About 35% of buyers in Australia’s marketplace today are investors. Some will be seasoned investors buying a second, third or fourth asset while others will be first-timers with inevitable questions, such as how do you set the rent?
Today, rents are continually rising as demand gets stronger and stronger in many Australian locations. In such a tight market, landlords might be tempted to advertise a much higher rental price. However, in any market conditions, my No 1 rule is don’t overprice your property.
Usually, the only tenants who will pay an over-market rent are people who have been knocked back from other properties. Or they make an application as a couple and end up having two or three extra people moving in with them. (This is not necessarily legal, by the way, but it happens. )
If you overprice your property, you’ll also find you will have a higher turnover of tenants. People will sign the lease and over time, they’ll find out from friends, neighbours or colleagues that they’re paying too much, and they’ll leave as soon as the lease is up.
McGrath’s Head of Network Property Management, Michael Conolly, says landlords often confuse price and value.
“You might want a certain price for your property based on what you think it’s worth, but the real rental value is based on what the market is willing to pay. We call this ‘market value’ and it’s based on many variables that can change monthly,” Michael says.
The best way to find out what your property will rent for in today’s market is to talk to an experienced property manager. They are listing and leasing properties daily and have access to data that is not available to people outside the industry.
A common fear among landlords is having their property lie vacant for an extended period. But with vacancy rates in most capitals and even regional areas hovering between 1- 1.5% for several years now, time spent on the market is usually not long as there are plenty of renters looking for a new home at any given time.
Michael offers the following strategy for setting the rent: “After seeking advice from a trusted, knowledgeable local expert, always advertise at the maximum rental value at the start of your campaign. You can adjust the asking rent after the first or second round of feedback if you really need to.
“If you’re thinking of advertising at a slightly lower rent to try and attract a longer term tenant, my view is don’t sell your property short. Offering a lower rent will not guarantee you a longer term tenancy anyway.”
In terms of rental increases, we hear a lot about median rental values rising in the media but it’s important to remember that a median value is just one measure of how the market is doing. A 2% increase in the Sydney median rent does not mean every suburb has experienced that. Some suburbs would have had a higher increase, others not so much.
At the end of the day, you’re paying your property manager to look after your asset and this includes regular rental value reviews. They will do a regular analysis of the market and comparable rentals to determine whether an increase is warranted.
“Due to tight vacancies, these days most renters will expect rental increases and in most cases they’ll continue living in your property,” Michael says.
As a general rule, I recommend small, regular increases in rent. Some landlords don’t put the rent up for two years and then try and put it up by $50 a week. Tenants don’t like that. Depending on what the market is doing, I suggest perhaps a $5-$10 increase in rent every six to 12 months. Just keep the rent ticking over, but not outpacing the market.
Finally, if you’re looking for a tenant this Winter, be mindful that a six month lease will expire during the Christmas holiday period. Make the lease longer with the expiry in early February at the earliest. It’s much harder to find a tenant between December 1 and February 1, so consider this an exclusion zone!
By John McGrath
