Making an informed decision on increasing rent with existing tenancy
Over the past few months, the media is reporting substantial increases in rents due to a chronic shortage of available property. Whilst the reported median rental price has begun to increase anecdotally it is being reported that rents are rising between 10% to 15%. The reality is that no rent for existing tenancies can be increased before the end of the State of Emergency on the 28th of March 2021. The only way you can secure a higher rental price right now is if your tenant decides to vacate allowing you to advertise for a new tenant at a higher rent.
With a current vacancy rate of circa 1%, tenants are anxious about the looming end to the eviction moratorium, something that must happen to allow the market to return to normal. We are finding that more and more tenants would like to stay in their current property for another term, preferably without a significant rent increase. In addition to this, some tenants are requesting an extension on their fixed term lease long before their current lease is due to secure the property for another year.
Here at Celsius, we have been starting a conversation with our landlords who have properties becoming vacant to discuss the possibility of a rent increase to reflect the current market trends. It is important to go through an advertising plan suited to each landlord and property to discuss the initial advertising price and what is achievable. Although we have found there is a lot of interest on suitably priced vacant properties, overpriced properties are not being snapped up straight away and the result is that the property can stay vacant for longer and in the end, landlords risk losing money just to get a higher rent.
Whilst it is fair to expect a rent increase on your investment property at the end of March, if it is becoming vacant there are a few things to keep in mind when it comes to increasing your rent on an existing tenant that would like to renew.
At Celsius we like to work through all the pros and cons to allow our landlords to make an informed decision and have provided a practical example below of the costs associated when re-leasing versus sourcing a brand new tenant:
Scenario 1 – landlord looks to achieve 10% rent increase and tenant vacates forcing search for new tenant
- New rent income (1 April) $440 per week (10% increase)
- Advertising fee: $88
- Leasing fee (2 weeks rent plus GST): $968
- Tenancy Check: $8.80
- Bond / PCR: $110
- Property vacant for two weeks: $880 (estimate)
- Total Rent (12 month lease): $22,880
- Total costs to secure new tenant: $2,054.80
- Net Income: $20,825.20
Scenario 2 – landlord renews lease at existing rent for a good quality tenant
- Current rent income $400 per week – no increase
- No advertising
- No leasing fee
- No vacancy
- 1.1% lease renewal: $228.80
- Total Rent (12 month lease): $20,880
- Net Income: $20,651.20
In the above scenario the net result to the landlord is just $174 over 12 months which we believe might be a small price to pay for the peace of mind to keep a good tenant with no vacancy. This doesn’t take into consideration the wear and tear that can be caused on tenant turnover. Of course ever scenario is different and our job is to work with our landlords to find the best outcome for them.
At Celsius our Property Managers have relatively small portfolio’s when compared to industry standard and lots of support. In return we hope to be able to look after every home as if it were our own ensuring that not only do our landlords achieve an optimum financial return but that their investment is well looked after and maintained by good quality tenants.
Consumer Protection are encouraging landlords and tenants to start a conversation sooner rather than later about the options available when the emergency period expires in order to better prepare themselves. Touch base with your property manager if you have any queries about your investment property or the expiration of the emergency period!
Warm regards,