Landlord’s Guide to Rent Adjustments

  • Landlord’s Guide to Rent Adjustments

Market conditions can either be your friend or enemy when you’re a property investor and, in order to ride out the tough times, you need to make hay when the sun shines.

Recently, rents have been soaring as vacancy rates shrink to an almost non-existent state.

The media seems to blame landlords for this, not the economic conditions that have led to the situation.

Landlords are regularly called greedy for raising rents, even though their banks have already hiked their loan repayment rates by huge amounts as the RBA has handed down increase after increase to its official cash rate.

There is a lot of emotion out there and a lot of people doing it tough, but this doesn’t mean you need to sacrifice your return on investment. It’s not as if tenants offer to pay you more than they have to when market conditions are the opposite and you are struggling to fill vacancies.

With all this in mind, it’s important that when the time comes for you to adjust your asking rent, you are equipped to navigate the process.

Get your property manager on board

Property managers deal with a lot of tenants in their line of work and they are likely to be sympathetic to their cause. Ensure your property manager understands your situation, along with your goals and strategies and is aware of why you need to make a rent adjustment. A good property manager will suggest the adjustment in the first place because they will be on top of the market and will know what asking rent is suitable.

Market conditions

The main factor in what happens with asking rents is the state of the market, specifically supply and demand and economic conditions. Your investment portfolio is like a business and all businesses are subject to similar economic factors. A rent adjustment based on market conditions is nothing personal, it’s about an asset performing in a way that helps you achieve your goals.

Property upgrades and maintenance

Investing in improving a property or getting it up to scratch with the standard in its local area can be another key reason for a rent adjustment. You may have added an extra bedroom or bathroom, or made smaller changes like adding energy efficient appliances, or opening up more storage space.

Strategies for mitigating disputes

Many tenants will be struggling with rising cost of living. So a rent increase may be hard for them to take.

Open and transparent communication is key. Your property manager should communicate proposed adjustments in advance and provide clear reasons, such as the property being brought into line with market expectations.

Having appropriate documentation such as records of market data and analysis can help justify a rent increase.

Being willing to open a dialogue with tenants can also help. If you are open to negotiation or at least listen to their side of the story, you can help keep things cool. A tenant might offer to sign a longer term lease or, if qualified, conduct repair or maintenance work on the property themselves in return for a better rental deal. You may be able to find a mutually beneficial arrangement that means they don’t have to find a new rental and you don’t have to spend time and money filling a vacancy.

Understanding rent adjustment dynamics

Timing is key. You won’t be able to change the rent during a lease, so the renewal period, when you are already in a review and negotiation phase, is the optimal time.

Think also about the size of the adjustment. There have been stories this year about landlords hiking rents by $400 a week in one go. This could be because they had not been on top of the market rates in previous years. A smaller adjustment will be more palatable to the tenants so it’s best not to put yourself in a position where you have to play catch up.

Managers should also be monitoring tenant satisfaction throughout the lease to further mitigate the possibility of a dispute. It’s not a good look if there were a bunch of repair or maintenance requests that had been ignored- say there was mold or water damage in your property, or a pest infestation- and then you are suddenly hiking the rent.

Seeking feedback and resolving concerns in a timely manner can help keep the landlord-tenant relationship strong and remember, there might come a time when the market is behaving very differently and you need to adjust the rent downwards to keep a tenant in place.



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