important to make sure that your rental increase is fair and reasonable for both parties.
A sudden rent increase can cause tenants to become unhappy, so it’s important to consider their situation when proposing an adjustment. On the other hand, you may find that your rental rate is too low, and you need to adjust it accordingly. We’ll walk you through finding the right balance with rental increases.
Why are Rental Increases Necessary?
There are a few factors that need to be considered when increasing the rent and the main driver that determines the property price is ultimately supply and demand. Property values and rents fluctuate with the local rental market. If a property is significantly below market rate, a rental increase brings it closer in line with what similar properties are renting for in the area.
A few reasons why rental increases may be necessary:
- To adjust the rate with inflation
- To cover costs associated with improvements to the property
- To keep up with market trends and demand for properties.
In short, rental increases aren’t just about profit, they’re often necessary to maintain the property, reflect the market and ensure both tenants and landlords have a fair, sustainable arrangement.
How do you know when it’s time for a rental increase?
There’s no strict rule for the perfect time to increase your rent, but typically, a review is conducted once a year, as this is the limit on how often rent can be raised in most states in Australia. There are also a few other key indicators to watch for, including the following:
- Your rental rate is lower than the market rate for similar properties in the area.
- You’ve made significant improvements or renovations to the property that justify a price increase.
- Your area's living cost has increased significantly since you set your rental rate.
- Your expenses have gone up due to property taxes, maintenance, and other related costs.
12 Things to Consider Before Deciding on a Rental Increase
Before you set your rental rate increase, it's important to carefully consider various factors that can impact the decision. Here are some of them:
1. Market Trends
When considering a rental increase, it’s important to understand the local market. This includes researching the rent in your area and keeping an eye on any changes in demand. If there is an increase in demand for rentals, you may be able to justify a higher rent. On the other hand, if there is a decrease in demand, you may need to consider lowering your rent or offering incentives to attract tenants.
2. Inflation
Inflation can have an impact on rental prices over time. When considering a rent increase, it’s important to factor in inflation rates so that you don’t end up pricing yourself out of the market. Generally speaking, it’s best practice to raise your rent by no more than the inflation rate each year, as this will keep up with expenses without being overly aggressive.
3. Property Improvements
If you have recently made improvements or upgrades to your property, then this could also warrant a higher rent. The key here is to ensure that any improvements are reflected in the property's value and that they provide enough value for your tenants to justify paying more for their rental.
4. Local Competition
It’s also important to consider what comparable properties in your area go for when setting your own rent. If you set your rent too high compared to similar properties nearby, then you may struggle to attract tenants and fill vacancies quickly. In contrast, if you set the rent too low, you could lose money in the long run.
5. Legislation
You should become familiar with the legislation in your state or territory for rental increases. These laws are designed to protect tenants from excessive rent increases, but they can also limit your potential profits. Read more here.
6. Economic Conditions
Potential rent adjustments should also take into account the overall economic conditions in your area. If the economy is struggling or the job market is weak, tenants may not absorb a rent increase. High unemployment rates or a declining economy might also increase the likelihood of rental defaults.
7. Upcoming Expenses
You should also consider upcoming expenses related to the property. If you anticipate major repairs or renovations, property taxes or insurance increases, or other large expenses, it might be necessary to increase rent to cover these costs.
8. Tenant Retention
You should also consider your relationship with your tenants and whether they can afford it. A large rent increase might lead them to look elsewhere which could ultimately cost you more money than if you had kept their rents at an affordable level in the first place.
9. Transparency
No matter how much of an increase you decide on, be transparent throughout the process and explain why you are increasing rent. This will help build trust between you and your tenant while also ensuring everyone understands why certain decisions were made regarding rental prices and increases going forward.
10. Offering Flexibility
Remember that not all tenants have the same financial circumstances, so it is beneficial be open to negotiation. This could mean allowing tenants to pay a lower rate if they commit to a longer lease. By offering these types of solutions, you are showing your tenants that you are not only looking out for your best interests but also considering their individual needs.
11. Tenant Feedback
Consider seeking feedback from your tenants. They are on the receiving end of any rent increases, and their input can be valuable. Rent increases can be a delicate matter and it's important to handle them in a way that balances your financial needs with maintaining tenant satisfaction. If you're open to their concerns and responsive to their needs, they're more likely to accept an increase.
The Golden Question: How Much of a Rental Increase is Fair?
The rental market, like any market, is strongly influenced by supply and demand. When demand for rental properties increases, you generally have more flexibility to raise rents, and conversely, when demand falls, rental growth tends to slow or even reverse. A widely accepted rule of thumb is that annual rent increases should not exceed 3-5% or the percentage increase in your area's Consumer Price Index (CPI), representing the average inflation rate. This helps ensure that the rent remains competitive while allowing for-profit and property upkeep. However, it's also essential to consider laws in your state/territory.
You should be mindful of how a rent increase might affect your tenants. If you are planning to raise the rent, give your tenant plenty of notice. Of course, at the end of the day, it's up to you as a property owner to decide what is fair when it comes to a rent increase. Just be sure to take into account all relevant factors and tenancy laws. This will help ensure that you and your tenant are both getting a fair deal.
Setting up the Rental Increase
Once you've done your homework, you should communicate with your tenant. You'll need to provide them with a written notice of the rent increase, typically 60 days before the increase takes effect - this varies in each state/territory. The notice should include the amount of the increase and the date it will start. Be sure to keep a copy of this letter for your records.
💡 Pro tip: If you manage your tenancy through RentBetter, you can easily handle rent increase notices in just a few steps - we’ve built the process right into the platform to make it quick and simple.
Finding the Right Balance - RentBetter Makes Property Management Hassle-Free!
While no one enjoys a rent increase, it’s often a necessary part of renting. Understanding the reasons behind an increase and knowing when and how to implement one, can make the process smoother and less stressful for both you and your tenants. Open communication is key - providing tenants with a clear explanation of the rent increase supported by data and facts helps them see that it’s not personal - it’s simply part of managing a property responsibly.
On RentBetter, the platform takes care of the day-to-day management tasks - from collecting rent and handling expenses to managing tenant bills, maintenance, and everything in between. We also help ensure you remain compliant with tenancy laws, so you can manage your property with confidence and peace of mind.
Experience the RentBetter difference and maximise the potential of your investment property!
