The dream for any Australian property owner ‒ whether they’re in The Hills, Greater Sydney or elsewhere in the country ‒ is to make income from their investment with as little risk as possible. It’s a clear case of the more the merrier in terms of dollars in your bank account.
There are good and bad ways (as well as good and bad times) to try to increase how much you’re making from your leased properties, and it’s never as straightforward as just changing a number on a contract.
If you already have great tenants who pay on time and look after your place, keeping them happy is often worth more than putting up your rent.
One of the most common question new landlords ask is whether or not they can charge more. The thinking seems obvious ‒ a rental increase means means more money in your pocket. However, things aren’t always so simple. While there are times when increasing rent is the right move, at other periods it can be risky or outright dangerous to try. Wouldn’t it be better to avoid putting your good tenants into a position of rental stress, so they’re happy to stay longer?
Why a rental increase might be a bad idea
On paper it sounds simple: you charge more rent, you get more money. But that isn’t always the way plans play out. One of the main factors to consider is how to keep good tenants happy.
If you already have great tenants ‒ tenants who pay on time and look after your place ‒ keeping them in your property is often worth more than jacking up your rent. If they move out you’ll have to go through the process of filling the place again. This may mean you have weeks with an empty listing, that the new tenants aren’t as trustworthy as the old ones or that your property receives increased wear and tear associated with tenants moving in and out.
For landlords who’ve already received notice from their tenants, it can be a particularly tempting time to raise the rent. Often, though, it’s worth accepting a slightly lower figure (say $10 or $20 a week) to get someone in straight away than it is to hold out for a few weeks to get a higher amount.
For example, if you’re currently charging $500 a week but thinking of moving up to $520 a week, it would take 100 weeks — almost two whole years — to make up for just four weeks without a tenant. Those four weeks would see you miss out on $2,000 which takes a long time to claw back in $20 instalments. Every week that your property is empty, it’ll take 25 weeks to get back on even footing.
Why lowering rent can be a good idea
It may seem counterintuitive, but there are times when lowering the rent can be beneficial to your rental yield. Obviously in a tough market, you may need to drop your demands to attract tenants. Having any tenant ‒ never mind an ideal one ‒ is better than having an empty home, but really your goal is to get reliable tenants.Having someone in your home who pays rent every week at a reduced rate, but who’s happy to stay for several years, is better than someone who’s looking to move in only for a short period. With fees for relisting plus the cost of an empty property, you can end up losing money in the long run.
A good property manager uses skills and knowledge to get your property rented sooner at the optimum rent, with reliable tenants.
Many landlords only notice this issue when they’ve gone too far down this path. Their solution is another rental increase, and the vicious cycle continues.
Obviously, going too low can have negative consequences for your income, but working with an experienced property manager who knows about the industry and optimum rental prices in Castle Hill, Baulkham Hills, Kellyville and surrounding suburbs can help you hit the sweet spot.
Sometimes it can even be beneficial to put more money into your property. If you’re in a position where you have great tenants, making a few improvements to the home can keep them happy and make them want to stay with you even longer. It’s a case of short-term outlay for long-term gains. And remember that improving your property can help you at tax time.
Factors to consider when raising your rent in The Hills District
While the happiness of your tenants to stay in your property long term is one of the biggest factors to consider when thinking about your price, there are other things to think about too.
Happy tenants are more likely to stay longer and take better care of your rental property, saving you money in the long run.
Talk to us at Stone about the current vacancy rate in The Hills. When we see a lot of rental properties on the market (and some that have been on there for a long time), it’s a strong indicator that tenants have a lot of choice. Pricing your rental property to entice them may be more important than trying to get a few extra dollars.
By law, landlords in NSW have to give notice to their tenants in writing 60 days before raising the rent. This gives tenants time to consider if they want to stay in the property or not. This is only possible after tenants have finished a fixed-term lease and are on a continuing agreement.
During this 60-day period, your tenants are allowed to negotiate with you. If they do this and make an offer, even though you may not get as much extra as you’d hoped for, it could be a wise move to accept their offer (guided by your property manager). Getting a little extra is better than not getting anything, and if you refuse you run the risk of upsetting your tenants and causing them to hand in their notice. You want happy tenants who’ll make it worth your while by taking better care of your rental property.
The timing of your increase is also something important to consider. Changing the rent just before Christmas is generally considered a poor move. For you as a landlord, it means that you might have an empty property in a time when not many people are willing to move, leaving it empty for longer than normal and losing you money.
Other ways to make more money from your property
How you set up the financial side of your property can have a huge impact not only on your regular income, but also on your tax return at the end of June. There are different ways to set up your rental income that change the level of tax you have to pay, but these sort of discussions are best held with a qualified accountant.
Listen to the experts
One of the most infuriating aspects in any walk of life is when someone hires an expert to do a job but refuses to listen to their advice. If you’re paying to have a real estate property manager look after your property, there’s a good reason you made that choice. Their experience in the field means that they know how things work and, depending on the position of the market, they might have different advice for you.
Any property manager worth their salt will be able to advise when you should or shouldn’t raise your rent. One of the main parts of their job is to make you the most money with the least risk possible, so if they’re saying that it’s a bad time to raise your rent it’s worth listening to their reasons why.
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Whether you’re selling or buying a property, as a home or investment, contact us for professional help!