As a property investor, you’ll want to ensure you are getting the maximum rental yield and profit on your investment property. One of the simplest ways to achieve this is by increasing the rent you charge. However, this is easier said than done, particularly in the current economic climate.
Before you move ahead and increase the rent on your 2101 investment property, here are a few things to take into account.
1. Check the market rate for properties in the area
The objective of owning an investment property is to make money first and foremost. If your rent is set lower than the rest of the market, a price rise is easier to justify.
Whether your rental property is located in Elanora Heights, Ingleside, Narrabeen, North Narrabeen, Warriewood or elsewhere on the Northern Beaches, it’s easy to conduct a rental search on either RealEstate.com.au or Domain.com.au to see how many homes are being advertised for lease and what the current asking prices are for similar-sized rental homes to yours.
This intel will help you ascertain whether a rental increase is viable. This type of search is also the first thing your tenant will do should you raise their rent, so it’s good to look at the available properties through the eyes of your tenant and not just your own as the landlord. Ask yourself, will your tenant be able to secure another property in the area for less rent, or would your rental increase be on par with other similar properties?
The good news is that demand for rental properties located within postcode 2101, particularly family homes, has remained strong and landlords have been able to increase prices this year.
2. Increase the rent gradually
A significant rental increase will not be the best option if you want to hold onto your current tenants. They may find the new price unaffordable and decide to move out, which can set you back financially. So consider a gradual increase, and choose a rental rate that keeps your property looking more attractive to your tenant than other similar rentals being advertised.
If you plan to increase your rent and keep your current tenants, a gradual approach is best. NSW rental laws limit the number of times you can increase the rent to once in a 12-month period, so keep that in mind. There are additional rules around lease agreements as well that relate to fixed-term, periodic or situations where there is no agreement in place at all, so it is advisable to engage an experienced property manager to assist.
3. Increase the rent to its maximum limit
If your rental property is significantly underpriced, and you don’t think your current tenants would pay the higher rental rate you’ll need to prepare yourself for a situation where you have to release your investment property. This can be a complicated process, especially if you want to show the home to potential new tenants ahead of the current people vacating, as they will need to grant you access to their home. Ideally, you want to try and avoid your investment property being empty for an extended period. With the help of an experienced property manager, they will help you navigate this situation, provide the right notices, adhere to the rental laws and find a replacement tenant swiftly.
4. Offer home improvement incentives
If you have long-term tenants that pay on time and look after your property exceptionally well, you probably don’t want to lose them. Consider what you could do to the home to increase its value in their eye’s at the same time you increase the rent. You may ask them if there’s anything that they feel is missing from the property and they may suggest additions that are easy to incorporate.
With more people working from home, you may add extra plug sockets in certain rooms, or orgainse for the NBN to be installed if available. You may offer to have an arborist tidy up the trees in the garden or a landscaper add some additional plants. You might offer to provide block out curtains in the childrens rooms or replace light bulbs to LEDs. Consult with an experienced property manager, and remember they are the perfect go-between to negotiate with your tenants to find the best solution on your behalf.
5. Make major upgrades
Another option to justify a rent increase is to make significant upgrades to your property. You may consider installing air conditioning units, building a back deck, providing an undercover car port, or adding built in wardrobes to bedrooms or finding other ways to provide additional storage.
Make sure you talk with your property manager first, as they will know what tenants like yours generally look for in a home and be able to better ascertain what key features are missing from your property, and could be added by tradesman they know, for a reasonable cost.
In many cases, the costs are tax deductible so make sure you keep a record of what you spent and provide receipts to your tax accountant.
6. Engage an experienced property manager
Your property manager should come to you with the suggested rental price alongside any suggested incentives you could offer your existing tenants. Remember, they know the market, are leasing properties continually and have a clear idea of what tenants are currently looking for in a home. As soon as it looks like your rental price is falling behind, they will let you know.
A good time to reconsider the rent you charge is when the tenants’ contract comes up for renewal. Adding a reminder to your diary and organising a meeting with your property manager a month before the contract ends ensures that you have plenty of time to consider your options before the contract lapses.
Your property manager is also the best person to negotiate a rental price increase with your tenants. Part of their job is communicating and saving you from the stress of what can be an uncomfortable conversation.
Get expert property management advice
Rental prices are on the rise Australlia-wide. The 2101 postcode is more in demand than ever. If you feel you could improve the rental yield on your investment, reach out to Hunter Estate Agents today.