Some landlords find even the thought of rent increases uncomfortable. Even though your rental property is someone else's home, it's an investment for you. You should always carefully consider rent reviews, their frequency, amount and true reasons for considering them.
What can you charge?
Generally speaking, you can charge any rent you want. Your tenants will have an option to accept the rent increase or decline it by deciding to vacate and find an alternative place to live.
The rent should not, however, exceed a fair market rent. If the rent increase is too high, your tenants can challenge it by going to the Tenancy Tribunal, where you will need to show that the rent is comparable to similar properties in the area.
What is 'Market Rent' and how is it calculated?
The magic formula
There is no rule or 'one size fits all' answer to what rent increase is appropriate. To help you take emotions out of the equation, it's important always to know how your rent compares to the market.
Property prices change all the time, but so does rent. Knowing what similar properties are renting for is necessary to determine a fair rent increase. But there are other factors that you should consider.
The rental market review
One of the best ways to keep rental increases sustainable is by doing a regular market review to know how your rent compares to the market.
You don't have to increase rent each time there is a change in the rental market, but it helps you feel more confident when making a decision.
Low vacancy rates often allow landlords to be more choosey and charge higher rents. But when vacancy rates are high, it's harder for landlords to find good tenants. The properties sometimes stay vacant for some time, and rents are reduced to entice someone to sign a lease.
With interest rates and other regulatory costs rising (e.g. compliance with healthy homes standards) and landlords no longer able to deduct interest expenses, rent rises are expected. But you can't rely on rent increases to cover your ever-increasing costs. This cashflow issue needs to balance with tenants' ability to pay rent. Increase rent too much, and you can face losing quality tenants.
You could, but should you?
When considering rent increases, you should think of the type of tenant you have occupying your property. 'Bad tenants', often fail to take care of your property, require frequent minor repairs and regular maintenance call-outs, and may cause more property wear. When the such tenancy ends, there might be a significant bill to bring the property back to the presentable level to be rented out again. An extra $10 per week will hardly cover it. On the other hand, keeping a good tenant could have the added benefit of having the property remain tenanted and may be well worth a sacrifice of a foregone rent increase.
If you've identified that your rental is underpriced and you feel it's appropriate to increase the rent, you'll need to give your tenant correct legal notice.
Will rent increase upset my tenants?
Typically, it is best to stick to small rent increases each year, then a large one-off increase. This is because regular reviews and small rent increases are generally expected and well tolerated by tenants. But the infrequent increase that is fair but 'too high' can shock tenants, who may decide to move out.
Timing is everything
The demand for rental properties varies throughout the year. There is usually a spike of agreements coming to an end and new rentals hitting the market mid-summer. So if your rent increase notice is served around this time, tenants may consider 'shopping around'. On the other hand, tenants are typically less likely to move during winter. So considering seasonality and rental demand in your area is something to keep in mind when serving a rent increase notice.
While it may be apparent the rent you should be charging tenants, landlords should also consider what's happening across the country and how current Government regulations or economic issues affect the rental industry and tenants' ability to pay rent.
The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.
