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How To Increase The Rent – Part #1 – The Legal Process You Need To Follow | Ep. 818

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In this episode, we discuss what property investors need to do to increase the rent on their investment properties.     This includes the legal process for increasing the rent, as well as what tenants can do if they don't agree with the rental increase.     We also mention our upcoming property investment webinar , which is happening on Tuesday 14th December at 7pm. Click the link to register.

In this episode, we discuss what property investors need to do to increase the rent on their investment properties. 
 
This includes the legal process for increasing the rent, as well as what tenants can do if they don't agree with the rental increase. 
 
We also mention our upcoming <a href="https://www.opespartners.co.nz/webinar">property investment webinar</a>, which is happening on Tuesday 14th December at 7pm. Click the link to register.

speaker-1

Hello and welcome to the property Academy podcast. I'm your host Steve McKnight and I'm Andrew niccol and tell show. We're talking about how to increase rates on your property the right way. And in fact, we're going to do a three part series specifically digging into how to increase the rate and decide what to increase your rent to over the next. 3 episode. So make sure you tune in. Now, today's one actually comes from podcast, listener of the show, Sam. And I've said, I've got a place that have had the same tenant for nearly two years, he's fantastic. But with interest rates, here to GARP rates, insurance and down, no ability to deduct interest, I feel like I'm going to have to increase that rent. So it still makes sense to hold on to the place. So is there a number of percentage of the rent that people normally go off to increase in Wind? Should you? And how often should you increase the rent? So We can answer all of this over this three part series and it's important that we bring this up actually, Andrew. Because the last time we talked about rental increases was back around episode 515, so it's been about a year since we've talked about it. I couldn't believe that it's funny because whenever I'm reading notes, I think, oh, we just cover this and then I see 515. So, whole 300 episodes ago, time flies, when you're having fun it. Well, just walk us through and through what is the process of increasing rent, because you can't get the process wrong. Absolutely not. So you've got to give a 60 day, A written notice of any rent increase. Now, as a little bit different, if you've got a boarding house, so, Anna boardinghouse Arrangement, it's only 28 days. But for a normal tenancy at 60 days, written notice, and the keywords there are written notice, so you have to provide that in writing and you've got to say how much the rent is going to increase by and the day that they rent is going to increase. And then of course, a landlord should keep a copy of this. And, you know, obviously, if you're doing it via email, then that's fine. It's you can do Our email, right? You can survive. I'm out. Yeah. Definitely. You can do it afire. Yeah. Just just want to check their. So, I mean, have you do it via email? It's just nice easy, track record and I did see in the notes here. It says, tell the story about the tenants that got served notice, but not the day, the rent increase in. I've written next to that may question. Mark, are you talking about me? I'm not sure whether it was you or not, but I remember. Angela was a great story. Was that you, did you miss it up? Yeah, I just think when you put these things down here, tell that funny story about it. When you screwed up is just, you know, one of your favorite things to do in these podcasts. So one of the properties that I manage myself and I wrote to the tenants and said, hey, you rinse going to go up and then a year later when I moved it into our property management firm they said outcome the rents still back at this and you said it was this and I realized the tenants never put it up and I'd never checked terrible. And so sure enough I've missed out. It was $25 a week times. 52 weeks about a thousand dollars that I was out of pocket. He probably even longer than a year and from me, Right. That was because you didn't say when they had to start paying the increased flow from nice there, and they are great. Correct. And they agreed, I just said, hey look, at the written is to go up by the $25 and they said they went back and forward. And then they said, okay, we begrudgingly agree. And then they never put it up and I never checked. And so, of course, when I went back and I said to my property managers, can I get that money back? They said they laughed and said not a chance you should have had it with us the whole time. Now a lot of people ask as well. Okay, I'm going to send out that At notice of it increase 60-day notice, I've given as well, the date that they need to start paying it and what it's increasing by. What's the maximum? I can put it up by at the interesting thing here there are a lot of people forget is that the law in New Zealand does not limit. It doesn't limit how much landlords can increase the rent by it only says the process for how it must be done. Now, many property investors think this has happened. I know some property managers thought there was Actually going to be a maximum increase coming at some point. There are inter focus groups or tenant advocacy groups that are suggesting. We should have some level of Maximum increase in there, but we don't have it right now. Now, in terms of what rents tend to go up per year, to give you some rules of thumb samp usually somewhere between three and five percent is pretty standard over the long term, rinse of tender, to go up by about four point five percent per year. So that's something that I would have in the back of your mind as the first step, but what you do need to remember is you can't increase the rent technically above the market level. So, let's say that you have a two bedroom property and Auckland, and the market rent for that sort of property is usually 650. You can't put it up to 750 because otherwise, you can be challenged and we'll talk about what that means and how to go about that shortly. But it does have to be technically agreed by A tenant. So you write to them, notifying them of the rent, increase by law. They have to agree to that. But in practice, do they actually come back and agree? Look, there might be a bit of negotiation to it but usually what happens is they either accepted or they decide to move out and that's the tenants decision whether they want to do that or not. Now we will come back to