With the Reserve Bank upping interest rates at almost every one of their quarterly meetings, quite a few landlords are concerned about how they will manage to contend with increasing loan repayments on their investment properties.

Many are busy crunching the numbers, stretching their budgets and reigning in spending in an attempt to use more of their personal finances to make ends meet, but there is another solution.

Although rental income will not cover your entire mortgage on a well placed negatively geared property, it can go a long way in partially bridging the ever-widening gap between yields and mounting monthly mortgage obligations.

Now more than ever, it is crucial for landlords to revisit the going rent on their properties and conduct regular, timely reviews as permitted by the Residential Tenancies Act.

According to the Act, investors can review and raise the rent on their property at the expiration of the standard 12 month lease term or, in the case of a periodic lease, every six to twelve months.

As a property manager, I would encourage landlords to look at how much they are charging their tenants every time the lease on their property comes up for renewal. You do not have to raise the rent at each review, but it is a great opportunity to do some research and find out if you are charging a fair and reasonable market rate.

Obviously the first step is to determine how much the fair market rate would be for your rental property at the time of review. So how do you go about this? Quite simply you need to do your homework and scope out the competition.

Check out comparable rental properties in the same locality to work out how much your property would let for if it was vacant and on the open market at the time of review.

Some landlords may be unwilling to raise the rent if they have a good, reliable tenant in their property. They may fear that increasing the rent will "rock the boat" and force their dream tenants to seek out alternative, cheaper premises.

Let me reassure you that, as long as the rent rise is justifiable and within the realm of going market rates for properties in the same vicinity, your tenants will stay put and pay the additional rent. It is not in their best interest to up and move for the sake of a few dollars more each week, as finding a new property, going through the application process and relocating takes a lot of time and money.

With the current rental property drought we are experiencing, annual rent reviews are almost necessary to keep up with market rates. In some capital cities, rents are increasing by 10% to 20% per annum on average and whilst you should not seek to take advantage of the stock shortage and charge your tenants too much, you should maintain a financially viable property portfolio by strengthening your yields whenever possible.

Prior to our current rental stock shortage, rent reviews usually entailed a small annual or bi-annual percentage increase in line with CPI. These days, it is not uncommon for some properties in sought after locations to command regular annual reviews in the vicinity of 5% to 10%.

Just as the supply and demand equation determines how much property values on homes that are for sale will increase by from year to year, the ratio of available rental properties to would-be tenants is the primary driver for going market rent rates.

Although we have a situation right now where supply is so low compared to demand that tenants are engaging in bidding wars to secure premises in some instances, I would urge landlords to avoid making blanket increases based on current market conditions.

Rather, they should continue to base their review on comparable properties in the immediate area and treat their tenants fairly. Landlords should not make knee jerk decisions each time they get a letter from their bank and are forced to find extra funds for mortgage repayments. Reviews can certainly help your bottom line, but a vacant property that no one will touch due to a ridiculously high asking rent will not help to pay the bills!

For those of you who really are concerned about losing quality tenants by asking too much at rent reviews, you might consider determining what comparable properties are renting for and then increasing your rent so that it sits at 95% of the market rate.

By sacrificing this small portion of weekly income, you are certain to attract a larger number of applicants to your property and can therefore afford to be selective as to who you rent your investment to. If you have tenants in an existing lease who are considering renewing for a further term, they are more likely to stick around and continue to do the right thing by you if you don't appear overly greedy.

Your tenants must be advised of a change in rent in writing at least sixty days prior to the increase occurring. This gives them time to discuss the increase with the landlord or their property manager if they feel it is unwarranted.

Should your tenants believe that a review of rent and subsequent increase is unfair, they do have recourse. They can dispute the rent rise through the Residential Tenancies Tribunal, where it will ultimately be determined if the proposed new rent rate is justifiable. In this instance, the landlord, or agent acting on their behalf, will have to provide evidence as to how they came to the figure in question.

Speaking from experience, tribunal hearings are time consuming and stressful, so I would recommend that landlords do the necessary research and keep rent rates fair to avoid this unpleasant situation wherever possible.

I have found that most tenants willingly accept rent rises if their landlord has consistently listened to their concerns and responded to any maintenance requests in a timely manner. Remember that ultimately, if you look after your tenants, they will look after you and your asset.




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