Hi,
Does rental income increase in line with inflation, capital growth or is it independant?
What should I use in a spreadsheet model?
Thanks,
Rental income increases differently in different circumstances.
Sometimes it is in the rental contract to increase according to inflation.
It rarely increases according to capital growth. (That I know of anyway)
But (in recent times) it has increased due to demand and supply (demand is high and supply is low).Kelly
Thanks. So it would be prudent to model using inflation?
No not inflation, supply and demand. A cheeky friend of mine put up the rent $30. Now he would've been negotiable if the tennant approached him but he also knew that had the tennant moved out he would've got his increase. anyways.
Supply and demand is what drives it but if you were looking at doing a spreadsheet i would raise it by 5% a year in these current economic circumstances. If economic conditions change significantly you may have to adjust figure.
stu_macca wrote:Thanks. So it would be prudent to model using inflation?Yes. Wage inflation specifically. If landlords collectively moved to raise rents in excess of wages over a number of years, they'd soon have empty properties while potential tenants became homeless. Clearly this would not work for either group. Therefore, rents will rise in line with wages over any significant term. ABS statistics confirm this relationship.
Cheers, F. [cowboy2]
You may be able to increase the rent by having a few improvements eg air conditioning, heating security etc, I know I would pay a little more for such luxuries if I was a tenant. I know this has nothing to do with natural increase
Statistics show that Australian rentals have increased at an average of 4% pa.
Of coarse, you have years where rentals increase and then stabalise.If you are planning over the long term, 4% is a fair estimate to go by.
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