When and how to implement a rental increase

Property management

As a landlord, you want to get the greatest return on your investment. One way to do this is to increase the rent you charge. When should you consider a rental increase? What are the regulations around doing so? Are there times when increasing the rent might not be wise? You need to consider both your tenants and state regulations before you take the plunge.

How much can a landlord increase the rent by?

If a tenant is is on a fixed-term rent for less than two years, you cannot increase the rent unless it is stated in your rental agreement. If the agreement is for a periodic rent, you can increase the rent, but different rules apply in different states.

In New South Wales, there is no limit to raising periodic rents. In Queensland, Victoria, the Northern Territory and Western Australia, you can only raise the rent every six months. In the ACT, Tasmania and South Australia, rental increases can only be made once a year.

No state has regulations in place for how much you can increase the rent by. However, if a tenant feels the increased rent is too high, they can appeal to a Tribunal. The Tribunal will look at each case and decide based on average rental increases in the area; the condition of the property; repairs the landlord has done; how long since the last rental increase; and if the tenant has paid for repairs. The Tribunal will also compare the proposed increase versus the current rent.

Landlords don’t have to have a reason to evict tenants. Here again, laws are in place to protect tenants from unreasonable evictions. A “retaliatory eviction” is an eviction based on a tenant’s refusal to pay an exaggerated rent increase. Tenants have the right to dispute retaliatory evictions.

What is the average rent increase per year?

Because tenants have rights to dispute a rental increase, it’s good to know what the average rental increases are per year in your area. They can vary in different areas and under different circumstances. Market forces also have an impact on rental increases. However, supply and demand is not the only issue affecting rent increases.

What happened in rental markets in 2016?

House and apartment prices are high in Sydney, which has led to an increase in apartment complexes in the city. Instead of lowering rents, these new developments increased rental prices in Sydney by 4 per cent in 2016. Other parts of Australia showed mixed results in 2016:

  • Prices dropped in Brisbane, following a first quarter rise in Brisbane rental rates.
  • Adelaide unit prices dropped by 1.7 per cent while house rentals rose by 1.4 per cent.
  • There was a steep decline in Perth and Darwin due to a downturn in the mining sector.
  • Units in Melbourne increased by 2.7 per cent and houses by 2.6 per cent.
  • Hobart rentals remained steady after a rise in the March quarter.

Look at average rental increases in your area

Before you raise the rent, have a look at average rental increases in your area. That will give you an indication of how much you can raise your rent. If you think your property deserves a rent increase higher than the average, bear in mind your tenants have a right to dispute the rental increase. Your rental increase should be a fair increase.

How do you calculate a fair rental increase? If you are paying for water and electricity, you have a right to increase the rent in relation to increased costs for water and electricity. If you have substantially improved the property, you can expect to get a higher rental return.

Keep in mind that you need to have a reason to increase the rent. If your rental increase is prohibitively high, a tenant has a right to dispute the rate.

Housing Rental Increase

How to calculate a CPI rental increase

The consumer price index (CPI) is a good starting point for calculating rental increases. It should tell you how much rentals have increased in your area over the past year. To calculate your rental increase:

  • Calculate the difference in CPI figures: for example, 202.1 – 192.9 = 9.2
  • Calculate the percentage: (9.2/192.9) X 100 = 4.76%
  • Apply this figure to your current rent: (4.76/100) X $400 = $19.04
  • Add 20 per cent of the increase: $3.80
  • Add $19.04 + $3.80 = $22.84

You can consider this a fair rental increase with a 20 per cent buffer. If you have substantially improved your property and are looking for a new tenant, find other properties in the same condition and calculate your rent based on their rents.

A CPI rental increase may not be the best way to calculate a rental increase in all parts of Australia. As noted above, rents went down in some areas and up in other areas. Keep these statistics in mind when you calculate a rental increase. If rents have gone down, you may find it hard to rent your property. If they have gone up more than the CPI figures, you may not be getting enough rent.

The best way to maximise your rental return is to improve your property between tenants. Our article, The best ways to maximise your rental return offers seven tips every landlord should know about. If you have had tenants for a significant amount of time, taking good care of them by looking after the property and attending to repairs and maintenance throughout the lease will make a rental increase more tolerable.

Issuing a notice of rental increase: what’s the process?

You can’t simply raise the rent without prior notice. In Australia, you must give tenants 60 days notice of a rental increase. The notice must be in writing. It must include the new amount of the rent (not just the rental increase); the date the rental increase will go into effect; be signed by the landlord and dated; and include the name and address of the tenant.

Keep in mind the difference between a fixed rental agreement and a periodic rent. If you have entered into a fixed term agreement with your tenant, you can only raise the rent if rental increases are part of the agreement. After two years, you can give 60 days notice of a rental increase. If the rental is a periodic rental, you still have to give a tenant 60 days notice.

In some cases, a tenant might feel the rental increase is excessive. If they are a good tenant, you can negotiate a lower increase with them. If they still feel the rent increase is too high, they can apply before a Tribunal. If the Tribunal agrees with the tenant, the agreed rent will be in place for 12 months.

Is it ever wise not to increase the rent?

Think carefully before you raise the rent. If you have a good tenant who always pays their rent on time and keeps your house or apartment clean and tidy, you may not want to raise their rent or raise it substantially.

If they decide to move because of a rental increase, it may take time to find a new tenant and the tenant may not be as good as they were. The costs involved in cleaning the property and finding a new tenant may override your rental increase.

If you think a rental increase is justified, you may want to discuss it with them. Most tenants understand their landlords have expenses, too. If rates have gone up or you have improved the property, a higher rent can be justified.

Recent budget changes, too, affect how much you can deduct from your income taxes. Budget changes every property investor should know about covers the recent changes. Some work to a landlord’s advantage, while others may work to their disadvantage.

Ultimately, every landlord wants good tenants who pay their rent on time and take care of the property. Raise the rent when necessary to balance your books, but don’t raise the rent to excess. Find a middle ground both you and your tenants can live with and you’ll have fewer problems.

For more information on what rules and regulations apply in your state, consult your local government authority:

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