Property investing is about making money. There are short-term returns and long-term returns.
Long-term returns relate to capital gains achieved over a long term and short-term returns are the profits you make from the rent less expenses.
The obvious way to increase short-term returns is to minimise expenses and obtain the highest possible rent achievable.
Landlords are often afraid to raise the rent on their tenants for fear that they will move out. But the reality is – rising rents is part of a healthy rental market and tenants don't expect to pay the same amount for their home, year after year, after year.
There are three smart investing tips for increasing the rent.
Gather evidence: It is important to know what the market rent is. How does the tenant's current rent compare to other properties that are 'available for rent'. Don't compare to friends and families rent of similar properties, as the 'market rent' is what is achievable right now if the property was to become vacant. The rent achievable can fluctuate with supply and demand and at different times of the year.
Offer a discount: If you have a great long-term tenant and you want to reward them, we can let the tenant know that you want to offer a rental increase discount. Our evidence may suggest that the market rent is $440 when the tenant's current rent is $400. Instead of a $40 per week increase we could state that the landlord has requested a $20 per week increase, being a $20 discount.
Implement regular increases: This is where some landlords can get it wrong. They have long-term tenants and leave the rent unchanged throughout the tenancy, missing out on putting more investment dollars in the bank. Tenants understand (while they might not like it) that rents increase. The tenants will also be comparing their property to other rentals that are 'available for rent' in times of rent increases.
Rent increases (market rent reviews) should take place at each tenancy change or a minimum of one per annum. If you gather evidence, offer a discount and implement regular increases so you as a landlord will be increasing your wealth creation and the tenant will appreciate your consideration of their needs.