It’s property investment 101. If you are renting out a property, particularly a residential rental property, then you have to increase rent. This may be annually, but most likely every 18 months to two years. Why? Well, there are a number of reasons this is considered to be a standard operating procedure in property investment. Firstly, small rent increases regularly are more likely to be absorbed by your tenants than a large increase when it is possibly too late. Secondly, you need to be keeping up with inflation and with the rental market. Your personal property investment rules probably involve getting the most out of your investment to support your overall investment plan. Why subsidise your tenants’ rent at the expense of your investment goals?
But is it always so black and white? Sometimes we get so caught up with the investment rules and numbers we forget the big picture. For example, what if a 5% rent increase takes a property’s rent over a key price threshold that causes the tenant to look elsewhere. If you can’t afford to lose a tenant then this could be a key consideration. An extra $500 a year probably won’t affect your bottom line, but an untenanted property probably will. Rent increases aren’t something to be afraid of, but just be sure to think of the big picture before blindly sending out your rent increase letter. Is the property worth the rent you are increasing it to? Is it really market rent? If your tenant leaves, will you be able to find a new tenant for the same rent?
Most likely regular rent increases will be one of the key tools for successful property investment in residential rental property. However, be sure to take a moment to think your actions through first.