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Discover the secrets of successful property management and investing on "The Property Investors Handbook" podcast. Join Colleen Sutherland as she shares expert insights and strategies for acquiring, managing, and maximising returns on real estate investments. Whether you're a beginner or seasoned investor, this podcast is your essential guide to navigating the world of property investment. Tune in and unlock the keys to financial success in real estate.
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Welcome to another episode of the Property Investors Handbook. Now today we're delving into a really important topic. That's something that's actually been a very hot topic, not just for renters and property investors, but right across the spectrum of people. And that is rental increases.
Now,
recent legislation changes have been put in place because we're dealing with such a fast paced property market. We're going to delve right into that today with our guest again, Colleen Sutherland, the knowledgeable owner of Sutherland's Property Management Group. She's going to shed light on this, the specifics around the rules, around the mandates and the ins and outs, because it has changed the landscape a little bit quite a bit on, how much can be increased, when and how.
Colleen, it's great to have you with us again to explore this this very hot topic. Thanks, Adam. Alright with the new legislation stating that landlords can only increase rent once a year, could you explain the specifics of this rule and its intended use?
With the once a year, there used to be landlords and property managers who would only renewed the lease for six months because every six months they reviewed the rent and put it up.
So a few years back that didn't really, wasn't really a thing because the market wasn't as hot as it is today and has been for a couple of years now. That It moves so fast that no sooner have you increased the rent that three months later it's gone up again. And then the landlords are going, oh, but they're this much now.
We work such, in such arrears or in, in advance so much that yes, it changes really quickly. So what was happening was the government were trying to put a. limit on it for the tenant, just to, for it to remain affordable. And that's probably a really good decision, I think, for the tenants.
Absolutely. So if we look at this from a helicopter view, we've got this property market that is absolutely skyrocketing in price and the availability of rental properties, the squeeze is on and that's meant that rents are skyrocketing. Are increasing really quickly and so if I'm understanding correctly then this point landlords were taking advantage of that and again, why wouldn't you only doing six month leases so that they could get an increase in as often as they possibly could
correct
now with this New legislation they can only do it
Once a year.
Yes So
there's no limit on how much you can increases increase. It's
gonna be my next question
Yeah, so the Greens Party were trying to introduce a cap of 2% per annum which would have been okay if your rates and insurance and water and mortgage only went up 2%, but it doesn't. So it had to, they had to align the two, like the rent increases with the outgoings of the property to make sure it was fair for all parties.
Sure.
Okay. Now here's a tricky one for you. Now, if the rent increase aligns with the end of a lease, very easy to do. Yes. What if it doesn't? What if let's talk a lease break. Someone's broken a lease and it's only been six months.
What
happens
there? What happens there is the lease break lease, how everybody knows it to be, is actually a breach of lease.
So we have to treat that a little bit differently. But when a tenant needs to move normally you can't increase the rent because it's already on a fixed term tenancy. It's going to be covered by that guy's tenancy.
If someone's come into a property and they've broken their lease, they've been there six months, okay, but you can only do it once, so somebody else comes in with a new lease, But you can't increase the rent at that point.
It has to be at what it was for the previous tenant.
Yes, it's meant to stay, remain the same.
Yes. Okay, next question then is, Six months down the road, into a 12 month lease, can the rent then, at that 12 month point, in the middle of the new tenant's lease,
It can. Oh, wow. Okay. I did not know this. What happens there is when we're advertising it, you will say to you as the tenant, this rent will remain the same until X date.
This is in the lease, I gather, at the
This is when we're negotiating the lease, we're just talking about negotiations. We're negotiating the lease and let you know that it will remain at 500 a week until the end of this six months. Yeah. Which is The first guy's tenancy, and then at that time to not renew the lease, it will continue at an increased rent.
So from the 10th of September, it will increase to 600 a week. We write that in the lease. So again, if it's not in writing, it doesn't exist. So it's written in the lease, but if you've written it in the lease, the property manager still needs to give you, Mr. Tenant, 60 days notice that it's going to go to 600 a week, even though it's written in your lease.
Okay. So when you're getting that original lease, when you're staying on the rent from the previous lease, cause it's within the 12 month period and you're putting in the lease that there will be. A review or an increase at that point and you've got to give 60 days. And you have to have
a specific amount.
That was my next question.
Okay. Wow. All right. So let me just get my head around this. how are you predicting the market for six
months time? We have to guess because we're looking at the market trend and it's been going up. Say X percent, five percent, it's been going up. You make a judgement call of it's going to go up five percent on the 10th of September and I write that in the lease.
Mr Landlord agrees that I can write that in the lease and it will go up to 600. On the 10th of December September, however, if I put it up to 600, I cannot increase it now for 12 more months.
Yep. From there. So this is where I was getting to right at the start. And this is a whole new complex thing for owners to navigate by themselves, which again, another reason why they should get you to do it.
Once it's out of sync with the IE, the rental increase is not. in sync with the end of the lease, you gotta be onto that, the 60 days notice, and making sure even the system's in place to make sure that the tenant actually changes the amount they pay.
