What is Considered a Reasonable Rent Increase?

Every year, it becomes more expensive to live and the price of pretty 
much anything goes up. And, unfortunately, thisdoes not exclude rent.
Landlords often push up their rent to accommodate for increased rates 
and taxes or increased water and electricity bills.
Tenants will always have a choice to renew their contract at the end 
of the rental period at an increased rental amount.
And, this is often an issue that causes tension between the landlord 
and the tenant because the tenant might already feel 
that s/he is under enough financial strain as it is. Having said that, 
the landlord might also be experiencing the same 
feeling.

Here is a breakdown of the main elements in this discussion:

Factors:

The real challenge lies in a reasonable increase that is fair towards 
both parties. Real estate industry leaders report that rental amounts 
usually go up between 6% and 8%, which tends to be in-line with the 
rate of inflation. Landlords thus need to keep the Consumer Price 
Index in mind, which is used to calculate inflation on products 
purchased by consumers. They can then calculate a reasonable rental 
increase based on that number.

Inflation is key:

The inflation rate hiked up to 4.7% in December 2017, which means that 
inflation could affect a landlord’s profitability and a tenant’s 
affordability if the rent is not reasonable enough.

Landlords who increase the amount by more than the inflation rate are 
at risk of losing their timely-paying tenants, as they might find other 
accommodation.

In the economic climate such as the one we are currently in, tenants 
who pay regularly and who adhere to the due date stipulated in the 
contract are becoming increasingly hard to find.

Statistics have shown that tenants who paid in full and stood on time 
were 67% last year. This has dropped considerably since 2014.

Safeguard investment:

Tenants are finding it more and more difficult to pay on time and in full, 
which makes a correctly-paying tenant all the more financially challenging.
A number of market factors need to be taken into account. A new development 
or complex, for instance, might reflect positively on rental calculations, 
whilst dilapidating buildings and overall bad neighborhoods might impact it 
negatively.

Importance of debt record:

A rise in inflation has resulted in a rise of debt in households which 
contribute to deteriorating credit records.
Many rental agencies have reported that more than half of rental 
applications that they perform checks on have impaired credit records. 
This is due to the rising cost of month-to-month living.

Bearing this in mind, landlords need to consider the tenant’s behavior 
over the rental agreement period. So, it may actually be worth the 
landlord’s while to slowly increase the annual rent adjustment based 
on the good paying behavior of the tenants as a type of reward.

Mutual respect:

In order to maintain and build a good relationship between these two 
parties, there has to be a sense of mutual respect from both sides.

Real estate agents are often mediators in situations of rental increases 
and can provide sound advice on emerging trends within the rental real 
estate market. They are also more familiar with area-based factors that 
might affect the rental increase and rental returns.

In the current economic climate, it is now more important than ever to 
work with and walk alongside a reputable real estate agency who will be 
able to negotiate the best terms for both the landlord and the tenant.

SOURCE: Immoafrica