Falling values and falling rents.....

Had a call from our PM yesterday

Our current tenant viewed another property on the agency's list (credit to the PM for picking up on this )

The tenant loves our IP, but is also saving to get into the market and paying a premium rent they are finding it hard

So they are looking at cheaper options (good for them, at least they are being pro active about it).
Not so good for us

With the building boom in Sydney there are many more vacancies available, often newer large developments, causing an oversupply so all rents suffer (with the shiny new places often being better value)

So with the lease soon to expire we have limited options
1, lose the tenant and go through the expense of advertising/vacancy
2, keep the tenant and take a 10% cut the the rental income (with a new 12 month lease)
3, sell, likely at a loss

Very much doubt we are alone

How is everyone else finding things ?

 

Are you charging fair value rent at present?
Or are rents dropping in your area?
How difficult does your PM think it will be to get another quality tenant at the current rental?
And how long will the property be vacant (best guess)?

If there are a lot of vacancies in your area, at cheaper rents (or similar rents for better properties), you maybe should consider retaining your tenant at a lower rent.

Selling is an entirely different decision, taking into account your circumstances.
Marg

 

When did you buy it?

 

Ask your PM for a rental appraisal report. If there is plenty of supply (count and days on market) and reduced prices then try and retain your current tenant with a discount.

 

A new tenant with 2 to 4 weeks of vacancy + new set of fees for the agent will cost a lot more than 10% loss in rent. Not to mention, the new tenant may be a saint or a tenant from hell.

 

Take the 10% decrease.

 

I tend to agree.
10% is alot but it may be it's in a large apartment building with similar properties...

Supply and demand

As above potential vacancy 1 week fee to agent and lease prep cost may be cheaper to give reduction.

 

I'd take a rent hit and keep the tenant. Maybe offer to do a reno while they're in there (and maintain the rent). Serves to keep tenant and to prep for when they leave...whilst getting paid rent.

Why is selling at a loss an option - when did you buy?

 

Option 4. Reduce your price but not as low as the other property. Something to make it worthwhile for your current tenant to not go through the hassle of packing up, removalists fees, changing addresses etc

 

A good idea is to also keep an eye on the general direction of the vacancy rates.
If vacancy rates are going up ,especially during and after a building boom there is a good chance the market will over correct for a couple of years.
Not really good news for investors as they are trying to compete with brand new builds and rents can go in a downward spiral as more and more brand new properties hit the market.
A example is what happened in Perth when rents went south,many investors held out on price , lost their tenants and after weeks with no interest then decided to drop their rents.
By this time the market had moved even further south and they were continuously trying to chase the market down .
Many investors had to turn into salesmen , some were better than others but for many with older properties they sat empty for months, until the for sale signs came out.

 

John speaks truth. After 2+ weeks of vacancies and realising applicants have plenty of choice and scoff at even the new lower rate , you’d kick yourself by not retaining a good tenant at 10% rent cut. Been through many lease renewals over the past decade across half a dozen props. Good tenants who communicate well with the agent and discuss these matters like adults are worth their weight in gold.

 

May I know which area/ suburb is this?

 

Yes @JohnPropChat , first thing I did was have the agency do a rent report (and sales estimate).
Looking at the recent rents in the same complex (and in older units) we are at tbe upper end of the scale, but also have a top floor unit with great views, upgrades and little traffic/hwy noise.
Not a great deal of vacancies in Heathcote, only settled 13 months ago, when factoring in stamps, upgrades, loan payments and other holding costs to date.........
We don't want to sell, we want to down size in a few years (if I hadn't put it in as an option it would have been the first suggestion).
@Westminster yes, we are doing the back and forward game at the moment
(Last thing we need with another court session this Friday......)

 

Unless you are in a country (eg limited tenants) market....I wouldn't cut 10%

I'd say thanks for your time and please be aware that we will be showing the property the next 3 Saturdays between 10-10.30am and your final move out date will be X.

Yes property prices are down but rents in Sydney aren't (unless they were over priced to begin with) eg on our 4 properties (2/3br,1/2bth,1/2pk older style apts in Sydney) we had a rental increase of 1.98% in calendar year 2018.

 

Depends on the area. Rents are down in a lot of Sydney.

 

Sell now and buy back later at big discount. IO cliff 2019-2020 has started and u probably still have chance offload at small loss

Unless u want to be a hodler fornnext 10 to 20years

 

I never really expected rents to stay the same or climb, even when in a growth phase, it is what it is basically.

I was gonna say, it must be a unit.....n e way......

If your wanting to hold long term, I would match the new apartment rentals with the guarantee my building has not looked live falling down nor have I had to place tenants in the local caravan park with a tent since I owned the very solid looking unit they call home

Keep them but not at the cost of them walking all over you, or sell now if you paid too much tax potentially....Syd is only going to get worse IMO, so has to be long term hold if sitting.

 

The Sydney rental market has softened no doubt. That said 10% is big reduction in rent. Unless your rent was overs previously, that sounds like a lot.

I was in your tenant's situation a few years ago. The landlord agreed to about half of the reduction (I made a good case using comparables) and I accepted. It's nice to feel valued and that your point is reasonable. And moving is a big pain in the behind, so they don't want to move.

I'd think about proposing 5% cut (give them a pat on the back) and see if they go for it. If they play hardball, re-evaluate.

 

Negotiated
We have a great PM, he has done a good job as mediator
5.2% reduction in rent and a new 12 month lease signed

 

We bought one of the best units in the complex with a veiw to downsizing in a few years.
The tenants have been great, and we can appreciate their position, so negotiation was our best option.

Just one of the pitfalls of having a premium product, everyone see's a 2+2+2 and compare to other 2+2+2 in the complex (but they all love the top floor northerly position with great views, privacy and being at the opposite end away from the hwy noise, thats why it comands a higher rent )