what happens if my tenants challenge me through the tenancy tribunal. But before we do that, I know a lot of people are worried when they're putting up the Arendt Andrew. What if my tenant slave? And I have vacancy. What if I put up the rent too much and they decide they want to move on. What do you think about that? That's just the risk of doing business and property investment and is something you always need to factor in. And so you know when you're doing your budget, you factor in the vacancy and then you know, if you need to get a certain amount to make this, a viable investment that you do have to run the risk of a little bit of vacancy every now and then, but there's two good reasons why a tenant might stay. So your tenant has to consider the alternative. So if you put an offer to them at a fee, Market value, say, for example, you know, you had a place in rollerson in the market had gone up by fifty dollars in the last 12 months and you see, they're going to pay $50. Well, if they go look on trade me in the alternative as the property that they're going to have to pay $50 more anyway. Then they're not going to just move out and move into that house for the same money. Similarly you got to think about the inconvenience so they're going to find a new property, they've got to fund. The moving cost, might be anywhere between $100 and a thousand dollars. Take some time if they're doing it themselves and it can potentially change. Change their lifestyle. So you know, if they're going to have to change school zones or if they're going to move to a different area or a different location outside of Oakland, for example, because, you know, the rents have gone up so much that it will have got to move to told owner, for example, that's a major shift so often you'll find that. So long as the price increase is reasonable, tenants are probably more likely to keep paying their and just pay a little bit more rather than uproot their life. And the other thing that I'd want to say as well Andrew is that the likelihood That your tenant leaves depends on the sort of family, they are and what they've got. So, for instance, if your tenant is a family who's got kids going to the school, just down the road. They've got a three-bedroom house that they're renting off you, and I've got a whole heap of furniture within that house. There's not many similar rentals on the market. Well, all of this suggests that they are going to face high and moving costs, because I've got a lot of furniture move. They've got to uproot their lifestyle, potentially their kids lifestyle. So that less Likely to move because they face those high costs. In other words, you've got more pricing power, more ability to put the rent up, simply because they are least likely to move in that situation because they face additional costs and inconveniences. But if instead, your tenant is a young professional couple, maybe they don't have a lot of furniture. Maybe you're renting the property to them fully furnished. Well, hey, it's easy for them to move out and find another apartment or another town house because they don't have a lot of stuff. Dave moving's, not gonna be much of an issue. If they don't have kids, they're not changing their lifestyle either. And if they're renting a town house or an apartment, there might be other properties. Not too far away on the rental market that are similar and so they face lower costs and moving, you've got less pricing power in that situation. And so the key thing I'm just trying to say here is that you're worried about whether you'd going to need to find a new tenant and whether you got a face, vacancy depends on the sort of property or renting out. And also, who your tenants currently are that's going to play into your decision as well. And actually, they probably just goes to the point. That Carl from research first was talking about last week that people are often far more worried about their losses, than think about their potential gain. So the fact that you might get a couple of weeks, vacancy probably forces a lot or probably, is the reason that a lot of investors accept lower increases on their rental properties than they ought to 100%. Now, the other thing I want to move across to now introduce Talk about tenants challenging the increase in rent and how that actually works. So can you just walk us through the mechanism of how a tenant can challenge any rental increase? And actually, I've had this. So I ozone the tenancy Tribunal for not lodging Bond. And for, they challenged, the fact that I had increased the rent, the process is quite interesting. So what happens here is that the tenant applies to tenancies services for a mediation in an adjudicator is going to make a decision through the Tenancy tribunal. So in order to favor, the tenant, the tenant has to show that you're being unreasonable with your rental increases and that it's more than Market rent. So if they can show that actually, the comparable properties is heaps of comparable properties at 550 but you're charging them $600 a week that could be a good case that a the rent can go down and be you have to reimburse them for that increase rent that they've paid and they can do this at the end of a tendency as well so they could Just to keep you. Happy is a landlord continue to pay you. And then challenging at the end, I've seen cases of that. And one thing I just say is, well Andrew, is that, it's not just that your rent is a little bit more than what showed on the market. What the tint has to show is that it is substantially more than what is being charged by similar properties on the market. And one thing we're going to do in episode number three of the series is take you through a solid robust process for figuring out. How do I actually I'd how much to increase my rent by and what's reasonable. We've got a really good process, you can follow in that situation. Now, the other question that you've asked this m is, how much should I rely on my property manager? And how much should they be, advising me now? Look what I would say is yes, your property manager should give you some point of view about what you should do, or what you should be charging for that property. But while you should take your property, managers point of view into consideration, ultimately, it is your Decision about what you want to charge for this. Now, the reason I say this is their, I do think that there is an inherent bias for property managers to keep things the same or only go up a little bit to keep the tips he's taking over, is that fair to say enter or am I? I think this no, no, no. We're going to probably get told off by Linda here, but who's one of the most scary in their company is? So telling off from here, will