Starting a new year is the perfect time to consider how your property investments are performing.
One of the most vital components of property investing is cashflow. It can make or break your investment success, and when deciding upon how much rent to charge, you have to be right on the money (pardon the pun!).
Price it too high, and you’ll reduce the tenant base and risk expensive, long-term vacancies; too low, and you might attract undesirable tenants.
Things to consider when setting the rent include the current performance of the local market, including median rents as well as supply, demand and demographic trends. The type of property (freestanding house, unit, apartment, etc), number of bedrooms and bathrooms, and car parking availability should all be factored in, not to mention the age and general condition of the home.
Use all this information, and consult with your property manager, to decide on a reasonable rental amount.
Should your asking rent be comparable to other properties?
It doesn’t necessarily follow that the rent you charge for your property should be comparable to others in the area. There are several factors that can make your property more or less valuable to tenants than neighbouring homes.
For example, if there’s a shortage of a specific type of property (ie apartment, or four-bedroom family home with a yard) in the suburb, you may be able to charge premium rent. Likewise, if your home is closer to amenities such as schools, supermarkets and the post office, you might get away with a higher price tag – but be sure the agent advertises as such, so justifying the amount.
If your property type is less in demand, then you may have to lower your expectations. Landlords in Melbourne’s oversupplied apartment market, for instance, have been forced to accept lower rents than their neighbours, in order to secure a tenant.
How do you know when to increase the rent – and by how much?
The Tenancy Act in your state will set out how often you can increase the rent, and will also detail the procedure should a tenant wish to dispute a rent increase. As a general rule, you should increase rent in accordance with the Consumer Price Index, and you’ll need to give adequate notice as stipulated by the relevant legislation.
Ensure you factor in the current vacancy rates in your suburb, as tenants are unlikely to be happy paying a higher rent if there are many other vacant places for them to choose from. Your property manager is the best person to give you advice, as they will have a firm handle on the local market and (hopefully!) a good relationship with the tenants.
What if a tenant asks for property improvements?
Does this mean you are justified in increasing the rent, if you provide the items requested?
Sometimes a little outlay today can pay off handsomely in future rental returns, not to mention loyalty. Adding items such as air conditioning or screens on doors and windows can not only make your property more attractive to your current tenants, but also to future tenants – thereby helping you command a higher rental rate.
Negotiation is the key here, as is taking the advice of your property manager. With some big-ticket improvements, such as installing air-conditioning, tenants will be expecting you to increase the rent but it could still take some time to recoup your outlay. Keep in mind that, in this day and age, air-conditioning is becoming a must-have feature in most locations, and it definitely helps in attracting potential tenants.
When faced with investment decisions on rent strategy or additional features for a given property, it always makes sense to discuss these with your property manager and your property advisor.
Philippe Brach
is CEO of Multifocus Properties and Finance.
Philippe has over 10 years experience in property investment,
he has helped many first time and experienced investors achieve their goals.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property