Yes true.
I'm sure there's been instances, not with managed properties where it's in there and no one realizes that the date's clicked over and you're still just
A direct deposit, yeah, that's right.
But if the, if you If he's broken his lease, you're taking over for six months at his price. We may only offer you a six month lease so that gives the owner the opportunity for the market to be reviewed and then offer you a lease. But if in negotiations, you only want it for 12 months, that's when things start to get a little bit tricky, but we're always working with the 30 days in advance, because we need to give you 60 days.
So we then do a rent review, a new appraisal, all that sort of thing, before it goes to you, then it goes back to the tenant, and it's a bit of a process, yeah.
Now, look, again, a really big reason to have a great property manager on your side, because with this being a new change, I'm sure that, I'm absolutely positive there'll be landlords out there who are missing a trick with this and may miss a whole period where they could have got a rental increase and won't be able to just because they don't understand the intricacies of what we've just been through.
Yes, correct. And it's, and take your time to look at it to get it right. Because like I've said before, the adjudicator won't care that you're wrong. It'll go towards the tenant. I love
what you've just said a few times. If it's not written down. Yeah, if it's not in writing, it doesn't exist. It doesn't exist.
And you can argue to the cows come home, but it is what it is. So look, in your experience, do rental increases impact tenant retention?
Yes, I'd say that they do. Because when you're increasing a rent on an existing lease, usually we're flying just below market value or just on market value. And. It's better that you retain the tenant because you don't have vacancy costs, you don't have the maintenance on the property of the tenant moving out with all their gear, and you don't have advertising costs.
Better to retain the tenant than to find a new one. Except if it's an exorbitant amount and the tenant goes, nah, I'm not paying that. The tenant may want to negotiate at the time, at the lease renewal of the rent But then be prepared for the tenant to go nah they've also got to do moving costs and then reconnect the electricity and redirect all their mail and all that sort of thing.
So there's pros and cons on both sides. Yeah.
But look, again, that's something you guys are experts at and have been doing for forever and having your advice and your being able to help both parties come to an agreement. What is the process you take with rental increases on both sides? So it's getting to that point.
How does your team manage that with both landlord and tenant?
Before the landlord gets contacted, we'll do a rental appraisal, which means we Work on what's recently be rented and what's for rent now. Then we'll contact the landlord to see if he actually wants to renew, or he might want to sell, or he might move in.
The daughter or something like that. So we've then got to find out the landlord's intentions and how long he wants to renew it for. Then we go to the tenant and say, this is what's on offer. What's on offer is always negotiable. So if the offer is at 1, 000 for the next six months 12 months, 1, 000 for the next 12 months, you can take it or you can negotiate.
See if the owner is negotiable. But what happens is we push the envelope. So we'll say 1, 000. And yes, that's top of the market, but the tenant has decided to negotiate at 900, 950 or something like that. That's where the landlord's got to weigh up the cost factor of what it'll cost to get a new tenant or retain the tenant.
And the tenant might be able to get a little bit cheaper on today's market.
Having you in the middle to to advise both parties on where this should meet as a win. That's worth its weight in gold, I'd imagine. Because doing it on your own, neither party knows. You're the go between.
Yes, we're the go between, but we take the emotion out of it. Yeah. So the tenants upset because, Oh my God, the rent's going up a hundred dollars. The landlords, I want my money. So we can cool the process, take the emotion out of it and negotiate it without too much. yelling and screaming.
Sure.
Look, thanks so much for coming in and talking to us about this really hot topic. It's something everyone's been talking about and rental increases have been massive over the last two years. Let me just ask, you've been doing this 30 or 35 years, Colleen, have you ever seen a rental market like we've got currently?
No.
Anything like it?
No. We've had periods of where it will swing towards the landlord and yes, rents will go up. 30, 40, 50 maybe, if you're lucky then there's times where it goes, swings towards the tenant, where it doesn't go up at all. But this has been towards the landlord or towards the landlord for so long and so high.
I have never seen it this high for this long without any reprieve for the tenant.
Sure. And are you expecting that to continue for the near and mid
term? I am. Yes, unless interest rates change then yes, but because our rates are on the valuation of the property and the valuations are so high, our rates are high and that is included in the rent.
Okay, look, again, thanks so much. This really has been insightful and it's pretty clear that understanding the changes and the implications that it has, especially that point we made around The end of the lease and the rental increase or whether it happens in between and getting that timing right and having it listed in the lease is crucial.
So having a great property manager on your side to manage that for you is obviously worth its weight in gold. So be sure to reach out to Colleen and her team at Sutherland's Property Management Group, check out their website, which is at www. spmg.
com.au And of course with this podcast, we'd love to hear from you. So there's a spot there, wherever you're listening to, to put in your comments ask us, anything, any specific questions that you'd like to know any episodes you'd like us to do. We'd love to hear your feedback on that. And look, I look forward to joining Colleen here again for the next episode of the property investors handbook.
Thanks again, Colleen.
Thanks Adam.