Raise the rent or keep the tenant?

WHILE your property investment may look great on paper, things can quickly turn on their head if you’re faced with a tenant thinking about vacating because they’re being faced with a rental increase.

Director and Founder of BuySide Buyers Agency Josh Masters said there are a number of factors to consider when faced with this dilemma. Is the rental market strong at the moment?

"While we may like to stick to our guns and feel that we’re justified in increasing the rental amount, if there are a hundred properties on the market just like yours and demand is low then the chances of you scoring a new tenant at a higher rent could be difficult," Mr Masters said.

"Have a chat with your property manager to get their view on whether the property would rent out at the desired price.

"While a modest increase may not seem like much, if the tenant looks around and can secure a similar property for less than they’re paying now then they may feel that extra saving is worth the move." Is the current rent below market value?

"While it’s always important to check with the property manager to get the latest market insights, you may have bought into an investment that is being rented out far below market value," Mr Masters said.

"Even in a tough rental market, increasing the rent could still mean that the higher rent is still quite competitive.

"If the tenant is keen to stay on they will also be weighing up their options.

"And if they want to stay in the area, they will understand that they may not secure another property at such a cheap rate.

"Add the cost of moving and the inconvenience associated, and it’s often more affordable for the tenant to wear the increase and stay where they are." Is the tenant worth keeping?

"While a good property manager will screen out bad applicants, it’s not uncommon to end up with a tenant who simply doesn’t take care of the property and may even be disruptive to others in the building," Mr Masters said.

"Increasing the rent and having a period of vacancy may be worth the trouble if you can trade up your low-end tenants for a new and improved version.

"This could lead to lower maintenance bills and a better-looking property in the long term." Can I afford the loss if my tenants vacated?

"While we may be keen to get that extra rent increase for the year, this can quickly be wiped out if it takes you a number of weeks of vacancy at $700 or $800 per week," Mr Masters said.

"In good times or bad, you need to weigh up whether you can handle a potential loss of income upfront in order to get that additional pay-off over the longer term." Can I secure the tenant for an extended period?

"As in any property decision, deals are often multifaceted," Mr Masters said.

"While it may seem advantageous to increase the rental amount, is it worth more to you to secure your existing tenant for an extended period that may hold some uncertainty for your personally or for the economy.

"Reducing that level of uncertainty and locking in another that income, even if it’s not top dollar, can often be worth more than an incremental increase in rent that you may be hoping for.

"So, while it’s always wise to review the rental amount you can achieve for your property and ensure you’re getting the market rate, make sure you’re reading the market correctly and weigh up the potential risks should a rental increase lead to a period of vacancy.

"Sometimes it can be worth securing an excellent tenant for a longer period than force the issue in times of uncertainty," Mr Masters advises.