MARKET FORCES THAT DRIVE UP RENT PRICES
By FOX PM
As a landlord, rent increases are something you need to think about as it comes time to offer your current tenants a lease renewal. While it can be tempting to increase the weekly rent for your tenants, there are market forces you need to consider when you’re determining if it’s suitable to increase the rental price for your properties. Here are the factors you need to consider and eliminate when you weigh up whether to make a rent increase.
If you’ve had to spend money on your property in recent months, this isn’t a strong reason to increase your rental prices. This is because property-specific costs don’t reflect the wider market which is what creates the basis for raising prices in the first place. For example, an expensive repair to plumbing or structural elements of the property isn’t a wider market factor such as vacancy rates. This is where it’s essential to make sure you have a cash buffer for unexpected repairs and maintenance.
The warmer months in Australia are the most popular time for tenants to look for a new property. The new year, in particular, is popular so if you’re listing one of your properties for rent, this could be an excellent time to increase the weekly rental price for your properties. Just beware if you’re increasing the rent with current tenants, you have to be prepared for the possibility that they may find another property. This is why it’s essential to consider the broader market and consult with your property manager and other trusted advisors.
Beyond vacancy rates, you should also take market performance into account when you’re deciding whether to increase the rental price for your properties. To do this, do some research on the property’s suburb and surrounding areas. You’ll need to look at factors such as the median rent, median house price and average rental yield.
Finally, when you decide on increasing the rental price of your property, weigh up the cost of vacancy against the rental increase. For example, if your property is currently rented at $750 per week to rent and you’re considering a $10 increase to $760 per week with the current tenants, do your calculations. Just one week of vacancy will eliminate the potential gains from a rent increase and leave you out of pocket by $230 compared to if you’d kept the rental price the same. Again, this comes back to having an adequate cash buffer set aside in case of extended periods of vacancy at your rental property.
There are a lot of factors you need to consider when you’re deciding whether to increase the rental price of your property. The most important factors to consider are market factors such as vacancy rates and market performance as these are things that other landlords will consider too.