Tuesday, November 20

Realistic rents rewarded

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Many landlords keep properties tenanted by accepting that some income is better than nothing in tough times

Although rental demand rises during an economic decline, rental rates come under pressure so this means many landlords will need to take a new look at their rental price expectations, say property experts.

The Seeff Property Group says it is better for landlords to fill their properties at a lower rent than to let them stand empty.

Although their profit margins may be a bit lower, and therefore not ideal, at least they are still learning rental returns.

Important facts to note include:

  • A weak economy puts pressure on household budgets and the amount tenants can afford to pay in rent. There is little to gain when a landlord sticks to a high rent or escalation that is out of step with the economy as this may prove unsustainable.
  • The likely outcome of sticking to a high rent or hiking your rate by an above-inflation escalation is you will end up with tenants who are unable to continue paying the high rent. Once a tenant goes into arrears, it often becomes very difficult to recover.
  • Rental vacancies rise during recessions. Empty rental properties are a financial burden and while one month may not seem like much, it can quickly become two or three months.
  • In addition to setting a rental rate relative to market conditions, you should also consider providing an incentive for good calibre tenants with a discount on the rent.

Finding good tenants who will look after your property is a challenge at any time, and more so during a recession.

Landlords should always look after good tenants.

Just like economies, property markets go through cycles, but at some future point the rental market will hopefully improve to the extent that rates will rise again.

In the meantime, Seeff notes that good strategic thinking can ensure landlords are at least still earning some rental income while their properties are being looked after and continue to improve in value.

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