Look at the inflation rate and cost of living
As well as making sure that you can legally increase the rent, investors need to apply some judgment. Inflation has been very low over the past 12 months and borrowing costs are at all-time lows, so it may not be justifiable to ask for an increase, even if it is allowable. That said, few tenants would give notice if the rental increase was nominal. It’s worth weighing up your judgment against possible consequences.
Vacancies can quickly offset rental increases
One such consequence is that you lose your tenants and the property is vacant for two weeks, or even longer. If you increase rent on your property by, for example, $20 per week, that will add an extra $1,040 gross to your annual cash flow. However, if the property rents at $500 a week and is vacant for two weeks then you have lost this advantage within a very short vacancy period.
Research the competition
The best advice when considering increasing rent on your investment property is to discuss the current market with your property manager and also research the competition. Ensure you compare like with like. What are similar properties renting for in the same area? If your property is a condo in a multi-dwelling block, you may be able to find out what a similar unit is renting for. The rent you are proposing needs to be in line with the competition. In some cases you may have added extras that tenants will value and can justify a slightly higher rent, for example an air-conditioning unit, a sunny aspect and great view, or an upgraded kitchen or bathroom.
Remember, when setting rents – as with all aspects of property investing – keep sight of the big picture. Property is a long-term investment.
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