Manawatu Property Investors' Association

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Good time to check your rents

Demand for rental property from tenants tends to increase during the months of January and February each year. Because of this, these months are an excellent time to check your rental income to see if your rates should be increased.

There are many good reasons to keep your rental prices at an optimal level. lower capital gains in some areas mean increasing yields becomes more important to maintain your investment return. Optimal rental returns also reduce risk and improve your debt servicing ration, allowing you to buy more rentals.

Tenants are unlikely to care about any of these factors however. They are more interested in how far their pay packet will stretch to buy the things they want. So from their point of view, income levels, market rental price levels are most important.

With good access to rental statistics and online properties to let, it is relatively easy to check if your rental prices are where they should be. The NZPIF now has a tool on their website that shows not only the current rental price for your property, but also the previous 8 years of rental price history.

You need to be careful when using statistics to gauge your own rental price. Rental statistics provide the lower, median and upper rental prices for a given area and number of bedrooms. It is essential that you are comparing like-with-like when estimating which level you should be using.

In general, an average property in any given area is usually a superior rental property. Apart from the number of bedrooms, you need to consider the size and condition of the property, the features, outside living and location among other things. This is where looking at properties to-let online gives you a good feel for how they compare to your property.

According to Statistics NZ, incomes have increased over the year to September 2014 by an average 2.3% or $25.60 per week. Rents have increased at a slightly higher rate of 2.9%, but this is only $10 per week. General inflation has only increased by 1%, so most tenants should be in a position to afford a rent increase if market levels indicate that one is due.

This doesn't mean they will be happy to accept one of course, so some justification is probably going to be required. Apart from rental prices increasing in general, rental property owners can also claim that the cost of providing their rental property is increasing.

Over the last year, four of the main expenses in providing rental property to tenants have increased, most by a higher amount than general inflation. Maintenance costs are up by 3.7%, Rates by 3.9% and insurance by 3.2% after a few years of rapidly increasing prices. While floating mortgage interest rates are still relatively low, they have increased by 0.8% over the last year.

So careful research into what you should be charging in rent is essential. If your research indicates that your rental prices should increase, then cost increases provide a justifiable reason for your tenants.

Tags: federation reports