For financial planners, a large part of our job is maximising each investment. If an investor has a rental property in the Perth market, this can often be a tricky proposition. We try not to give specific advice in a blog because everyone’s individual financial situation is unique. However, we can give some general guidelines and let readers know what goes into determining appropriate rent prices.
Every landlord faces a conundrum of sorts. Ideally, rent would be high, the property would always have ideal tenants and there would never be any vacancy time. Unfortunately, that combination is usually reserved for the realm of fantasy and is difficult to obtain.
There is a constant battle to balance rent levels with occupancy. If the rents are too high, the property is vacant for too long. If the rent is too low, it may not be maximising the property’s potential. Tenants are more likely to sign long term leases if they feel they are getting a “bargain” or at least a fair deal.
Finding qualified tenants is also an issue. Keeping them can be difficult if the tenant can do better elsewhere.
Doing Market Research
Most successful landlords do their “due diligence.” One of the easiest ways to do this is to research “similars”: properties in the same area that are similar to what they are trying to rent. Factors to consider are size, number of bedrooms and other features such as a patio or a garden.
This can also be done before buying a property by asking the real estate agent if the property has been assessed for rental potential by a property management firm.
It is often wise to hire a property manager. Property managers charge a premium for their work, but they can be worth more than the money spent on them. Property managers are professionals and usually have a handle on rental prices in any given area. They are also experts at finding tenants and keeping them satisfied.
Property managers do a lot of the work that takes up serious blocks of investors’ time. They usually save you more money than they cost.
How Attractive is the Property to Renters?
There are a lot of factors that go into a renter’s decision to rent a particular home. The home and yard are obviously big factors, but there are a lot more questions that renters ask themselves, landlords or property managers when deciding whether any home is appropriate.
Is the home in good condition? Does the property look nice? Is the neighbourhood safe? Are there plenty of amenities such as schools, medical care and shopping nearby?
Before even buying a property, try to figure out how much you can afford to pay out of your own pocket on a monthly basis. While some properties will produce positive cash flow, many are in “negative gearing” and don’t produce enough rental income to meet expenses. This will be factored into rent decisions.
What are the Laws?
Before raising rents, you need to know whether or not there is any legal restriction against it. Normally, it is legal to raise rents periodically to cover increases in the cost of maintaining a property. The most palatable way to raise rents is probably to simply raise them every year based on the consumer price index. Tenants usually understand this and come to expect it.
Keeping Tenants Happy
If you were a tenant, what would you expect out of your landlord? Remember that you should always execute the fundamentals perfectly. This means making sure the tenant has access to maintenance and emergency service and answering calls promptly. A well-maintained property is generally more attractive to good tenants.
Whether it is through you or through a professional property manager, all communications and interactions between landlord and tenant should be professional. Remember: being a landlord means you are now in the property business.
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