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Increasing the Rent in an Investment Property

By: Scott McBride - Updated: 16 Dec 2012 | comments*Discuss
 
Investment Property Investment Houses

A quick glance at the homes for rent section of the local newspaper can tell a landlord that he is not getting the going rate from his property investment. Other houses for rent in the area may be pulling in more income, so is it time to increase the rent?

Perhaps it is, but several factors have to be weighed up before making such a decision. For instance, no tenant is going to be thrilled by a rent increase, so a landlord has to be willing to accept that his tenant may move on rather than pay it. That means the landlord will be forced to re-advertise the property and his real estate may be sitting empty for months until another suitable tenant is found.

If the property is being well looked after by the existing tenant, a landlord may decide to continue with the status quo rather than rock the boat. But if the rental income is below the market rate, the investment is not living up to its full potential and so a landlord may decide to push ahead with the rent increase.

Negotiate an Increase

When a landlord has a good relationship with his tenant, it can be worth his while trying to negotiate a rent increase. Consider settling for a lower increase in return for not having to re-let the property. Alternatively, consider increasing the rent in stages over a period of time to make it easier for the tenant to make the adjustment.

Be sure the property is worthy of the rent increase. A tenant can perform a quick apartment search to find out for himself. Also, if a tenant has an assured shorthold tenancy – most private tenants do – and believes the rent is excessive compared to rents on similar properties in the area, he can apply to the Rent Assessment Committee (RAC) during the initial fixed term of his tenancy.

Rules on how and when rent can be increased will, in general, depend on the contract between the landlord and the tenant. Ideally, the landlord should have included a rent review clause in an assured shorthold tenancy agreement to allow the rent to be increased. This clause may, for instance, trigger a rent increase in line with the rate of inflation, or it may specify an increase of a set percentage every six months.

Rent Increases in Investment Properties

Many landlords will increase the rent in investment properties when the assured shorthold tenancy agreement is renewed. If the existing tenant does not agree to pay it, a landlord may decide to find a new tenant, although this may mean giving the existing tenant two months’ notice.

Rent increases can be complex and the rules vary according to the type of tenancy, so a landlord should get legal advice before he acts. Also, certain procedures must be followed if a landlord is to evict a tenant legally, so seek professional guidance first.

If at all possible try to reach an amicable agreement with an existing tenant when increasing rent. This will avoid the investment property sitting empty and losing income while a new tenant is found. Also bear in mind that a new tenant will be an unknown quality and may not take care of the property as well as an existing tenant.

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