Should landlords automatically increase rent price when bank rates go up?
Many property investors automatically consider an increase their rent prices when bank rates go up, but mortgage broker Ross Le Quesne and Smart Property Investment’s Phil Tarrant believe there has to be a more in-depth review process to ensure that one’s investment journey remain successful.
Phil, who is admittedly an avid investor, always try to work with numbers that make him feel most comfortable and secure, financially speaking.
He explained: “Rates are going to go up, rates are going to go down. As an investor, you need to be comfortable that should rates go up one per cent, two per cent, that you're still going to be able to put food on the table.”
According to Ross, since starting his mortgage broker business in 2004, he often bases rental rates on the current level of supply and demand in a particular property market. Back then, rental yields in Australia went to the same level as they are today.
A few years later, the market flattened out and there are fewer people buying investment—changing the demand for rental properties across the country.
“It's a supply and demand thing. As the demand for rental property increases, then rents are able to go up,” he said.
“[Recently], rates have been low, there's been a buying frenzy… we’re seeing more construction than we’ve ever had. There's more rental properties on the market. So it makes sense that rents are increasing at this point in time.
“As there becomes less properties on the market, your rents will tend to increase. It's basic economics.”
At the end of the day, both Phil and Ross encourage property investors to educate themselves on the state of the markets — from growth cycles to the most basic regulations in place — which are all unique and often ever-changing.
Having a good discussion with a reliable financial team can help investors identify their current position in their property investment journey and consequently build strategies that will lead them towards the ultimate achievement of the goals.
Ross said: “[Have] a chat [wity] your property manager and [take time] seeing what's on the market. If, for example, a 200-unit complex has just come on the market and purchased predominantly by investors, there's 200 units that you’re competing against that your property is. It's really a market-by-market specific thing.”
For those managing their own properties, do a simple market check by utilizing resources available online.
"Every time you get your rates notice, use that as a cue to jump on realestate.com.au and just have a look at what the market rent is. Compare similar properties to yours and see what level they're being rented at. And that will give you a good guide if you're managing your own property to see where the market's sitting at that point in time," the mortgage broker concluded.
Tune in to Ross Le Quesne’s episode in The Smart Property Investment Show to know more about property rate hikes, hotspots, and other factors that can ultimately affect an investor’s business of creating wealth through property.
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