Raising Rent: When should you do it and by how much?

24 October 2016

IT’S ON THE HOUSE

Insights and advice for property investors & home owners.

 

Raising Rent: When should you do it and by how much?

One of the biggest pressures on the relationship between owners and tenants can be the issue of increasing rent. Whilst it’s necessary for owners to increase rent periodically, the questions of when to do it, how much to raise it by, and how to communicate the changes to tenants can be difficult to address. We’re here to help answer those questions and give some insight into what we at Quinovic can do to help.

When is it appropriate to increase rent, and by how much?

The rent charged should be dictated by the current market rate. We review this for our clients every 6 months, but owners will usually implement increases around every 12 months (the legal minimum between increases is 180 days). It is best to review and raise rents regularly and a little at a time. The alternative to this would be irregular and large increases, which can be harder for tenants to accept. 

In general, the rate of increase is around 3-5% per year, however this can vary and is entirely dependent on the current market rate. Unlike when selling a property, it is illegal to charge above the market rate for a rental, so it is important to stay informed on the topic. Increases can also be justified if improvements have been made to a property which add value and/or are of benefit to the tenant, such as an extension or redecoration.

How to communicate rent increases

Communication is key when implementing a rent increase and it can really help to avoid any potential problems. When an increase is coming, it should be communicated in a timely and reasonable manner to tenants. A simple explanation that it is in keeping with the current market rate, or is a direct result of a recent improvement to the home can go a long way. It can avoid putting any strain on the landlord/tenant relationship and prevent problems in future. In more practical terms, you are legally required to provide written notice at least 60 days prior to any increases.

In general, adhering to these guidelines and providing fair explanations should be sufficient. The vast majority of tenants will accept a reasonable increase. Tom Finlay, Quinovic franchise owner in the Wellington region, says ‘it’s a common misconception that to get good tenants you must charge low rent. In fact, we find that reasonable tenants are more than willing to pay a reasonable rent for a property’.

Potential problems

If an increase is not communicated well, then owners can risk straining the relationship with tenants, which could lead to further issues. If a property is not maintained to a sufficient standard, tenants may be unwilling to pay the market rate. There are also some cases where a property will fall behind the market rate due to multiple tenants in a row breaking a fixed-term contract. In these cases, properties must be advertised at the rate the previous tenant was paying, so the market may outgrow the property. Fortunately, these situations are uncommon and can often be avoided via good property management.

The most serious problems occur when a tenant formally opposes an increase and refers the matter to a tenancy tribunal. In this case, an owner must provide justification for the proposed increase including evidence. This evidence would generally be composed of examples of similar properties in the same or comparable area having the same level of rent. Alternatively, the evidence could outline improvements that have been made to the property that effectively increase its value.

Talk to the experts in property management

All of these situations are perfect examples of where a property manager like Quinovic can prove indispensable. Quinovic have wide knowledge of the market, and a great deal of experience to advise and guide owners to deal with any issues, maximise profits, and have many years of happy tenants. Tom explains ‘it’s often difficult for private landlords to be sure they’re charging market rate. We often find it’s necessary to raise rent when we take on a new property as it’s fallen behind the market rate.’

If you have any questions or want advice around raising rent, talk to us.

 

 

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Find out more about our proven Customer Care and Return Systems, or for more information, get in touch with us now.

 

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