As a landlord, you must make three important decisions:
- How to manage your rental
- How much rent to charge your tenants
- How and when to increase the rent
These decisions will influence several aspects of your tenancy, namely:
- Your profitability
- The tenants you attract
- The agreements you make with tenants
- Your rent payment and collection system
- Your tenant turnover
How and When to Increase Rent
After welcoming your first tenant, you might start wondering when and how to raise your rent.
Increasing the rent may help you to:
- Cover for the decrease in the value of the dollar due to inflation.
- Cater to increasing rental expenses.
- Afford increasing property and rental income taxes.
- Stay profitable and enjoy a passive income.
Before enforcing a rental increase, you need to consider the following questions:
When Can You Raise the Rent?
Before you increase the rent, think of reasons you can use to justify the increase and timing of your decision.
Some reasons you can use to justify a rent increase include:
- If there are similar units in your area charging a higher rent
- During peak rental seasons when the rents are high
- If you make value-adding renovations to the unit
The timing also matters. The best time to review the rent is:
- At the end of a lease when negotiating for a lease renewal with the tenant.
- Between tenants when welcoming new tenants into the unit.
Spend time researching your market. Lack of information can lead to underpricing or overpricing. Both will cost you money.
The former robs you of money you should be making. The latter can deter tenants, creating long vacancy periods.
How Do You Implement a Rent Increase?
Your approach will depend on whether you are doing it between tenants, at the end of a lease or during a tenancy.
1. In Between Tenants
If you update the rent after a tenant moves out, you can go ahead and change it on all your listings. You do not need to check your decisions with anyone.
Here, you can use a host of free listing services to advertise your property with the new rate.
2. At the End of a Lease
If you decide to increase the rent towards the end of a lease, you need to inform your current tenant. This helps them make a decision on whether to renew the lease or move on to another property.
In such a case, make sure you give them a written notice 30 or 60 days before the lease’s end date. You can check with your state authority for the exact number of days.
3. During a Tenancy
If you decide to increase the rent during a tenancy, you must follow these tenancy laws and guidelines:
- For a fixed-term tenant, you can only increase the rent if it is covered in the agreement. The agreement should state the amount or how you will work it out.
- You must give at least a two-month written notice before increasing the rent.
- You can only increase the rent every six months.
- You must wait for six months after the tenant moves in to increase the rent.
Increase your cashflow by self-managing your property.
What Are the Pros and Cons of Raising Rent?
- It automatically increases your rental income.
- You can set the rent at an amount that meets market standards.
- You can charge for the actual value of the unit after renovations.
- If a tenant requests changes to the property, you can use the extra money to pay for the changes.
- The value of your rent will change along with inflation.
- You risk losing a good tenant.
- An increase can reduce your competitiveness in the market. This is especially risky when the demand for rentals is low.
- You risk legal action. If the tenant deems the increase excessive, they can report you to a local tribunal. If you lose the case, you will have wasted money defending yourself.
- You risk affecting your negative gearing benefits. An increase in your income can affect your tax returns.
Should You Offer Rental Discounts?
Reducing tenant turnover ensures you have a steady rental income. This stability can increase your profits and help you with the property’s expenses.
One way to reduce tenant turnover is through rental discounts.
These are incentives you give to tenants in the hope that they will extend their lease. You can give rental discounts if:
- A tenant pays their rent on time consecutively over the term of their lease.
- The tenant pays for maintenance or renovations on the property.
- A tenant helps you with the on-site management of the property while you are away.
- You want to offer an incentive for the tenant to renew their lease.
Rental discount is voluntary. If you use it wisely, it can help you keep quality tenants for longer.
How Do You Avoid Rent Disputes?
One of the major causes of disputes between tenants and landlords is the rent.
You risk getting pushback from tenants every time you increase their rent.
There are two things you can do to avoid rental disputes:
1. Spell Out Your Rent Rules
At the start of every lease, make sure your tenants understand your rent rules. For example:
- The frequency of payments
- How to pay
- The amount to pay in every rent cycle
- The frequency of rent increments
- The system you will use to determine rent increases
While preparing your lease, customise the rent clauses to cover all your rent rules.
Share the draft lease document with your tenants and ask for their feedback. This might require a little back and forth. Be patient; it might take time to finalise the process and come to an agreement that works for both parties.
2. Set a Payment System
Create a rent payment system to simplify the process for your tenant.
Lodge offers an automated rent collection system you and your tenant can trust.
You set up your account and receive payments directly.
The tenants can choose from three easy and convenient payment options:
- Direct debit
- One-off transfers
The automated system makes it easy for you to send reminders and receive your rent on time.
In case of a rent increase, you can update it on the system. The amount due to tenants changes and reflects automatically in subsequent rent reminders.
How to Collect Rent Online
Automating rent collection simplifies the process for both you and your tenants.
There are several advantages to online or automated rent collection:
- It offers a convenient solution for both you and your tenants.
- Automating the process means you can receive your payments on time. You don’t have to wait for the tenant to go to the bank or deliver a cheque.
- You can automate late rent fees for tenants who fail to make their payments on time.
- You can customise reminders and notifications for both parties. For example, the system will send reminders five days before rent is due. Or, you will receive a text message every time payments clear into your account.
- You have a centralised income tracking system. You can use it to manage rent from many properties.
- You can manage your rent collection remotely.
Therefore, you need to find a system you can trust.
Welcome to Lodge.
Lodge offers you resources to help you:
- Set up a management system as a new landlord.
- Tips on how and when to increase your rent.
- Advice to help you run a successful rental business.
Most importantly, Lodge helps you automate rent collection.
You can trust their safe and secure rent collection system. All you have to do is provide your account number and set the frequency of payments.
The rent collection service begins at $19.99 a month. With the subscription, you can enjoy a host of other self-management tools.
Sign up to lodge today and watch your rental income grow.