be serious. But I do think that it's very normal. Normal and again, they probably fall under that same bias of we don't want to have a vacancy for an owner. So it's not that they're trying to just do. What's easy for them is that they don't want to have vacancy because they know the stress that that puts on an invest at times. But I do think it's really important to encourage those small and regular increases because if you don't you fall out a whack with the market so quickly. And then when you do, end up putting up that renter in one single jump and it's a hundred dollars then that's quite hard for attending. To absorb into their budget. Whereas if its twenty dollar increases every year it's much more manageable so even if a property manager comes back and says Hey look it's about within Kawaii, I try and squeeze out an extra $20 a week and, you know, it is to cover actual cost. So, you know, there is the real cost for existing investors at the moment that they're going to have to pay more tax over the next year's. And so I think it's important to start to think about those things because most tenants are faced with having to vacate because you're going to sell the property or pay an extra Any dollars a week? They're probably going to pay the extra $20 a week because as much better than having to go and find another house, I think the other thing that's important to just remember, as well, is that, if you make that argument every year that are, I'm having to put it up a little bit because I'm scared of vacancy. Well, that has a compounding effect. If you're only putting it up by five dollars a week, when it really should be $20 a week because over a three-year period, all of a sudden you've put your rent up $15 a week in total, but it should have gone up by sixty dollars a week now, $45 a week out of whack with the rest of the market. And this is what we do actually tend to see that investors only increase the rents by a small margin per year at then they've got to do a big catch up when they do end up finding a new tenant. So, I do think that it is important to keep on top of those rental increases. And in fact, is one technique that I know some investors use in order to be able to do that consistently Andrew. What is that again? Putting actual increases in your tenancy agreement. So you can put in there that you you going to look at You'll increases at a prescribed amount. And actually, I think it's around episode 55 for when Matt Harris has on the show. And he talked about a clause he puts on his rental agreements saying that he increases by 3% a year. Now we're looking at actually doing the same across all venture Tendencies as well and potentially putting that around the four percent Mark to be in line with what Market increases naturally. I know the good thing about that. From a landlord's perspective is, you've got certainty around increases. The good thing from attendance perspective is again, you've got certainty around the increases, you know, it's coming but It's small and annual and crisis rather than just you know, hey the markets gone up by a hundred dollars. So now we're going to charge an extra hundred dollars which could be dressed it because you know, if you're talking about a 500 dollar a week that's only 20 dollars. So that's actually quite manageable for people and the benefit is of course, everyone knows what's going to happen as far as increases rather than just going blindly every year. And someone being shocked by an increase, I think the other thing the answer is that sometimes landlords, don't increase rents and I'll say It's because I really like the Ted and I don't want to upset the tenant that's bollocks. The real reason they're not increasing it is because they are afraid of Confrontation. And I think there's a lot in New Zealand with. People are worried that if they do something, which is actually in their best interests and totally fear that they don't want to get into a fight and the thing is nobody wants to get into fights and I'm not suggesting that anybody should get into fights and try and redeem their tenants for all they're worth. That's not what I'm suggesting, but staying at the market level. Is definitely the fear thing to do for both parties as well, especially when landlords are being faced with additional costs, and I do think that we need to sometimes. Oh, my gosh. People are going to think that I'm I've all of a sudden become you and become the nasty one end or the mean one. I do think, but I do think that made one got it. Yeah, the tough one. I would say you like that. Let's put a smile on your face, but I don't know. I've got to get over our fear of conflict because this shouldn't be something that gets us us into fights. And just do what is the right? And the fair thing to do, which is pay the market level within this. And if we're doing it with 60 days, notice that gives the tenant more than enough time to make a decision about what they want to do. Do you think that's unfair and true? No, I think that's reasonable. Well, I, it's apparently I'm not the barometer for that, but now I think they're seems quite reasonable fantastic. Let's wrap it up there, but make sure you tune in for the next two episodes as well. Because we're going to be talking about how to decide what to put the rent up to and also how to figure. At whether you'll potentially under renting, your property compared to other landlords, we're going to take you through a model for how to figure that out in tomorrow's episode. Now let's wrap it up there but please don't forget to rate review And subscribe to the podcast. Really does help us get the message out to more people. And hey why don't you come along to our webinar next Tuesday? The 14th December 7 p.m. we're talking about our projections and forecasts for what's going to happen and property in 2022 tap or swipe over the cover out. There's got to be a link at there or just going to open Space.com and see it / webinar, thanks for listening to the property Academy podcast. I'm your host him at night and I made your knuckle ever gonna be back again tomorrow with even more daily strategy. Sets, its sights help you get the most out of these on property Market. Until next time,

How To Increase The Rent – Part #1 – The Legal Process You Need To Follow | Ep. 818

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How To Increase The Rent – Part #1 – The Legal Process You Need To Follow | Ep. 818

About this episode

Read transcript

Will property always be a good investment (5,10&15 year outlook) ⎥ Ep. 1896

12 property predictions for 2025 ⎥ Ep.1895

Interest Rate Cuts EXPLAINED in 15 Minutes! ⎥ Ep. 1894

I bought 4 investment properties in 2 years … what’s next ⎥ Ep. 1893